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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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…