DBA vs LLC

[LoungeLizard]

It may have been mentioned here already (couldn't find it) but what are the main differences, benefits, etc., of these two? My understanding is that with a DBA, you are still liable while with a LLC, some of that liability goes away.

Can someone who's gone through it or researched this put something up on it?

[Steelsun]

That's pretty much the gist of it.

A DBA is You! Plain and simple. It's basically just a way of saying XYZ Company is the name Joe Schmo works as and XYZ = Scmo.

An LLC offers some levels of protection and in effect (and if organized and run correctly) insulates the owners/partners from the actions of the company. It also both adds and relieves tax burdens on you.

And you also have to consider LLP (there can be only 1 "partner").

Here's something a lawyer sent me when we were forming an LLC/LLP (which was finally filed Thursday!) for an new concern we have:

With respect to the type of entity, limited partnerships are not currently taxable by the State of Texas. At the present time, only corporations and limited liability companies are subject the state franchise tax. However, there is a bill in our State Legislature to change that, and I think quite likely that the rules will change to make limited partnerships subject to the same tax as corporations or limited liability companies.

If the rules don't change, I would suggest you guys form a limited
partnership in order to avoid the franchise tax. Although the formation
costs are about double (because you are really forming two entities with an
entity as the general partner), the avoidance of franchise tax will make up
for the additional up-front costs. If you want to assume that the rules
won't change, I suggest the limited partnership. If you want to assume the
rules will change, then we need to explore either a corporation or limited
liability company.

I would suggest you consider a limited liability company if you didn't want
to form a limited partnership. It is less formal than a corporation and
easier to operate. However, that type of entity is considered a
"flow-through" type entity, meaning that all income is taxed to the owners
every year regardless if they actually receive the money or not. For
example, if NEW COMPANY makes $100,000, then each of thye 3 owners are taxed on their respective tax return for 1/3 of the $100,000, regardless if they actually receive 1/3 of the $100,000. That sometimes sneaks up on owners, so I want to be certain that each of you understand the "flow-through" concept and results.

An upside to the limited liability company though is the ability to make
special allocations of income, loss, etc... Your notes say that the parties
want to allocate the income from certain jobs to certain parties. A limited
liability company allows you to do that, while other entities don't.

The tax attributes and "flow-through" treatment is the same for a limted
partnership.

The comparison to a C corporation can really focus on the same areas. A C
corporation is not a "flow-through" entity, but the corporation would be
taxed on the $100,000 from the example I used above. The only taxable items to the owners would be any compensation they received and any dividends they received. However, the C corporation is going to pay a tax on its income and then the owners are taxed again when they take those proceeds out as dividends; what is commonly referred to as a "double taxation."

[Will Raybourn]

I was a member in an LLC for the last 2 years, but have since left that and formed my own company, but this time I went with a DBA. Here's my take on the difference and why I did not immediately go back to a LLC format...
It is true that the LLC offers you protection the way a corporation does, in that persons attempting to sue the company are only able to go after the company, not the individual. With a DBA, you don't have that protection, and thus are personally liable in a lawsuit.
So, what are the ups and downs, well, the previous reply hit on them well. With an LLC, you are liable for franchise tax, but only if you make X amount of dollars per years...(i believe the last one I filed stated under 150K, no tax due). You also have to file this annually, along with a Public Information Report, and also a 1065 during tax season. Long story short, lots of paperwork being filed annually.
As for the DBA, I chose that route this time because I didn't feel I needed to go to an LLC at this point. I am starting all over again and have nothing established that would justify that route. As for liability and protection, well, I put clauses in the contracts that my clients sign specifying these types of legal issues and capping what they "could" sue for. Is it fullproof? For the most part, but then again, I'll be seeing my father-in-law/lawyer next month, so I'll be sure to have him look over my contracts to make sure there aren't any loopholes, per se.
I guess it really boils down to personal preference. I never really gained anything by being an LLC for the last two years...but that's just my take on it. Perhaps one day I'll go that route again...it'll just depend on how the business works out.