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:
- DBA is an acronym for Doing Business As
- 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.
Hi, I have a small mobile paint party business, do should I have a DBA or LLC? I really do not think there is anything I could be liable of except maybe someone tripping over maybe a container with paint in it. I’m not even sure if I need a tax ID since I am not even making any profit yet. Thanks for your help.
In the event of a lawsuit, must the plaintiff file on the LLC, or can they file on the DBA which is under the LLC?
Mark:
A plaintiff can file a claim against the LLC, but if they file a claim against the DBA, it is the same as naming the LLC. Of course, in court, details matter, so the plaintiff must find and use the correct legal name as the named defendant. But don’t assume that if a plaintiff files a claim against the company using the DBA name that the LLC will get a free pass out of the lawsuit!
My husband and I are looking at starting a Decorating business for Weddings, Receptions and other Events. I was wondering if a LLC is a better fit then a DBA for this type of business?
Dawn:
If you don’t believe you have any risks in running a sole proprietorship (i.e. someone suing you), then you can do fine with a d/b/a. If you want any legal protection for your business and insulate any business risk from you individually, you’ll need an entity, of which an LLC is just one option.
Hello,
I already have a DBA and I want to change my company to an LLC, do I need to get a new EIN or I can use the same EIN I’ve been using to file my taxes. ( I will be getting a Single Member LLC).
Hello, Luis:
You cannot legally “change” a d/b/a to an LLC. A d/b/a is just another name for yourself as a sole proprietor. But the LLC could REPLACE your d/b/a.
But…as a single member LLC (SMLLC), you can choose to be an “ignored entity” for tax purposes. You would still want a new EIN (tax ID number), although you COULD use your SSN (not recommended). The reason you want a new EIN is because the old number is linked to you as a sole proprietor only. The new EIN would be linked to the legal entity, the LLC. As a sole proprietor, you probably could get away with using the old EIN since the new LLC is still a sole proprietorship, but technically the old company and the new LLC are different “persons”.
Keep in mind this one concept…the d/b/a is likely registered to you individually, not to the LLC. You would probably want to re-register the d/b/a name to your LLC so that someone doing business with the old name will now be doing business with the LLC and not you, individually. The LLC is there to give you legal protection and if you use your old d/b/a name and do not register it to the LLC, you will be telling whomever you are doing business with that they are conducting business with you, individually and not the LLC, and hence, no legal protection.
My friend and I are looking to start a boutique online and maybe future plans in a store. We eventually Wild like to make jewelry etc to expand the business. Would we do a LLC then DBAs under it? Also if we did this would the DBA act under the law of an LLC with the personal property being separate from the business?
Kristi:
A d/b/a is a name. Nothing more, nothing less. It offers zero protection of any kind. An LLC, on the other hand, is the legal equivalent of a separate “person”. It can provide legal protection. If your LLC has multiple d/b/a’s, it’s just a bunch of names that are attributed to the same legal entity/person.
If your entity was ABC, LLC and you had a d/b/a of ABC, LLC, d/b/a XYZ Company, your assets of XYZ would be the exact same as ABC’s. You could not separate those assets from XYZ. If XYZ was sued in court and lost, all of the assets of ABC, LLC could be taken to satisfy that judgment.
My husband started his construction business 35 years ago under a DBA. Recently we attended a workshop and it was suggested that we have an LLC since we are considering expanding into real estate. What is the process, can my husband pay himself as an employee from the LLC? Any help would be greatly appreciated.
Hi Melissa,
The process to form an LLC for your husband’s existing sole proprietorship requires you to create the LLC and to contribute the assets and liabilities of the operating business into the LLC.
There are legal, insurance, business licensing and tax matters to consider when doing so. Unfortunately, it’s not a simple process.
Depending on how your husband chooses to treat the LLC for federal tax purposes will determine if setting up a payroll for him is required.
Let me know which state your business is located in and I’d be pleased to introduce you to advisors who can help you further.
If I am starting an entirely new business, that has nothing to do with the original LLC, am I still able to use a DBA? Or would I need to create a new LLC entirely? Or should I look into a series LLC? To use your example, if one of the businesses were ABC Cleaning, LLC and the owner wanted to start a lawn care business, could he do it under the same LLC?
Hi, Sarah.
A d/b/a is the same as a fictitious name. An LLC is a legal “person”. These are different concepts. If your first business is a gas station that was set up as an LLC, it could have a d/b/a name. If you have a second business that is NOT an LLC, but simply a sole proprietorship that sells goldfish, it could also have a d/b/a name. But the d/b/a names could NOT be the same.
You new business could be an LLC or not. That’s your business decision. But you may not want to sell goldfish under the name of your gas station.
Now, as far as the LLC you have, you should have created an operational document at the start, when you chartered (opened) the LLC. In it, you declared what business your LLC will be in. Most people put something like “Any legal business activities”. So you COULD sell goldfish and gas under the same LLC name.
You could even give your LLC two, three, or more d/b/a’s if you want. Tina’s LLC could sell gas as “Tina’s LLC d/b/a Tina’s Gas” and Tina’s LLC could also sell goldfish as “Tina’s LLC d/b/a Tina’s Fish”. But you’d only file one tax return and you’d combine all your financials for both tax and reporting purposes.
Remember that one of the reasons the LLC is created is for LEGAL protection. If you do two or more businesses under the same LLC, and one gets sued, the other is at risk of losing assets and its business, too. So if someone sues Tina’s Gas and wins a judgment in court for all its assets, then Tina’s Fish could lose its business and assets, too!
I am looking into starting a home based bakery. I would be the owner and only employee as of right now. After doing some research, it looks like a DBA would be sufficient for my needs, especially knowing that if the need arises I can convert it into an LLC later on. However, you’re the experts. What are your thoughts?
Thank You!
Hello Nicole!
A d/b/a gives you NO legal or tax protection! An LLC gives you legal protection, but no tax protection UNTIL you elect to have the LLC taxed as something other than a sole proprietorship. An LLC acts as a separate “person” in the eyes of the law.
A d/b/a or assumed name (two names for the same thing) is JUST a name. If you call yourself “Janie” instead of Nicole, it doesn’t stop the guy on the corner from suing you and winning a lawsuit against “Janie who really is Nicole”.
Hello, I thought that I heard somewhere that A DBA had to include your name. Is that incorrect?
Hello, Meria:
A d/b/a or assumed name can be ANYTHING. No reason it has to have your name in it!
Meria Smyth d/b/a Dunkin’ Coffee.. The d/b/a name is just Dunkin’ Coffee, but you’d indicate for legal reasons that you are the true owner on legal documents by signing it with the full “Meria Smyth d/b/a Dunkin’ Coffee”.
But your store signs will all say “Dunkin’ Coffee”, and only “Dunkin’ Coffee” will be seen by the general public.
hello, My wife and I inherited a trailer park but we do not own any trailers, we only own the land and rent out lots for people who want to move on our lots. Do we need to form an LLC or will a DBA be sufficient.
Hi Tony,
If you choose to file for a DBA only, you won’t have a separate, legal business entity which would offer you certain legal liability protections.
We’ve got a post on this topic that may be helpful to you.
All the best…
Do you want to sell it?
Hello holly, I have a question about a DBA. My friend registered his DNA in 2016 with Augusta, Maine. This year, 2019, someone purchased an LLC with his business name, trying to take his company. What can he do, and is he protected?
Hi Seth,
The only way to protect a tradename is to file a federal trademark and that’s only advisable once you determine if the tradename is available.
Here’s a post on this topic that may be helpful to you.
Hello,
Great article and insight. Thanks for sharing… Question, I’m starting a few businesses over the course of the next 2 years. They range in a variety of industries food, real estate, childcare etc. I was thinking that each business needs to be it’s own LLC but, is there a way that I can have 1 LLC as the umbrella company with several DBA’s or should I create a holding company with several LLC’s?
Thank you.
Hi James,
I am sorry we cannot make a recommendation regarding the formation of your business entity structure.
We do have a post on the topic of LLCs and the various types of business entities they can hold (own) here. It may be helpful to you.
We also have a series on the topic of business entities where you can learn more about the differences between your options.
All the best…
Hello, Im starting up a buisness and wondering if I should fist file under DBA or LLC? Or do I have to first file a LLC? As of now I am the only person handling all things. However I do plan on maybe bringing a partner as I expand. Thank you. FYI I also made up my own name if this makes a difference.
Hi Jakala,
We’re not able to recommend whether to file for a fictitious name or to form an LLC (business entity).
Here’s a series of posts about business entities which should be helpful to you as you make a decision about what’s best-suited for you and your situation.
All the best…
What about starting with a DBA then expanding to an LLC? Is that possible/advised?
Hi Katherine,
Yes, this can be done. If you are an individual and file for a fictitious name (DBA) and later want to form a business entity (any type), then the assets and liabilities associated with your business operation are contributed to the business entity once it is formed.
The DBA will need to be canceled too.
All the best…
We took out a dba through our LLC business. Eventually we plan on not using the original LLC name. Are our personal assets protected as they are while just using the original LLC name? If not how do we do protect personal property from the business should the need arise?
Thank you for your help.
Hi Gail,
When you use a trade name registered by your business entity (the LLC) as a fictitious name (DBA), you’re essentially telling the state the business entity is using a different name.
Doing this does not change the fact that your business is a Limited Liability Company.
LLCs offer its business owners (who are called members) certain protections from personal liabilities. Again, having the LLC file for a DBA doesn’t change your LLC’s business structure.
We have a post about the various types of business entities which may be helpful to you here. This post covers LLCs and the other business entities business owners have to choose from for their business.
All the best…
Hi,
When writing contracts, will the DBA be protected under the LLC?
For example, ABC LLC is creating a DBA AAA Services.
Original contracts for services were always done under “ABC LLC” but with the DBA now, would the contracts need to be changed to AAA Services? Also, if ABC LLC operates in other states, while the DBA (AAA) only operates in one state, would seperate contracts need to be used in different locations?
Hi Mike,
Whenever a reference to the fictitious name is made, it should clearly state that the name being used is a fictitious name and not its official name.
For example, in the case you described, you’d state: “ABC, LLC DBA AAA Services”.
All the best…
Hello! I want to thank you for this article! It has helped my understanding on the subject.
I am wanting to start a business, and have a specific, fictitious, name I want associated. I am concerned about protecting my name. Does a DBA protect my business name from being used by others? If I only have a DBA, can others register an LLC under the same name and forbid me from using it? Or, do I need an LLC to ensure I am able to use my business name?
I thank you for any advice you’re able to offer
Hi Tawny,
You will not receive any rights or protection by filing for a fictitious name for your business.
If you want to be certain your rights and exclusive use is protected, you will need to take several steps including a trademark search and registration.
We’ve got another post that should help you on this topic of Intellectual Property Protection here.
All the best…
I have an LLC that I have had since 2004. I am starting up another business and wondering if it is better to create a new LLC? Or if it is better to add DBA. When is it required to state that new business is DBA under “original business”. Thanks
Hi Noel,
Whether you choose to add a DBA for the fictitious name of your new line of business under your existing LLC or alternatively form a separate business entity typically comes down to deciding if having the two business operations under the same entity is a risk you want to take on.
Having the two business operations under a single business entity means if anything goes wrong with one business, the other will be at risk.
We have a post on the topic of fictitious names here that may be helpful to you.
All the best…