Start your business with the right structure.

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Choose a structure that gives you the right balance of legal protection and benefits.

There are several types of structures to choose when starting a business. Your structure affects the documents you need to file, your personal liability and how much you pay in taxes.

One of the most common questions aspiring business owners ask is “do I need a DBA or should I incorporate my business?” The answer depends on how you plan to conduct business.

Here are the most common structures used for starting a business.

Sole Proprietorship

A sole proprietorship is a business that is owned and run by one person in which there is no legal distinction between the owner and the business entity. This means your business assets and liabilities are not separate from your personal assets and liabilities. You can be held personally liable for the debts and obligations of the business.

A sole proprietorship is easy to form and gives you complete control of your business. This structure is a good choice for low-risk businesses and owners who want to test their business idea before registering a more formal business structure.

Limited Liability Corporation

An LLC is a Limited Liability Company. An LLC provides legal distinction from an individual and their business entity. This means the owner(s) of the company are not personally liable for the company’s debts or lawsuits. Owners of an LLC are called members and may be individuals, corporations, other LLCs and foreign entities (special rules apply). It may be a single member or several; there is no limit. An LLC offers small businesses the right combination of personal protection and professionalism. LLCs are regarded as more formal business structures, offering instant credibility.

Additionally, forming an LLC allows businesses to build credit history, which will provide access to business loans and lines of credit. An LLC is typically formed with the secretary of state where your business is located. If you will conduct business in multiple states, you will have to register in each state as a foreign LLC. Costs vary for registration and annual taxes.

Corporation

A corporation is a legal entity that is separate from its owners. Like an individual, a corporation can enter contracts, establish credit, borrow and loan money, sue and be sued, and pay taxes. A corporation is formed by filing articles of incorporation in the state where your business is conducted. A corporation is operated by a board of directors, though this may only be one person. Although a corporation holds several advantages and offers a professional and large company image, taxation is more complicated and most times, more expensive.

What is a DBA?

The Basics

DBA is an acronym for “Doing Business As.” It is also referred to as an assumed name, trade name or fictitious name. A DBA allows an individual, LLC or corporation to operate a business under a name other than the original legal business name. For an individual, this provides a more professional appearance to potential customers. For a company, DBAs can be used to introduce a new product line or service without creating a new legal entity. It is important to note that DBAs are not legal entities, and therefore do not file separate taxes.

Examples of a DBA

Sole Proprietor: Jane Doe could operate and accept payment using the DBA “Jane’s Custom Cakes.” Without a DBA, Jane could only accept checks made out to Jane Doe, could not open a business bank account.

LLC: If Master Auto Shop, LLC wanted to expand into car restoration, the owner could file for the trade name “Master Custom Cars.” This would allow them to promote their business as a custom car restoration company and accept payments under the name “Master Custom Cars.”

Although registering a DBA varies from state to state, most documents are filed with the county clerk. If you have an established LLC or Corporation and want to file a DBA, your filings will go through your state (Texas is a great example of this structure). DBA costs range between $10 and $100.

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