When an entrepreneur decides it is time to start a new business, exploring the various business structures available is usually the first step taken. Unfortunately, most discover there is much confusion related to 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 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. 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. 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.
Understand the differences between an LLC and a DBA, and how to decide when a DBA makes the most sense.
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.
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Hi! I have an LLC for my dog training company. I am starting another business that will be selling a product (mirrors), not affiliated with dogs. Should I for a LLC or DBA for this company selling products?
Thanks!!
Hi Jodi,
I cannot advise you regarding what you should do. I am sorry.
What I can do is help you understand your options and this should be helpful to you as you discuss it with your advisors.
When you have two business operations in different industries with different risks, it is generally not a good idea to co-mingle them.
If you do choose to file for a fictitious name for the new business and operate it under your existing LLC, the income, assets and liabilities will be co-mingled. This means if someone has an issue with either business and decides to sue, both operations will be in jeopardy.
It also may be difficult to obtain general liability insurance and worker’s compensation for the LLC with multiple lines of business because the risks associated with each operation differ.
These are just a few matters to consider with your legal advisor. If he or she knows your personal situation, they will be well-suited to help you make a good decision.
All the best Jodi…
Hello,
I currently created a DBA for my small business. I am thinking of forming a LLC because I want to have the structure around the business. My only concern and question is will I be taxed more for forming the LLC then I do as a DBA. The LLC will be a partnership with one other member.
Hi Bret,
If you have filed as an individual for a fictitious name or DBA, for tax purposes you are considered a sole proprietor and will be subject to three levels of taxes: Federal, State (if earned income is taxed in your state) and Social Security taxes. The social security tax for a sole proprietor is called the self-employment tax and is 15.3 % of net income. There are two parts to self employment tax and if your net income exceeds $128,400 in 2018, then the medicare portion of this tax, which is 2.9%, does not apply to the excess.
If you form an LLC and elect a partnership structure, the same self-employment taxes apply to your respective share of net income from the LLC.
Not all LLCs are subject to the same taxes as a sole proprietorship or partnership if an election is made for the LLC to be taxed as a C Corp or an S Corp for federal tax purposes.
Hope this helps…
I’ve seen 2 different responses to filing a DBA under an LLC. One said a DBA is “NEVER” protects from personal liability. The other website states that it would be protected under the original LLC. Which is correct? Thank you
Hi Benjy,
A DBA is a fictitious name for an individual or a business entity.
If the DBA is for an individual, then it will not offer the individual any form of personal liability protection whatsoever. It is merely giving the individual the right to market his or her services under a fictitious name. And as a sole proprietor (i.e. no business entity has been formed), the individual has zero personal liability protections.
Whereas if the DBA is applied for by an LLC (or any other business entity), then the line of business (DBA) operating under the LLC (or business entity) will enjoy the same liability protections of the LLC (or business entity). In this situation, the business entity is permitted to use a different trade name than the official legal trade name it registered for when it was formed.
Does this clear it up for you?
Yes!! Thank you!
Hello Holly, my wife owns a dog treat company that is a LLC and I own a painting company that’s a sole proprietorship. Can I bring the painting company under the my wife’s LLC and have our businesses all covered under one company?
Hi Lonnie,
It is possible to contribute the assets associated with your sole proprietorship (the painting company) to your wife’s LLC. That said, it may not be practical for several reasons. Here are a few:
1. Insuring a dog treat company and a painting company is not likely. The risks differ greatly so insurance companies will not be likely willing to cover both lines of business under one policy.
2. Similarly, obtaining licensing permits and workman’s compensation insurance will be difficult.
3. Both types of businesses have unique risks and by adding a fictitious name to your wife’s business to include your painting business means all of the assets, income and liabilities for both operations will be co-mingled for tax reporting and legal liability purposes.
4. Trying to sell a business with two unrelated operations in the future may be difficult.
Just a few thoughts for you to consider. Hope it helps…
Hi,
A company I want to work for wants to hire me but cannot because of certain legal reason so they advised me to become an independent contractor so they can hire that company and I just happen to work for them. This would be a short term solution until I could be hire full time. 1. Should I set up a DBA? something other than my name 2. Should I do a DBA or LLC? 3. This is just for graphics so would I need an LLC?
Hi Michael,
The situation you’ve described may be one where your former employer has or had a non-compete clause in your employment agreement.
If so, you should be very careful. Trying to circumvent a non-compete agreement by forming a business entity may be problematic for you and the company who is trying to hire you.
It would be wise to seek legal counsel on this matter Michael.
All the best to you as you navigate your options…
Thank you for your response. Can you suggest how I go about finding the correct legal advice and hopefully at an affordable price?
Hi Eric,
We’re happy to introduce you to Attorneys to assist.
Here’s where you may send in your confidential request.
As an owner/operator truck driver, do we need a DBA or an LLC to name our business? There are no other employees. It will be just us two as co-owners. This whole process is kind of confusing. Thank you.
Hi Windi,
It certainly can be confusing. I will try to help you.
If you are an individual who has a sole-proprietorship (by default if you do not form a business entity), AND you choose to represent your business with a name which is not your legal name, then you will need to file for a fictitious name (aka DBA).
If you choose to form a Limited Liability Company for your trucking business, then the official, legal name of the LLC is what you’d use to represent your business and filing for a fictitious name (DBA) will not be necessary.
Does that clear it up for you?
Hi, I already filed my LLC for my cleaning business. Do I need to form a DBA? How do I if so?
Hi Yasmine,
If you’ve filed for a Limited Liability Company, you’ve got an official, legal name for your business.
If you don’t want to use that official, legal name for marketing and branding purposes and you want to use a different name, then you will need to file for a fictitious name (or a DBA).
Filing for a DBA is a separate process and application you make at the state level and in certain cases at the local government level too. It varies based on where your business is located.
Hope this helps a bit…
All the best to you.
Can you start out as a DBA and then change to an LLC
Hi Dina,
If you do not form a business entity and file yourself, as an individual, for a fictitious name (aka a DBA), the answer is yes.
When you form the Limited Liability Company, you’d contribute the assets and liabilities associated with your sole proprietorship/DBA to the newly-formed business.
Your new LLC would have to file for your former DBA (which was associated with you individually) or may want to formally assume the DBA name. Of course, you’d have to cancel your fictitious name when you form the new LLC.
All the best…
I am still confused. At one point I believe it says a DBA is not protected under the LLC then I am reading it is protected? Please clarify. Thank you
Hi Fiana,
I think we can clarify this for you…
If you have a business entity that files for a fictitious name, the DBA Certificate issued to the business entity will allow the line of business operating under the fictitious name to be ‘protected’ under the business entity — because it is part of the business entity.
If on the other hand, you have a sole proprietorship and you file for a fictitious name (DBA Certificate), the DBA offers you as the individual no form of legal protection.
All the best…
Hello,
I have an LLC for my DJ company but now want to brand it under a completely different name. I’d like the DJ business to still have the LLC protections so I went to apply for a Fictitious Name. The form is asking, “Enter the individuals who will be named as Owners for your Fictitious Business. If any Entity other than an individual, is interested in such business, please skip this section.” Am to skip this step and instead put my LLC’s info where it asks if an Entity is the Owner? Thanks so much!
Hi Jessica,
Yes, you should not include your individual name and instead include your LLC’s official, legal name as the applicant for the fictitious name.
That said, if you do not want your LLC’s official, legal name any longer, you may want to consider simply changing the legal name. Most states offer this option.
You will need to amend your other legal documents and likely need to advertise the new name in legal journal and/or a local paper.
Something to consider…
All the best to you.
I have an llc but want to do business under a different name, so thinking about a dba…but will the dba have the same protection if under my llc umbrella?
Hi Chris,
When you choose to file for a fictitious name for your LLC to Do Business As (or under) a name which differs from the LLC’s official name, your LLC retains the same protections.
That said, if you don’t intend to use the original, official name for your LLC, you may want to consider simply changing the name of your LLC to the different name. Most states offer this option and have a form to file to accomplish this.
All the best to you Chris…