Starting a business instead of becoming an employee of an already-established corporation is slowly becoming the norm for young entrepreneurs. Many aspiring business owners are looking to create their own company from scratch and use that as their main source of revenue.
Besides starting their own company, some business owners who have been in their industry want to expand their enterprise by setting up new businesses. The problem in both cases is that many professionals who want to do so don’t necessarily know how to go about it.
That’s why in this article, you will learn what different types of businesses you can develop and how you can grow multiple businesses to earn the most profit.
What Are DBAs and LLCs?
Whether you’re starting a new business or expanding your existing one, there are two concepts you need to familiarize yourself with: DBAs and LLCs.
DBA or Doing Business As
A DBA refers to “Doing Business As,” which some states call by alternative names such as “assumed name” or “fictitious name.” All this means is that you’re using a name for your business aside from your legal name. For instance, if you have Business X but want to expand to new branches and call them Business Y, you could file for a DBA. But what if you don’t have a registered business name yet?
In that case, you could still file a DBA. The laws differ per state, but the idea remains the same. That is, you will need to fill out a DBA form and submit it to the secretary of state. Unless your state enforces a different set of guidelines, this is what you can expect from forming DBAs.
While a DBA does give you the power to operate as a business under a fictitious name, it does not do the following:
- Guarantee the exclusive right to the name you’ve chosen
- Create a legal entity separate from your existing business
- Offer protection from personal liability
On the other hand, an LLC — which refers to a Limited Liability Company — is a state-registered legal entity. This means that an LLC acts as your official business entity and is recognized by the state.
Take note, the name of your LLC does not need to include your name or the name of its other owners. Like a DBA, the name you register can be fictitious. However, the main difference is that this one is registered as a legal entity while the DBA is not.
In terms of its nature of work, an LLC is a corporate structure that can ultimately protect its owners from personal liability. As such, it acts as its own separate entity.
Similar to DBAs, the regulations surrounding the set-up of LLCs can vary from state to state. But here are some key takeaways that are universally known about this type of business endeavor:
- Setting up an LLC can allow profits to be directly passed on to owners and taxed as personal income
- Before setting up an LLC, the owners must choose a name
- It’s important for owners to document and file articles of organization with their respective states — these will establish their powers, rights, duties, and liabilities as well as other obligations each member of the company has
- After filing the articles, owners must pay a fee to the state at a federal level before receiving their employer identification number (EIN)
What Are the Differences Between DBAs and LLCs?
Now that you have the basic background of what each business type entails, here are some major differences you need to keep in mind to make the right business moves.
Paperwork and Compliance
The requirements of each depend on the state. Both require filing with the Secretary of State in your home state.
Business Owner Liability
Another major difference between the two types of businesses is their business owner liability. On the one hand, a DBA does not have personal liability protection because it’s not considered a separate entity from its owners. On the other hand, an LLC is a separate legal entity that offers limited liability to its owners.
That being said, when a DBA is being sued or is in debt, the owner must face the consequences personally. On the flip side, if an LLC is facing the same challenges, the owners can be protected from any legal issues as it works as a completely separate entity.
In terms of taxes, DBAs — whether in the form of sole proprietorships or partnerships — only have a single option for income taxation. That is, the owners are taxed as pass-through entities. In other words, all revenues and losses for a DBA must flow through the owner’s personal income tax returns. In addition, all profits are subject to self-employment tax and income tax (as well as Social Security and Medicare taxes).
If an LLC has a DBA, all taxes associated with the DBA must flow through the corporation’s tax returns.
Strategies To Grow Your Multiple Businesses
If you decide to grow your business and venture into multiple industries, you need to strategize well to ensure success. Granted, developing the best plan can take time, but here are some strategies to help you get started on the right foot.
Know the Name Restrictions
First off, you need to familiarize yourself with the name restrictions for both DBAs and LLCs. Before filing for either one, you need to do a name search to ensure that your prospective name is not being used by any other businesses. If you have a similar business name as someone else, the business agency may not accept your name.
The more distinct you can make your name from others, the better chance you have at getting the name and eventually owning it. Remember only a trademark can give you ownership – not your LLC name.
By knowing this information, you can narrow down your options and create a name that reflects the nature of your work as well as your unique personality.
Separate Business to Separate Liability
If businesses are truly separate, then you should separate them from each other. The reason is that you don’t want a problem at one business (think lawsuit, injury, debt etc) to bring down all of your businesses.
The liability shield works not only for personal liability but also liability among other entities.
For example, if you have an e-commerce business selling t-shirts, then you should have a separate LLC for that business from your coaching business.
Keep Reports on Each Business To Measure Progress
Even if annual reports are not required for DBAs, making them is still a good practice to help you keep track of your business progress. Making reports — even if it’s for your eyes only — can help you obtain valuable data and insights to improve your operations. Because of this, creating and keeping reports regularly can be a game-changer for you.
Just make sure to have professional analysts on board to help you analyze numbers, keep your business running the legal way, and draft effective strategies to reach your goals and your company’s full potential.
If you want to protect and grow your business, reach out to Drafted Legal today.
Start and Grow Multiple Businesses With Drafted Legal
Drafted Legal is a platform where business owners like yourself can get legal information and tips to ensure you follow the mandatory guidelines necessary to run your business legally. The site offers downloadable templates, checklists, and helpful blogs so you can stay on top of all your businesses.
If you’re interested in starting your own LLC or are thinking of expanding to other business ventures, head over to Drafted Legal and shop for the documents necessary to accomplish all your legal requirements.
Understanding the legalities behind your business is the first step you need to take to thrive in this industry and Drafted Legal is here to guide you throughout your journey.