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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Hi there!
My husband and I currently have an LLC (small coffee roasting business) along with two partners. We’re hoping to stem off of that LLC with a DBA which offers coffee related products; however, our partners are not wanting the liability of that DBA, and we aren’t wanting to open a separate entity. Will our partners automatically inherit the responsibilities/liabilities/ownership of the DBA if it’s constructed under the existing LLC? Hope that my question makes sense.
Robin:
Your LLC is a separate entity from any person. If you do business under that LLC, ALL of your activities are subject to shared liability and sharing of profits and losses. A DBA is NOTHING but another name. It’s like if I called you Robin or “Robbie”, you would be one-and-the-same person. A DBA is just one-and-the-same as your LLC since it is only a name.
If you want to have a separate business activity, I strongly recommend that you create a new entity with only the owners that are interested in that activity.
If you’d like help in creating your entity structure and minimizing your tax liability, please give us a call.
Hi good afternoon. I have a question and I happen to be in the confusion stage between DBA or LLC. I’m planning on starting an online boutique business. We just bought a home that’s close to million dollars and I don’t want it to be at risk. Does it really matter between a DBA or LLC? please help.
HI Candy. Creating the LLC is the best bet. Feel free to call me as a follow up.
Candy:
Congratulations on striking out on your own. Yes, one of the purposes of an entity is personal liability protection. A DBA does not provide ANY liability protection since it is nothing but a name. Sticks and stones will hurt you, and names alone provide no protection.
Alas, your home may not be at risk if you live in certain states, like Texas. Your homestead is automatically a protected asset, but in most states, the complete blanket protection on your assets is not nearly that good, and so you are right to be concerned about protecting what is likely your most valuable assets. If you have a million-dollar home, you likely have other assets, too, that need protection.
So if personal liability protection is your main concern, then there’s no question that a DBA doesn’t help. However, an LLC may or may not be the best solution! Partnerships and corporations may also provide protection, which is why you should speak to both a Tax Advisor and an Attorney as you start your venture.
My better half and self created an LLC. We now also have 2 separate opportunities where we would like to use that LLC as as owner in the other companies (LLC’S). We are looking to create the additional LLC for protection as she is starting her medical practice and have another opportunity in the insurance industry so we want to separate the risks. The question is what is the tax implications? Will the profits in the two “sub” LLC’s roll up to the current LLC and we pay taxes accordingly or is there additional tax considerations we should be aware of?
Hi Will:
One of the main purposes of an LLC is to separate the liability risks of business activities from yourself as an individual. You didn’t mention what business your original LLC is in, but I hope it’s not providing medical services AND insurance services under one umbrella. Those are 2 very high-risk activities and putting them under the same protective cover of a single LLC would not be wise.
You would probably not want to have one LLC (of unknown activity) own another LLC providing professional services. That would not provide any additional layer of legal protection and would not do anything for tax savings, either.
A single-member LLC, as formed under state law, provides you no tax protection whatsoever, as the IRS ignores this entity. An LLC owned by spouses can also be ignored for tax purposes.
I recommend that you discuss your plan with both an attorney and tax advisor.
Our firm specializes in the strategies to maximize tax savings as well as provide asset protection (we are not a law firm). If you’d like a free initial consultation, you can visit our new website at PrivateTaxAdvisors.com and we’ll be glad to discuss your objectives.
Hi, I filed a LLC for rental property. Do I need to fill up DBA, operating agreement and single member LLC for liability protection? Not sure if the LLC I filed is just the same as single member LLC or separate. thanks.
Heidi:
Your Single Member LLC provides you legal protection. A single member LLC that is involved in real estate rentals is not really a “sole proprietor”, but you treat your income as passive rental income (Schedule E filer, not Schedule C). In order to maintain that legal protection of the LLC, you need at least some minimum compliance items including having an operating agreement. You don’t need a DBA. You also won’t need anything special for taxes.
Heidi
I beleive that the name of the LLC is sufficient and filing for a DBA is not necessary.
Unless you plan on operating your entity under a different name. Then a DBA might be warrented.
Having an operating agreement for your LLC is recommended. It is a legal document that establishes the rights and responsibilities of members and provides details about the LLC’s internal management.
Best of luck with the rental business.
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 so much. I have read that only in the states of Ca, De, Maine, Missouri and NY needs llc operating agreement. I am from NC and is it still best to have operating agreement though not required? I didn’t mention that the name of LLC is different from my name. So that means I have to file a DBA? thanks again.
Hi Will:
One of the main purposes of an LLC is to separate the liability risks of business activities from yourself as an individual. You didn’t mention what business your original LLC is in, but I hope it’s not providing medical services AND insurance services under one umbrella. Those are 2 very high-risk activities and putting them under the same protective cover of a single LLC would not be wise.
You would probably not want to have one LLC (of unknown activity) own another LLC providing professional services. That would not provide any additional layer of legal protection and would not do anything for tax savings, either.
A single-member LLC, as formed under state law, provides you no tax protection whatsoever, as the IRS ignores this entity. An LLC owned by spouses can also be ignored for tax purposes.
I recommend that you discuss your plan with both an attorney and tax advisor.
Our firm specializes in the strategies to maximize tax savings as well as provide asset protection (we are not a law firm). If you’d like a free initial consultation, you can visit our new website at PrivateTaxAdvisors.com and we’ll be glad to discuss your objectives.
I have an existing LLC in NJ and would like to start a DBA for some specific manufacturing sales within the original company. I use Quickbooks for the existing company and would like to start a “new Quickbooks company file” How do I file the monthly sales tax from both entities since I can only log into the state system and pay once per month?
Doug:
If you start a DBA under your existing LLC, it will be considered as one combined entity for reporting purposes. You don’t create a new QB file. You CAN create separate categories in QB to track the separate activity, but in the end, you report everything as one business. You can also use Classes in Quickbooks to use the same categories but track your two activities in parallel.
Hey There,
I’m starting a paddle board rental business. Which is better to have for insurance in case someone gets hurt? DBA or LLC ?
Thank you!
Chase:
Insurance protects you from certain lawsuits, but it might not be enough to settle a large claim.
A DBA is a name. Sticks and stones will break your bones; but names can never protect you from sticks and stones. Using a DBA means that if a claim is higher than your insurance limit, you are personally on the hook for any further claims.
An LLC, on the other hand, is a separate entity. LL in LLC stands for Limited Liability. That means you, the owner, is limited (or protected) in case a claim exceeds your insurance limit.
Hello, I already have an LLC for my pet service business. I also have a website and everyone knows my company by the name without “LLC” attached (example: everyone knows it as ABC not ABC LLC)
Question 1: Will I have to create a DBA for my website because of the “.com”?
Question 2: Will I have to create a DBA just to omit the “LLC” from my business name?
Jimi:
Your web address is not synonymous with your business name. You don’t use your web address in place of your business name. You didn’t sign a lease with the name “ABC.com” unless that is your legal name or your DBA name.
When you conduct business officially, you use the name ABC, LLC. Referring to your business as ABC is generally OK by itself.
Imagine your legal name is “Jiminy”. Your driver license has “Jiminy”, but all your friends call you “Jimi”. Does that mean you should sign “Jimi” on a legal contract? Of course, not. You should legally sign as “Jiminy” if that’s your legal name. But it’s ok if your friends call you “Jimi”. Same thing with your business.
You would need a DBA if your business is ABC, LLC and you market your services as XYZ Company. That is not the same as ABC, so you need to make it clear who you are.
Hi There;
I am an Insurance agent working as an independent contractor (1099). I have the opportunity to sign other agents below me also as 1099 contractors. The Company takes care of their paperwork and commissions. I also make commissions on their sales. I need to form my own group/team and choose a Company name for my team. Basically like a pyramid scheme. Should I choose a DBA or an LLC?
Susannah:
Your “team name” can be as simple as a DBA. Other terms for DBA are “assumed name” or “fictitious name”. Your team isn’t an entity or a business in itself. Once your own income becomes substantial, you may wish to create an LLC for your business in order to get tax protection–but we’ll leave that topic for another day.
Separately, please don’t confuse your business with a pyramid scheme. A pyramid scheme is based upon the premise that profits are generated from having people below pay in money to participate and when the lower levels no longer keep paying, there are no sales to support the pyramid. In an insurance company, there may be several levels of management sharing in commissions, but they all are sharing a portion of a sale that is purchased from outside the organization. Your subagents represent likely very little of the sales revenue as customers. In a pyramid, the customers ARE the lower levels of the organization.
Hi – I’m having no luck finding an answer to this question online, so maybe you’ll have some ideas… Using your article’s example, say John Smith successfully obtains his DBA for ABC Cleaning. He then wants to form an LLC. Can ABC Cleaning be a member of that LLC instead of John Smith being the member? I suspect not, but I can’t find any CA Code, cases, or articles that address this specific question. Thanks in advance for any insights you may have.
Hello, Steve.
Let’s look at this situation. A DBA is nothing but a name. A DBA is NOT a legal person. So, Steve, let’s assume you have a nickname and your friends call you “Skippy”. If Steve can sign his name to own an LLC, what happens if “Skippy” is the owner of the LLC instead? Answer? Steve and Skippy are the *same* person, so it doesn’t matter what the name is. The law says the owner is Steve because Skippy *is* Steve. Using a DBA works the same way.
DBAs cannot own anything because it is nothing but a name.
Thank you Randall, much appreciated
My wife and I want to start a business of custom arts and crafts such as clothing, customized shoes, art, cups, and other artsy stuff. Should we get a DBA or LLC?
Hi Carmen,
If you are concerned about protecting your personal assets and income, forming a business entity such as an LLC will provide you with certain liability protections.
For that reason, many business owners choose to form a business entity.
Here’s where you may learn more about it: Choosing a Business Entity
All the best…
I have a DBA for my clothing store. Do I need an LLC as well? Also can I use my DBA to start a trucking company?
LaNora,
The LLC is a business entity whereas the DBA is merely permission for you to use a fictitious name for your business (which you own individually).
There is a big difference between the two choices and one which you should carefully consider.
In Carmen’s question above, you will find a link to another post that may be helpful to you.
If you want to use a different fictitious name for the trucking company, you will need to file for another DBA (or business entity) unless you want to use the same name.
All the best…
Hi, I want to sell food from home I filled for a DBA will I also need a LLC. Thank you in advance
Hi Gwendolyn,
If you’re concerned about protecting your personal income and assets, filing for a DBA (or Fictitious Name) will not be helpful.
Forming an LLC for the home-based business will provide you with certain legal liability protection.
It’s a matter of your personal risk tolerance!
All the best as your startup your business…
Dear Michael
Yes, you can file as a DBE. However, having been in the transportation industry for over 25 years. You will discover that there is a great deal of inherent risk in operating a trucking company. You might want to consider an LLC entity to provide you with an added layer of 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.
Dear Saul
Congratulations on starting your business.
The benefit of an LLC is it provides you with a level of liability protection. Since you are hiring staff, that extra level of protection will reduce some of the personal risks you may face.
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.
I filed for a DBA but will be employing 2 people. Will opening an LLC benefit me more?
I’m just going through starting my own business in trucking do I need to file for a DBA
Hi, I have a current LLC in place and I want to start another business. My current business is in the pet industry and my new business is in the same industry just a totally different product and business model. Is this a situation that I could use a DBA or would it make sense to just start another LLC? And if I did use a DBA, do you keep separate books or can you file all revenue and expenses under the original LLC? Thank you so much for your time.
Hi Katie,
As long as you are willing to co-mingle the risks associated with your existing LLC with the new line of business you desire to start, filing for a DBA is possible.
What I mean by co-mingling risks is that should one of the businesses have a lawsuit, claim or incurs a debt, the assets and income associated with the other business would be in jeopardy. That’s so because there would technically and legally be only one business, not two.
If you choose to go this way, keeping separate accounting records, as well as bank accounts, for the two businesses is wise. Especially so if you every intend to sell either business.
Keeping separate accounting records and bank accounts won’t prevent you from filing a single tax return for the LLC. You simply combine the two Profit and Loss and Balance Sheets.
All the best…