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 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.
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for jewelry business from home, do i need a LLC or DBA license?
Sarah:
You are confusing several concepts of an entity, a name, and a license requirement. Since we don’t know where you live, I do not know whether you are required to have a business license or not. That is up to local laws and government. A business license does not depend on a name or entity.
A DBA is nothing more than a alternate name for your business.
An LLC is a legal entity.
I have formed an LLC in Colorado, but will do work in California.
Why should I choose a DBA for California?
Bon: Your question begs more questions than answers here. Do you live in Colorado or California? Usually, one forms an LLC in the state they reside in, but sometimes there are exceptions to that. Why are you needing/wanting a DBA for your LLC?
If I draw disability and want to start a home based business, should I setup a dba or llc? I don’t want to lose any of my disability.
Hi Elizabeth,
It’s my understand that the Social Security Administration awards disability benefits to those who have worked in the past and demonstrate inability to work due to a disability.
It seems to me that pursuing a business startup would disqualify you for disability benefits.
That said, I truly don’t know.
All the best…
Good morning, I have a LLC and would like to add a DBA under my LLC but the name will be different from my LLC is that acceptable or should the DBA name be similar?
I am a personal Chef who does private in home dining as well as experiences that include renting out kitchens and different venues. I don’t have any employees yet but I do plan on having some eventually. I was wondering if DBA is fin or would it be worth going into an LLC?
Hi Brad,
The biggest difference between operating your business as a sole proprietor (which is what you have if you file for a DBA) and a business entity (such as an LLC) is personal liability protection. LLCs offer you more protection than if you stick with your sole proprietorship, even if you file for a DBA.
A DBA will not offer you any liability protection as a sole proprietor.
Preparing food has risks. Sad to say, but it’s true.
Regardless of how you choose to go, I recommend getting a very good business liability insurance policy in place. Make certain you thoroughly discuss with your insurance agent everything you do in your business so the proper type and amount of insurance coverage is quoted.
All the best Brad…
I am an music artist. I want to be able to operate as a business. I want to be able to have a bank account, apply for business loans to support the building up of my career as an artist, produce my brand of products as well. Which is the best way to go, a DBA or LLC
Hi Ladi,
If you are currently conducting your music business, you are operating a business — by default, it’s a sole proprietorship.
You could choose to apply for a fictitious name for your business, which is known as a DBA.
Doing so will allow you to open a business banking account under the fictitious name. If you apply for a business loan under the fictitious name, the lender will consider you to be the borrower. If you want to brand your products under the fictitious name, you could do so. You would still be the owner of the business, be the borrower and be the owner of the intellectual property you develop. Other than banking, not much changes with a DBA.
Alternatively, you could form a business entity, such as an LLC.
Your LLC would be able to open a bank account and apply for loans and register any intellectual property such as a registered tradename marks. The business entity would be recognized by the bank, lenders and the U.S trademark office.
When you apply for a bank loan, most banks will look at the owner of the business (your LLC) for a personal guarantee. It’s just the way it goes.
Which is better depends on whether or not you want to gain certain personal liability protections. An LLC offers you more protection.
Hope this helps a bit…
I have been operating a keynote/motivational speaking business for a few years now under my own SSN. I have been looking into creating a business in order to obtain an EIN and business checking account. I’m not sure if an LLC or DBA is what I need to do as the owner and sole operating of my speaking business.
Hi Kim,
Deciding whether to form a business entity, such as an LLC, or to continue to operate as a sole proprietor with a fictitious name (DBA) typically comes down to if you want to gain personal liability protections or not.
If you do, forming a business entity will offer you certain liability protections.
If not, the staying the course and filing for a DBA may be the way to go.
All the best…
I am starting a business selling cheesecakes made from my home. My accountant had me do a DBA but after checking things out for myself I don’t see where my personal assets are protected from the business. It seems that I should do an LLC instead?
Terri:
You are correct that your personal assets are not protected if you were sued. You would certainly obtain a layer of protection if you formed an LLC. My hunch is that your cheesecakes are good (I think that should my fee for this case should be one cheesecake), but you are not doing enough business to justify the cost of forming an LLC (at least not yet), in the eyes of the accountant. If you are selling a few dozen cheesecakes a month, then you may not really have that much potential risk or liability anyway.
If you are planning on growing and doing more than a few thousand a year in revenue, then, yes, seek the advice of an attorney and a tax advisor on which entity will provide you the best solution. Don’t assume Philadelphia Cream Cheese brand is always the best ingredient; don’t assume an LLC is always the best format to protect your business.
(My grandparents used to make and sell cheesecakes 50 years ago! Yum)
Dear Terry
Following are four of the basic advantages of setting up an LLC.
1. Easy to Set up and Operate
2. Simplified Tax Accounting
3. Personal Liability Protection
4. Can Be Formed by a Single Individual
Chris
Disclaimer
The information provided is not designed or intended as legal or financial advice. It is for the educational or sharing of informational purposes only. It is not a substitute for consulting with your legal or financial advisors to obtain their professional consultation.
Thank you for you detailed answer Mr Klein. I feel that I have more knowledge now and feel more comfortable about proceeding. If you live in the Columbus area I would be glad to bring you a cheesecake!!! Have not figured out yet how would do shipping!
Again, thank you for your time.
I just love this! And cheesecake too 🙂
Over time we have come to have two separate C-Corps (each have their own EIN). One owns 100% of the shares of the other. The one that is owned (subsidiary) has the name that we’d like to trade under. But we would like the holding company to be where the value in the business accrues over time (for the shareholders of the holding company).
Question: In legal agreements are we able to present ourselves as “Holding Corp Name DBA Subsidary Corp Name”?
Really, we should register a DBA ‘business name’ (not a LLC or C-Corp) using the name of the subsidiary…right? And really, we should de-register the subsidiary C-Corp as unnecessary (after fulfilling its State and Federal tax and other obligations).
Hi Eric,
It’s important to remember when you’ve have two C corps that you have two, distinct business entities. It really doesn’t matter when you are creating a legal agreement that one C corp owns all of the shares of the other C corp’s stock.
What matters is which business entity (or C Corp) is creating the legal agreement with the third party. Whichever C corp is creating the legal agreement should be identified in the agreement.
Buyers of businesses don’t buy holding companies, they buy businesses with a healthy profit and loss statement, a strong balance sheet and a reputable brand.
Hope that helps a bit Eric…
Hello I’m new in the business world and was hoping to rent a booth at a business where there are other people working and we are splitting the cost. I don’t know what would be best an llc or dba. With covid, I don’t want to be held liable if someone gets sick also I want to be able to write off things on my taxes next year.
Hi Valerie,
As long as your business is not a hobby, you should be able to deduct expenses related to the business when you file your tax returns. This is so whether your business is a sole proprietorship(DBA) or if you form a business entity, such as an LLC.
If you’re concerned about liability exposures as a business owner, it’s always wise to obtain a solid general liability insurance policy. Again, regardless of the type of business you choose to form.
We’ve got another post which may help you further here.
As a barber, wanting to rent a suite. A DBA or LLC is required. Im not sure which I should choose.
Hi Lisa,
If there is an SBA Loan outstanding at closing and your buyer is going to pay it off at the closing (which will be required), the LOI should include this as one of the conditions to close the sale.
All the best…
Armand:
Regardless of your entity type or even if you don’t have a separate entity, you are allowed to take tax deductions for your tools and other assets. This tax benefit is not dependent on the type of legal structure. The tax deduction is the same no matter which type of entity you choose.
Your choice of legal entity (or choosing not to have a separate entity) will be based on your need for asset protection (legal protection from lawsuits) and protection from taxes.
At the outset, you operate as a sole proprietorship. A dba or assumed name is just like painting your name on your business’ door as it does not change your business in any other way.
When you are serious about your building your business, then you should take the steps to visit an attorney and tax advisor about how to protect your business from lawsuits and the taxman. Our firm specializes in working with building trades contractors for maximum tax protection, but we still recommend the services of an attorney to help you with your legal protection strategy.
This year I purchased many tools, a new vehicle and trailer for a business I wish to register. We are near the end of 2020 and although I haven’t filled any paper work to register the business, I have already begun to sell products and services. I would like to benefit from tax savings such as depreciation on the tools, Truck, and trailer. sales and expenses are going in/out of my personal bank account and personal credit cards. I don’t own a home, nor any high value assets. The truck and trailer are financed through a loan. Should I register my business as a DBA or LLC? and does it make a difference if I register it this year or the next in order to benefit from any tax savings. I live in CA and provide home improvement products and services.
Dear Armand
Good luck with your business.
My suggestion is to register as an LLC since it provides you personal liability protection.
Sincerely,
Chris
Disclaimer
The information provided is not designed or intended as legal or financial advice. It is for the educational or sharing of informational purposes only. It is not a substitute for consulting with your legal or financial advisors to obtain their professional consultation.