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 file.

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, are federal.)

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 entities: 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.