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
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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Great article!
I was interested in using a DBA under the umbrella of my LLC. How exactly do you combine the two? Also, will I then be able to have the tax benefits of the LLC using the DBA for the new services provided?
Hey Rashad,
Great questions.
Remember that the LLC is a creature of the state, meaning, state laws govern the LLC. So, depending on where you formed the LLC v. where it operates, you may not have to “combine” the two, but simply update the DBA certificate. If you’re a foreign entity LLC (e.g. Delaware LLC operating in New York), you may have different obligations.
For example, in NY, you must file a DBA certificate with the New York State Department of State if incorporated. “All other entities such as general partnerships, sole proprietorships, and limited liability partnerships file an Assumed Name Certificate directly with the county clerk in each county in which the entity conducts or transacts business.”
Tax benefits of the LLC flow through to the individual member(s) unless they have opted to be taxed as a corporation. Therefore, the DBA has no impact on tax benefits.
A lifelong friend and I are wanting to start a small wood craft business on Oklahoma. We also work separately as independent contractors in a totally unrelated field. As of right now, we do not have an LLC or corporation. Initially we thought we could have one umbrella business (J and J Enterprises Inc, as an example) and a separate LLC for the craft business under the umbrella. (J and J woodcraft, as an example) Are we totally off base with our initial thoughts? Could you offer any insight? Thank you for your time
Hi JJ,
Setting up an umbrella business entity to hold part of or all of other business entities is useful under certain circumstances.
It is not clear to me why you and your friend want to have a holding company to own the new craft business you want to startup.
Let me know what you are trying to achieve and I will be happy to give you some things to consider…
Hi. Nice article. I already have an llc within my state (Florida), but I want to create a dba under my llc. Can I create that dba, then use llc at the end of it as it’s service will not be different ( targeting new customers)?
Hi T&T,
When identifying the business operation, you should be using the official business entity’s name — something such as T&T Express Shipping, LLC.
And when identifying the business operation under the fictitious name (or DBA), you should be using the fictitious name as it was applied for and awarded on the fictitious name certificate.
Adding the LLC to the end of your fictitious name would not be proper, unless this is exactly how the fictitious name application was awarded to your LLC.
Hope this helps…
Hello Holly,
I’m in NY and I have an LLC from another state, can I create a NY registered dba for this LLC?
Learning so much from your website.
Hi Jay,
If you have a business formed in another state than the state in which it is operating, then you will need to:
1. register the business in the state in which its operating as a foreign entity and;
2. if you want to use another name than it’s official (LLC’s) name, file for a fictitious name (DBA).
Glad the website has been helpful to you Jay!
Your five-star rating above and/or social media shares will help other business owners discover the site. And for that, I thank you!
All the best Jay…
I have my own LLC that is my personal brand (i sell products and offer services that are mostly basketball related), and i’m starting an amazon FBA business. Should I file a separate LLC, or should i file a DBA for the amazon business (I want a different business name)? If i file a DBA and do business under “Jason’s amazon products” for example, will i be able to sell just that part of my business in the future (just the DBA)? If i plan to sell in the future, do i HAVE to create a separate LLC?
Would love your help on this! Thank you!
Hi Jason,
This is a great question many new business owners ask me and I am glad you asked it too!
I believe when you start a business you should give careful consideration regarding how you will get out of the business. Hopefully, it will be sold or transferred to your family! No bankruptcies here! 🙂
So, asking about the best way to set up a business entity is very wise.
The short answer to your questions is no. Nothing requires you to set up a separate LLC (or other business entity) if you want to sell your business in the future!
That said, there are many legal liability and tax reasons to set up a separate business entity. I built an e-course on this topic due to the many factors business owners (new and expanding) need to consider when starting a business. This may help you too.
Unfortunately there is no simple, cookie cutter way to tell you whether it makes sense to form a separate business entity.
I wish you all the best in your new business Jason…
Great piece! It really helped me get things straight in my head…
I have a business currently registered as a Sole Prop. with my wife, and am now expanding and filing our LLC paperwork. My question is what happens to our current Fed Tax ID? Do I get another one for each new entity we create? Do I change the current one to be for the LLC? Does nothing change? You get the idea 🙂
Hi Jonathan,
Glad it’s been helpful to you!
Your business being operated as a sole proprietorship is associated with either your social security number or your wife’s SSN in the eyes of the IRS. Either you or your wife filed for an EIN, which you’ve been using for the sole proprietorship when you file your taxes and pay employees, if you have those!
This EIN belongs to either you or your wife and it may not be used in association with your newly-formed LLC. The LLC will need to get its own EIN.
The existing EIN, associated with you or your wife, lives (and will die… sorry) with whomever filed for it.
Hope that helps you… all the best to you Jonathan!
Prefect, that’s why I asked! Thank you so much!
I have 2 businesses. One I share with my sister but I have 75% ownership. The other 100%. She wants the lesser of keeping up with quarterly taxes etc as much as possible. I would like to keep it as simple for me as possible. So question 1 is can I make a partnership for the shared venture and then do DBA for my art retail business? Question 2: Would you suggest 2 sole proprietorships white her being a contract worker receiving payment be event. We have event planning business. I also want less red tape tax wise as possible. Question 3: I feel LLC is out because of the partnership correct?
Thanks
Hi Crystal,
If you have established a business with your sister and have not file for a corporation or LLC, then by default you have a partnership.
If you don’t want to have a business entity and prefer using a sole proprietorship for your 100% owned business, then filing for a DBA is necessary if you are using a trade name which differs from your legal individual name.
If your sister is performing services as an employee, she should receive wages and payroll taxes should be deducted and paid. Paying employees as if they are an independent contractor is not ever a good idea! I understand you’d like to avoid red tape! Unfortunately, running two businesses will mean you have to put up with admin stuff. I don’t like it either — LOL!
An LLC when you have two or more members is considered to be a partnership for federal tax purposes. So, if you wanted to form an LLC with you and your sister being the two members, you could choose to do so.
All the best…
I want to start my own cleaning business. Commercial and residential. Which one would I file for a LLC or a DBA. When filling for either one will they require me to be bonded before I can file?
Hi Rachel,
Whether you choose to form a business entity (such as an LLC) or operate your business as a sole proprietor and file for a fictitious name (DBA) depends on many factors. I am not able to advise you as to which is better. We cover this topic in great detail in our business entity e-course so startup founders and serial entrepreneurs can learn what they need to know before they make these important decisions. This e-course be helpful to you Rachel.
As for bonding, it is not necessary to have a bond before you form a business entity or file for a DBA certificate.
In one of your responses, you indicated that a DBA cannot be shared by itself. So, if I want to register a DBA without having a LLC and I want to register it in 2 people’s name, can I? The registration asks for the description of the DBA if not an individual. I took that as if you are either registering the DBA in more than 1 name, or if under an LLC, etc.
Hi Nikki,
The fictitious name (or DBA) may not be shared by two individuals or entities. The DBA is only associated with one individual or one entity.
If I form an LLC and name it Jane Smith LLC but I want to conduct business using my last name Smith or Smith’s, do I need to file a DBA?
Hi Erica,
If you want to use any name for marketing purposes which is not the same as the name registered when you formed your LLC, filing for a DBA or fictitious name will be necessary.
Thank You!
Hi,
I am wanting to incorporate an LLC and I was looking at forming it with the name I wanted for my product. But I did a preliminary search of the name through the Secretary of State in my state and there is something pretty similar already registered as an LLC. I was wondering can I incorporate with another name for the company and file a DBA as the name I wanted for my product? For example let’s say it was the word “Annex” I wanted for my LLC because I am creating a product called Annex candles but someone has Annex LLC registered so instead I form Uprising LLC and file a DBA for Annex so that I can use that name on my candles, would that be okay?
If not can I form that LLC as foreign in a different state where the name is availabe even if my physical business is in my home state where the name is not available?
Hi Katrina,
When you register your LLC in your state, you may designate the name to be something similar to another LLC. If it is exactly the same as another name, the state will not accept your LLC’s application. The same is true for a fictitious name (DBA). The state won’t permit duplication within its borders.
Registering a business as a foreign entity in another state is done when your business has a presence in the state. If you choose to form a business in another state and operate your business in your home state, you will need to register as a foreign entity in your home state as well.
It’s always best to choose a name for your product, services and business which will not infringe on another’s intellectual property rights. Searching for registered trademarks is a good first step to take.
Hi Holly. Is it possible to file multiple DBAs if you are a Sole Proprietor or do you have to be an LLC to be able to file multiple DBAs?
Hi CJ,
Yes, you may file for multiple fictitious names (DBAs) as an individual. However, the IRS will only issue one Employer Identification Number — EIN — to an individual. This means you’d file all Schedule Cs using the same EIN when you file your federal tax return each year. (I know you didn’t ask about that, however I get that question all the time!) Hope it helps 🙂
We have a retail store under a dba and now want to also venture into something else, which is towing but we want to do an LLC for that. Can we have one LLC and have a dba for the retail store and a dba for the towing company?
Hi Virginia,
Yes, you can form an LLC and have more than one DBA — one for your retail store and another for the towing business.
Doing so means you have both lines of business operating under a single business entity. The income, expenses, assets and liabilities would be co-mingled for tax reporting and legal purposes.
The fictitious name you currently have for your retail store is likely associated with you as an individual. This DBA would have to be terminated and a new DBA filing would need to be applied for by the LLC if you want to retain the name for the retail store.
Hi Holly, I’m thinking to form a LLC which contains my last name as in: Smith Enterprise, LLC. This LLC will be the mother business entity dba multiple different service nature businesses. What’s the correct way to register all the businesses? Do I need to include all the different names of the DBAs when I form and register the LLC with the State? For instance: Smith Enterprise, LLC dba Top Choice Catering, dba Gene Kelly Franchised Dance Studio Los Angeles, dba Studio S – Exercise Center. Or I should just register simply Smith Enterprise, LLC and then get business license for each dba from the local city government. The address for the LLC and all DBAs are the same.
My other questions are: are all the DBAs liabilities protected under the main LLC entity? If not, should I register each dba as LLC which can be very costly? Do all my business need to file separate tax returns including the LLC since they each have their own sources of income?
Or I have to file only one tax return under the LLC?
It will be greatly appreciated if you can respond to my questions, thank you!
Hi AM,
Well, let’s start at the top with the formation of an Limited Liability Company or LLC.
When you form a LLC as an individual, you are the owner and are identified as such regardless of the number of DBAs you intend to file for under the LLC.
Your local municipality, city or town dictates whether a business license is needed for a business entity (your LLC) and how the DBAs it may include are handled. You should inquire of them how they would handle an LLC with multiple DBAs for licensing purposes. I just don’t know.
Your LLC is considered to be a business entity and will provide you with certain liability protections. The DBAs you may apply for under the LLC are considered to be part of the LLC business entity so if you are sued or have a liability associated with one of the DBAs (a line of business), all of the LLC’s and DBA’s income and assets will be in jeopardy. Essentially, the DBAs under the LLCs are one in the same.
If you file for multiple DBAs under a single Limited Liability Company, you would file one tax return for all income and expenses each year. Which tax return you file depends on the elections you make when you form your LLC. We cover that topic in detail in our Business Entity E-Course, if you’d like to learn more.
I am sorry, I am not able to advise you as to whether forming a single LLC with multiple DBAs or alternatively forming multiple LLCs is best for your situation.
Hope this helps a bit as you learn more about your options.
All the best…
would the llc abbreviation be added to each additional entity? for example.
versatile solutions LLC (MAIN COMPANY)
spic & span (LLC?)
READY MOVERS ( LLC?)
Hi Sarah,
If the business you’ve noted here are true business entities and have been formed as a Limited Liability Company (LLC), then appending the LLC after the name is correct.
If the business is merely a subset or trade name for another business, then it’s a fictitious name (DBA) and using the LLC after the fictitious name would not be proper.
For example, if Spic & Span is a fictitious name for your LLC called Versatile Solutions, LLC, then after registering your fictitious name you’d refer to the Spic and Span operation as follows:
Spic & Span or
Versatile Solutions, LLC DBA Spic & Span.
Hope this helps a bit…
Great article, thank you. I’m new to this so wanted to ask:
1-If I file a DBA now, can I later turn that into an LLC or S Corp down the line?
2-If I file a DBA ans operate from home and from a rental office space, is my business still considered a home-based business?
Hi SM,
Glad it’s helpful to you!
Yes, you can take a DBA and turn it into an LLC or S Corporation in the future. It’s not a one-step process, however it can be done.
I am not certain what you mean by a home-based business. I know what that term means — just not the context of your question. Please expand on question two and I will give it a shot!
You are so awesome, thank you for you quick reply! Well, I currently operate my business from home. Now I want to rent an office space so I can also meet clients there. The bulk of my work is done at my house. So my question is, since I will operate business from outside the home, is it no longer considered a home-based business? I’m not sure how to report this on my taxes at the end of the year. I guess it’s a very rudimentary question, sorry if it is not in the scope of what you would normally answer in this site. Thank you
Any question you have is a good one so no worries!
Your situation is a common one now that many business owners use their homes to work from. Technology has leveraged our time immensely!
If you have not formed a business entity (corporation, LLC or partnership), your business by default is a sole proprietorship and you are required to file a Schedule C with your personal tax return to report the income and expenses for your business. This is the case whether you use your home and/or an outside business location for your business.
If you are moving your primary meeting place for your clients from your home to a rented office space, the point in which you would calculate your business travel will change. In the past, you would have been using your home as the start location for business travel. The same is true for office expense deductions. The key to this change is where you will be primarily operating your business.
I hope that covers your question. If not, just let me know!
A individual owning a LLC catering company wanted to start a valet parking business. Is it possible to make a DBA and have it legally be 50/50 ownership with another person?
Started a separate llc for valet and insurance is stand alone instead of umbrella coverage now. More than doubling the cost, can go backwards now and make the llc a dba?
Hi Mike,
Well, I will start by stating I don’t ever think it’s a good idea to co-mingle the assets, income and liabilities of two businesses–especially when the risks between them differ greatly. A Catering business and a Valet Parking business each have risks and neither are similar.
A DBA is a certificate of fictitious name for an individual or a business entity. The DBA certificate cannot be owned 50/50 with someone else. If a DBA is filed for under an LLC, then it is owned by the members of the LLC. If a DBA is filed for by an individual (in the case of a Sole Proprietorship), then it is owned by the sole proprietor.
I believe you’re asking if you can change your Parking Valet LLC back to a sole-proprietorship and use a DBA for you individually in order to reduce your insurance costs. You can dissolve an LLC and operate as a sole-proprietorship. You have to file forms with the State to do this properly and there may be tax consequences. Although I am not well-versed in Property and Casualty Insurance matters, it’s important to understand that the P&C Commercial Liability Coverage you have now (which is more costly) is not the same coverage as your personal umbrella coverage. Carefully explore the differences with your insurance agent before you make a decision one way or the other!
I am starting a couple of internet buisnesses and they are both retail buisnesses. But just have diffrent names and sell diffrent things . How can I make it easier for me to file one protership or llc for both companys and keepit under one bank account. I just feel like there both internet retail buisnesses and thats the same to me just diffrent products. I understand now what dba does. But I really would just like to file one llc , open one buisness bank and trademark my names and be able to use the same later on down the line when I open up more online retail buisnesses. How can I make running theses buisnesses a lot more easier
Hi Al,
If you are not concerned about co-mingling the income, assets, and liabilities from all of your retail and internet sites, it is possible for you to form one business entity (an LLC, Corporation or Partnership) and file for DBAs for each line of business. Doing so has inherent risks should something go wrong in one of the lines of business as all lines of business would be exposed to liability.
Also keep in mind that when you try to sell one of the retail shops or web properties, you may find a buyer to be reluctant to acquire part of a larger business all held under one business entity. I see this as a common problem for internet entrepreneurs holding several web properties under one business entity.
All the best to you Al in your new venture!
Hello Holly Magister
First I would like to say your articles and responses are gold mines of information. Thank you so much for taking the time to do them.
I don’t have so much a question, I’m asking if you could elaborate more on an answer you gave to Al on November 21, 2015 at 4:10 pm.
I just finished coding 3 websites that will be 3 separate online stores selling completely different items, and this started my search for setting them up properly. As as you pointed out in your response I actually plan on eventually selling one or two of these web properties. My ultimate goal is to have one primary company lets just say “Z corp”,(That I have complete control over, not like what happened with Bill Gates getting booted from his own company) and developing or acquiring smaller companies along the way. So ie Z Corp develops Web business A, buys Web Business C buys Brick & Morter business C. Side note within 5 years wants to sell web business B.
Thank you so much for your anticipated reply
So with the following scenario what would you recommend as far as a company structure.
Hi J,
So glad you’ve found the website valuable — it’s my pleasure to help.
I had two points to make with regard to using multiple DBAs under a single business entity in my reply to Al:
1. When you have one business entity and add multiple fictitious names (DBAs) for various lines of business or web properties in his case, you still have one business entity in the eyes of the law (and for tax purposes too). There are inherent risks when your business is set up this way. One of the biggest risks is that if one line of business is sued, all of the other lines of business are subject to the lawsuit — because in the eyes of the state/law, it’s one business and the DBAs don’t offer any liability protection.
2. If you intend to sell one (or more) of the lines of business represented by a DBA Fictitious Name Certificate in a given business entity, it has been my experience that often buyers find it difficult to verify the income, expenses, assets and liabilities during the due diligence phase of the acquisition. Unless the owner is keeping keeping separate financial statements– Profit and Loss Statements and Balance Sheets — for each of the DBAs (web properties in your case) many buyers get cold feet. They find it difficult to believe the numbers presented to them by the business owner when the numbers are co-mingled and being extracted from one set of financial statements.
I am not able to recommend a company structure for you J as there are many factors to consider — your income level, your other personal assets, your risk tolerance, etc. That said, if you do choose to use one business entity and then file for multiple DBAs for each business it holds, at a minimum I recommend keeping a separate general ledger for each DBA.
All the best to you with your web properties!
HI,
I wanted to know if there is any potential problem with having the same DBA for 2 different LLC. So, I currenly have an LLC and DBA for it. I am expanding to another location. I have been advised to keep both locations separate with different LLC and differend DBA for obvious protection reasons. But I thought that having same DBA (not same LLC) will allow for brand building and recognition. Please share your thoughts on this.
Thanks
Hi PC,
A DBA Certificate doesn’t offer your LLC (or any other form of business or its owners) exclusivity on a given trade name so if your concerned about building brand recognition with the fictitious name (DBA), you should be able to file for the same name for both of your LLCs.
That said, you must realize that anyone else or any other business may also file for and obtain the same fictitious name DBA. So building up a brand name with a DBA may ultimately backfire. You may want to consider filing for a Registered Trademark on the trade name or brand you desire.
All the best…
Very helpful resource for many beginning entrepreneurs. Thanks for a good read! Sharing.
Thank you for your kind words!
We’ve found as business owners grow their business, they add lines of business and want to learn about the optimum way to structure the new business. DBAs and LLCs are not the same so there tends to be confusion about which is best to use.
Looks as if you specialize in M&A so I would be willing to bet you find many of your business clients have multiple business entities. Do you have any advice for business owners about structuring multiple lines of business as it relates to its ultimate sale? We’d love to hear from you about it!
Thanks again…