DBA, LLC, Corp – What’s the Difference?
By Jacqueline N. Walton, Esq.
When looking to start or grow a business, some people are uncertain as to how to proceed with the legalities. This can include the initial debate regarding whether to create an entity and what type of entity to select. An entity can offer liability protection to its owners and officers, which can be in the form of shielding owners from the debts and liabilities of the company. With any new business, it is important to consider protecting yourself from a liability standpoint (although liability protection is not always necessary, depending on the type of business and operations).
In order to protect the owners of a business, forming a legal entity is the best bet. There are multiple options in Nevada, including general partnerships, limited partnerships, limited liability companies and corporations. What entity is best for a particular business is based upon a variety of factor. Such factors include the proposed ownership structure, the management structure, the desired tax structure and future goals of the business. BUT BEWARE: simply having or registering a d/b/a (“doing business as”) or a fictitious firm name does not offer any liability protection. This simply means that you are doing business under such name. For example, if you create an online store and create and register a fictitious firm name in your personal name, you are operating under what is known as a “sole proprietorship,” which offers no liability protection.
In general, limited liability companies offer liability protection to its members (i.e., owners) and are easier to manage than corporations from a governance perspective. Limited liability companies do not require annual meetings of the members and one person or entity can manage the company (either a manager or managing member). On the other hand, partnerships may or may not offer liability protection. A general partnership (which consists of two or more partners) offers no liability protection to its partners, whereas a limited partnership (which consists of at least one general partner and one limited partner) offers limited liability to its limited partners but not its general partners.
Please note that the legal entities listed are separate from how those entities are taxed. For example, depending on the structure, a limited liability company can be taxed as a partnership or an S-Corp. Always discuss the best taxation structure with an accountant and be sure to communicate that clearly to the attorney handling the entity formation, as tax elections can affect the organizational documents. There may also be tax benefits that arise depending on the type of corporate entity a business chooses.
Bottom line: consult an attorney and an accountant when looking to start or expand a business, no matter how small. It can save a lot of money in the long run. If you would like more information, including a limited liability company checklist for issues to consider when forming a new limited liability company, please contact Jacqueline Walton, Esq., at 702-727-6258 or firstname.lastname@example.org.