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DBA, LLC, Inc – What’s a freelancer to do?

By March 2, 2009How To, The Business

Up until last week, Writing Roads operated as a DBA. But, as my business has grown, the LLC (Limited Liability Corporation) title has been calling my name, and I just made it official. Still, there are even more options.

What do they all mean? And what is the impetus for selection as a freelancer or small company?

DBA stands for ‘doing business as’ and effectively allows you to ‘do business as’ any business name that you choose – without being a legal entity. As a DBA, you can set up a bank account and list your outfit in the phone book. Your tax ID # is your social security number and you have no legal protection between your business and personal life. In other words, if someone sued you for something work-related, they could take your house.

LLC is a Limited Liability Corporation or Company where the owners are considered members and the entity is legal and must be filed with the state. In addition, you must make sure that there is no one else with your name before you can become an LLC. Taxes are paid on earnings only and your personal assets are protected in the case of debt payment and collection or litigation.

Incorporation (Inc.) essentially creates a corporation (a Close Corp, S Corp or C Corp – which each have different tax and stock structures) with somewhat similar functionality to the LLC in that your personal assets are separate, but connected, but in this case shares and stocks (and shareholders) may be involved. The incorporation laws are by state and a corporation is also eligible to file for bankruptcy. Finally, corporations have the benefit of possibly uninterrupted and infinite lifespans, where a sole proprietorship holds many stipulations in the event of death by the owner.

This is, of course, a very cursory rundown of these terms, but for me it provides enough information that I know that I’ve outgrown the DBA and I’m not a good fit for the Inc. The LLC fits just right. Important note: the DBA process is free, the other two will run you roughly $800+.

I highly recommend that you speak with a lawyer and/or your financial advisor to make the best decision for yourself and your business.

Join the discussion One Comment

  • Jason says:

    A timely post, as I must do my corporate papers by March 15th, not April 15th (personal taxes). However, in Massachusetts, I pay $109 to the state DOR (electronically) for the S Corp filing, with nothing more annually. The accountants set up the whole thing, and lawyers are not needed (thank god), but the accountants are not cheap per hour, either. For my needs, the S Corp fit the bill more from a tax status than anything else. Much better than a DBA, for many reasons…

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