Once you’ve decided to start a new business, exploring the various business structures available is usually your first step. Unfortunately, for many there is a great deal of confusion regarding the differences in the DBA vs. LLC option.
One of the most common questions we are asked as advisors to business owners is “what is the difference between a DBA and an LLC?”
The short answer is “an awful lot!”
The long answer to the DBA vs LLC question is spelled out here and will hopefully serve as a guide when making the important decision about the business entity structure for your new business.
This post will cover:
- What does DBA stand for?
- LLC is an acronym for Limited Liability Company
- The Differences in business income taxation between a DBA and an LLC
- Why use a DBA
- Similarities and Differences when considering the DBA vs LLC
DBA Definition
DBA is simply an acronym for “doing business as.” It is sometimes referred to as a trade name, fictitious business name, or assumed business name.
A DBA allows a business to operate under a name that is different from its legal name. For example, if John Smith wants to operate his cleaning business as ABC Cleaning, he will need to file for a DBA. In most states, DBAs are filed at the county level where the business is located.
LLC Definition
A limited liability company, or LLC, means that a business is operating as a distinct and separate legal entity from its owners. While LLCs require more formalities than a DBA, they have fewer restrictions than corporations.
An LLC must be managed by members or a manager. Members are the owners of the company, while a manager, may or may not be a member. The LLC structure also includes more tax flexibility, as the LLC can choose to be taxed as a sole proprietor, partnership, or corporation.
To form an LLC, business owners must file articles of organization at the state level and adopt a Member(s) Operating Agreement.
What does a DBA Intend to Accomplish for a Business Owner?
Filing a DBA allows business owners to use a name other than their legal name to operate their business. Filing for a fictitious name can be beneficial to the business as it may help in the development of a recognizable brand presence with a descriptive and creative business name.
A DBA also allows the business owner to open a business bank account and receive payments in the name of the business, without the need to incorporate or form an Limited Liability Company (LLC).
How is an LLC Similar to a DBA?
Both LLCs and DBAs allow business owners to name their business something other than their own individual legal name. Both structures also allow owners to perform banking under their business’ name instead of their personal name.
How is an LLC Unlike a DBA?
The biggest difference between a DBA and an LLC is liability protection.
Under a DBA, there is no distinction between the business owner and the business. The business owner is liable for all expenses incurred on behalf of the business. On the other hand, an LLC provides limited liability protection. The business owners’ personal property remains completely separate from the business.
In addition, a DBA does not provide any tax benefits. As an LLC, owners can choose a corporate structure such as an S-corporation that receives special tax treatment.
And last, but not least, in most states where you form an LLC, there is a requirement to file an annual report and in certain circumstances pay an annual fee. Whereas, fictitious name certifications, which provide you with the right to use a DBA, typically has a one-time filing and fee in most states.
Is it Ever Appropriate to Create an LLC for a DBA?
An LLC can benefit from the ease of DBA filing when the company wants to expand into new products or services.
For example, if John Smith’s cleaning company were ABC Cleaning, LLC and he decided he wanted to expand into selling cleaning supplies online, he could file a DBA for his new project “ABCCleaningSupplies.com” that would be protected under the original LLC.
A DBA allows an LLC to broaden its offerings without creating a new LLC or corporation for each division.
Holly Magister, CPA, CFP
Holly also founded ExitPromise.com and to date has answered more than 2,000 questions asked by business owners about starting, growing and selling a business.
Latest posts by Holly Magister, CPA, CFP
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Hello there.
First of all thank you for the information.
Some friends and I would like to start a fruit import company. We don’t know what would be best for our company. I am still not sure if we should do LLC or DBA. We would like to expand in the future and be able to export from the U.S. as well.
Hello Holly! What a great read! Thank you. I am a dance teacher and am thinking about buying a studio that is already established. They are already formed as a DBA and said they could be transferrable to the new owner but my question if starting this business since there are no employees just independent contractors do you think it would be best to form am LLC or is it still safe to perform under a DBA?
Could my personal assets be affective with the DBA?
Hi Christina,
If you choose to form a fictitious name (or DBA), you will be operating your business as a sole proprietor which offers you zero personal legal protection.
Here’s where you may learn more about being a sole proprietor.
Hope this is helpful to you Christina!
I am opening a store on etsy.com and a website store on my own .com. I live in NY. I would like to buy materials I use to make my products without paying tax on them, since they will be for resale that I will be required to collect sales tax on.
– can I have this type of business as a dba (selling handmade leather items and custom soaps, for the most part)?
– can a dba get a resale certificate?
– since any income of a dba would be filed on my irs personal taxes, am I able to write off business expenses and/or losses for a dba, or is that only available to those with a llc?
Hi Jennifer,
Yes, you can sell on etsy.com and have a website store online without forming a business entity by operating your business as a sole proprietor. As an individual, you can apply for a fictitious name (DBA).
The resale certificate would be applied for as a sole proprietor under your awarded fictitious name.
And yes, you may deduct your business expenses as a sole proprietor on Federal Form 1040, Schedule C.
Hope this clears things up for you!
All the best…
I am an independent recording artist and I want to create my own label to release my music under. Would it be smarter to apply for a LLC or DBA?
Hello my name is Tara and I am trying to start a hotshot transportation business with my 1st personal company pickup truck and trailer. Subcontracting with other business to haul their merchandise.
So which would be best to file for my business a DBA or LLC and why?
Hi Tara,
Unfortunately, without additional information it’s not possible to tell you whether filing for a DBA (as a sole proprietor operator) or an LLC so your business would be a separate, legal entity is best for you.
There are many factors to consider.
Here’s a post that covers the topic in more depth which may be helpful to you.
All the best…
I have begun working for an individual doing full time contract work. He will provide me with a 1099 for tax reasons. I use my own vehicle for the job and some of my own tools. He wants me to form a DBA versus an LLC. After reading your article, I feel like I would benefit better if I was a LLC. I am concerned about liability for my truck but mainly if I can lower my tax obligations more effectively under a LLC or DBA.
Hello Mac.
The owner of a business should not have a qualified opinion on the organization of a contractor. You could be a sole proprietor, have an LLC, corporation or partnership and it has ZERO effect on him. If this “employer” is worried about the details of your entity, there may be a bigger issue at play–that being whether you have entered into an employer/employee arrangement disguised as a contractor arrangement.
Only YOU need to be concerned about what type of entity you have if, indeed, this is a true independent contractor arrangement. For most individuals working for just one party, your insurance should cover your truck, perhaps with an umbrella policy for additional coverage. There are certainly other business risks to consider as well, and depending on the situation, you may feel more protected with an LLC.
You should consult an attorney if you are concerned about liability issues, though. Do NOT listen the the employer as your primary information source because his interests are likely in direct conflict with yours!
Say I created a DBA in my county …….
Is it appropriate to create a DBA for an LLC?
Gilbert:
You created an LLC with a name, presumably something that makes sense for you and your business. Do you need a SECOND name for the same business? That’s strictly a personal business decision. Is it required? Absolutely not.
Image John Smith who runs a McDonald’s franchise. His business is independent of McDonald’s. He cannot create an LLC named McDonald’s because that name is already in use by someone else. So he creates “Smith Enterprises. LLC”. But he isn’t going to use that name on the side of the restaurant, so he files to use McDonald’s as his dba name. Now he can be known as “Smith Enterprises, LLC dba McDonald’s Restaurant and he will be, publicly, McDonald’s without having that full name on his building.
I have an existing LLC which include 2 other members. If the 2 members wanted out how can I keep the LLC as having only 1 member and also change the name for a different service.
Hi Tina,
If the other members in your LLC sell or transfer their units to you, then you’d essentially have a single member LLC.
Depending on how your LLC is being taxed, will determine how you’d file your LLC’s taxes after the sale/transfer.
If you want to keep the LLC business entity and use a different trade name, you could either file the official paperwork at the state level for a change of business entity name or alternatively have the LLC file for a fictitious name (DBA).
Hope this helps…
Hey Holly, great read and information. Thank you for it. I have a question however. I want to start a parent company and have 4/5 subsidiaries. So a big company and 4/5 smaller ones that fit under the big company all offering a different type of service. Question is, is that possible. Does my “Big Company” have to be a Corp or an LLC or DBA? And finally those subsidiaries. Will they have to be LLC’s or something else? Thank you and any information will be a blessing.
Hey Karlos!
Thanks for your question today. You may create an umbrella entity and have as many sub-companies underneath it as you want. The umbrella entity can be whatever you want–corporation, LLC, sole proprietorship or partnership. The sub-entities also can be any legal type of entity as well. Only limitation is that an S-Corp cannot be owned by anything other than real persons (not by corporations or other types of entities) but for a single special exception that I won’t get into here.
A DBA is NOT a legal type of entity. It is simply a name that is recognized as a substitute name for a legal entity.
When you sign contracts with vendors and customers. Do you use the LLC name or the DBA name? Thank you
Hi Dominic,
Official documents should be signed by identifying your business’s official name and its fictitious name.
It would look something like this:
“Official Name, LLC DBA Fictitious Name”
All the best…
I have already registered my DBA as a sole proprietorship.
These are not my business names, just using as a example.
Example (Jena’s eyelash stick). Now I want an LLC. Example (Jena’s eyelashes, LLC).
Is that possible, if the name is available? Is it possible to go from sole proprietorship to LLC with somewhat of the same name? If so, how would I go about doing that and paying for that?
Hi Loretta,
It sounds to me as if you’d like to convert your sole proprietorship to an LLC and be able to use a name that is the same or similar to your current fictitious name.
If that’s the case, you’ll need to cancel or terminate your existing fictitious name (DBA) as a sole proprietor and then form the LLC and with the official name you desire.
Hope this helps you a bit.
All the best…
I am a Dba and is a Llc better for tax? I own a construction company. And if the llc is better for tax, is it too late to change this year?
Hi Jared,
Typically, the personal income taxes and self-employment taxes you must pay on net income from your business when filing as a sole proprietorship (Schedule C) with a fictitious name (DBA) exceed the taxes you must pay if your business were incorporated with an S Chapter S election. And that’s due to the self-employment tax imposed on net income for sole proprietors, Single Member LLCs and General Partnerships.
We’ve got another post here, which may assist you further.
It is too late to change your sole proprietorship to another business entity to be effective for tax purposes this year. You may want to consider doing so effective January 1st.
All the best…