DBA vs. Incorporation
Which Is Best For My Small Business?
While the specifics of the DBA and incorporation processes vary significantly from
state to state, there are a few areas that we can look at generally to get a feel
for the character of each of these business structures.
DBA vs. Incorporation—Startup Costs
In some areas, a DBA costs $120; in others, a filing for the same business structure
costs $5. But regardless of the wide range in cost for a DBA from state to state,
incorporating a business is consistently relatively costlier than filing a DBA.
(An exception to this would be the process of forming a nonprofit corporation; nonprofits
frequently enjoy reduced incorporation fees and may, in some cases, be less costly
to form than a DBA.)
DBA vs. Incorporation—Business Name Protection
Incorporated businesses have a high degree of protection when it comes to the exclusive
use of their business name; in nearly all cases, the name of any incorporated business
(LLC, S corporation, C corporation) is protected from any duplication by another
incorporated business of either type. For example, Media Consulting, LLC would not
be able to file their business if there were already a Media Consulting Corp. on
Some states take this protection beyond the exact business name in question, disallowing
anyone from using a name that they consider “confusingly similar.” Texas goes even
further, using a “two-word” rule to prohibit incorporated businesses from filing
a business name in which the first two words (with some exceptions) match the first
two words of an already-existing business.
The level of protection of DBA names, however, varies even more widely from state
to state; while some states do protect the exact use of the name, and others protect
against “confusingly similar” names, other states do not provide any guarantees
on name exclusivity at all. (However, it’s important to note that regardless of
the policy of any specific jurisdiction, it is each business’s responsibility to
ensure that it is legally able to use that chosen
business name. Neither state nor county offices will act as your legal advisor,
firstly for liability issues and secondly because some areas of law, such as trademarks,
DBA vs. Incorporation—Corporate Ending
Broadly, only incorporated business can use corporate endings (and in the vast majority
of states, they are required to), and then only the endings that correspond to the
appropriate entity type. For example, an LLC could end in “LLC,” “L.L.C.,” or “Limited
Liability Company”—but not “Corp.” or “Inc.”
On the other hand, DBAs are as a general rule not allowed to use a corporate ending
of any kind, as this would be misrepresenting the structure of the business. (However,
in some states, when a corporation or LLC is itself filing a DBA, a corporate ending
is permitted, providing that it matches the ending of its parent company.)
DBA vs. Incorporation—Jurisdiction
In every state, incorporation takes place at the state level; only in a few states,
and only then in rare cases—a certain type of structure for a tribal community,
for example, or a specific religious nonprofit—would a corporation be formed at
the county level.
DBAs, on the other hand, are frequently filed at the county level or the state level
(or both); some, depending on the state, are even filed with the city or town.
DBA vs. Incorporation—Taxes
One of the main tax differences is that sole proprietorship DBAs pay a self-employment
tax of 15.3 percent, while corporations are not subject to this tax. As far as incorporating,
there is a wide variety of tax structures and factors among the main incorporated
LLCs, S corps, and C corps.
DBA vs. Incorporation—Personal Liability
An incorporated business is a unique entity unto itself; is it not a legal extension
of the individual owners, but rather a legal “person”, separate from its owners.
Debts or obligations of the business, provided that all
corporate formalities have been observed, are not cause for the courts to
seize individual owners’ assets.
On the other hand, a DBA is not a separate legal entity; it is simply the owner
operating under a different name, whether that owner is a corporation, LLC, or individual.
If the DBA defaults on a loan, the owner’s assets can be subject.