If you’re doing business in Texas, it’s a good idea to have a separate entity for your business. One question we are regularly asked is if a DBA or an LLC is better in Texas. In short, these are both important tools and not necessarily mutually exclusive. To find out why that is, keep reading.
What Is an LLC?
A limited liability company (LLC) is a type of legal entity. You can form an LLC by filing a Certificate of Formation with the Texas Secretary of State’s office. LLCs can be a great option for business owners due to their limited liability and tax flexibility.
An LLC is normally considered a separate entity from its owners. In most cases, an LLC and not its owner is liable for the debts and liabilities of the business. Business owners often use an LLC as a way to protect their personal assets. This protection does not normally apply to illegal activities or fraud.
LLCs are often prized for their tax benefits. Business income can be subject to double taxation with more complex entities, such as corporations—once at the corporate level and once on the shareholders’ personal income tax returns. An LLC’s income, on the other hand, typically passes through directly to the owner. This helps keep the LLC’s taxes relatively simple, and it usually prevents double taxation issues.
An LLC allows you to create a network of companies for your business. This is helpful in limiting exposure from one part of your business to another. For example, you can keep products and services under different but related companies.
What Is a DBA?
DBA stands for “doing business as.” A DBA is also known as an “assumed name.” Unlike an LLC, a DBA is not a separate entity. A DBA is actually an alternative name for your business. A plumber named Joe might have a DBA for his business called “The Big Flush.” The Big Flush isn’t separate from Joe for tax or liability purposes. It’s just a name Joe uses for his plumbing business. You can reserve a DBA by filing an application with the Texas Secretary of State or in the counties where you do business.
LLC vs. DBA In Texas: Who Wins?
You may be wondering if it’s worth forming an LLC or if you would be better off just filing a DBA. This decision will likely depend on the specific needs of your business. That said, there are some pros and cons which may be helpful to consider.
- Easy to apply for,
- Few restrictions, and
- Limited liability,
- Flexible tax planning,
- Ability to form subsidiaries, and
- More professional.
DBAs and LLCs have several key advantages, but each has its own weaknesses too.
- No liability protection,
- Not a separate entity, and
- Cannot form subsidiaries.
- More expensive than a DBA,
- Requires more upkeep, and
- More restrictions.
A DBA is a good option if you’re looking to operate under a different name, but it does not offer the same protection as an LLC.
The Best of Both Worlds?
You don’t have to choose between an LLC and a DBA, because you can choose both! An LLC is allowed to apply for its own DBA. An LLC can use a DBA if it wants to differentiate some of the products and services it offers. For example, if Joe’s Plumbing Co., LLC also sells equipment, it might use “Joe’s Plumbing Supply” as an assumed name to distinguish its product sales from its plumbing services.
A Note on Privacy
Both LLCs and DBAs can be used to help protect your privacy. Like with a DBA, you can choose a name for your LLC that is not related to your actual name. Having a “manager-managed” LLC may offer even more privacy, as the managers and not the owners will typically be publicly listed. That said, neither an LLC nor a DBA is guaranteed to keep your business dealings completely anonymous.
Talk to a Business Law Attorney
Not sure if you need an LLC, a DBA, or both? Let us help. Adam Curley has years of business law experience. We can use our experience and knowledge to help you pick the right entity for your business. Maybe you already have an LLC and would like to add a DBA—we can do that too. Contact the Curley Law Firm today to set up your consultation.