DBA, sole prop, LLC or corporation: which one fits your business?
The structure you choose decides how you're taxed, how much of your personal stuff is exposed if something goes wrong, and how much paperwork you sign up for. Here are the pros and cons of each, in plain English.
Five ways to set up a business.
DBA (Doing Business As)
A registered business name. It lets you operate and bank under a name other than your own, but it doesn't create a separate legal entity.
- Cheap and quick to file
- Lets you use a brand name and open a business bank account
- Can be added to a sole prop, LLC or corporation
- No liability protection on its own
- No tax change; you're taxed however the owner or entity already is
- Must be renewed in many places
Best for: using a brand name on top of a structure you already have.
Sole Proprietorship
What you are automatically if you work for yourself and haven't formed anything. You and the business are the same for legal and tax purposes.
- Nothing to form; simplest to run
- Profit reported on your personal return (Schedule C)
- Lowest cost to start
- Your personal assets are exposed to business debts and lawsuits
- Self-employment tax on all of your profit
- Harder to bring in partners or sell
Best for: testing an idea or a side business with little risk.
LLC (Limited Liability Company)
A state-registered entity that separates the business from you. By default a one-owner LLC is taxed like a sole prop and a multi-owner LLC like a partnership, but it can elect S corp or C corp tax treatment.
- Liability protection when it's run as a separate business
- Flexible: you choose how it's taxed
- Fewer formalities than a corporation
- State fees; California charges an $800 minimum annual franchise tax
- Default tax treatment still means self-employment tax on all profit
- Protection weakens if business and personal money are mixed
Best for: most small businesses, especially once there's real risk or real profit.
S Corporation
Not a separate kind of entity, but a tax election an LLC or corporation can make. Owners who work in the business take a reasonable salary through payroll, and remaining profit can be paid as distributions that aren't subject to self-employment tax.
- Can lower self-employment tax once profit is meaningful
- Profit passes through to your personal return; no corporate-level federal tax
- Forces a real owner payroll
- Payroll, a separate return and more bookkeeping
- Salary must be reasonable for the work you do
- Ownership limits: up to 100 shareholders, one class of stock, generally U.S. individuals
Best for: profitable owners who work in the business and pay themselves consistently.
C Corporation
A corporation that pays its own income tax at a flat 21% federal rate. Profits paid to owners as dividends are taxed again on the owner's return.
- Strongest separation between owner and business
- Easiest structure for outside investors and multiple stock classes
- Profit kept in the business is taxed at the corporate rate
- Double taxation on profit paid out as dividends
- Most formalities: board, minutes, separate returns
- Losses don't pass through to your personal return
Best for: businesses raising outside capital or keeping most profit in the company to grow.
The quick comparison.
| Liability protection | How profit is taxed | Self-employment tax | Paperwork | |
|---|---|---|---|---|
| DBA | None on its own | Same as the underlying owner or entity | Same as underlying | Very low |
| Sole prop | None | Your personal return | On all profit | Low |
| LLC (default) | Yes | Your personal return | On all profit | Low to moderate |
| S corp election | Yes | Your personal return | On salary only | Moderate: payroll plus a separate return |
| C corp | Yes | Corporate return, then again on dividends | On salary only | Highest |
Rules vary by state, and tax law changes. This page is general information, not legal or tax advice for your situation.
The right structure at the wrong time costs money too.
An S corp can save a profitable owner real money, and it can cost a smaller one more in payroll and filing fees than it saves. The answer depends on your profit, how you pay yourself and your state.
When a roofing company came to us four years behind with the IRS, part of the fix was changing the company to an S corp and setting up proper owner payroll. Another client, a production company owner, got her LLC set up with an S corp election, went on payroll and started saving for retirement for the first time.
Ready to form an entity? See our partner tools for formation and payroll services.
When should I switch to an S corp?
When your profit is consistently high enough that the self-employment tax savings outweigh the cost of payroll and the extra return. We run the numbers for your situation before recommending it.
Does an LLC protect me from everything?
No. It protects personal assets from business debts and claims, but not from your own negligence or debts you personally guarantee. Mixing business and personal money can also weaken it. Insurance still matters.
Can I change my structure later?
Yes. Many businesses start as a sole prop or LLC and add an S corp election as profit grows. Timing matters, so plan the change before the year you want it to take effect.
Do I need a DBA if I have an LLC?
Only if you want to operate under a name that's different from your LLC's legal name.
Not sure your business is set up right?
One short call. We'll look at your profit and how you pay yourself, and tell you whether your structure fits.