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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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I’m starting a website business, live in MA. Will start to work with a site developer (out of the country) which will take 7 month aporox till launching the site. Thinking to form LLC 1 month before launch to postpone paying the heavy MA formation fees. In the mean time how should I operate with the developer when signing the agreement? To save the name, can I just file application of reservation of the name? Or should I do a Sole proprietor dba…then transfer it to llc before launching the site? Also, the issue of fees and expenses to be tax deducted when I file in april of 2021?
Thank you very much.
What happens to the LLC and the dba when you want to retire and sell the business ?
Hi Grace,
When a business is sold, the LLC and/or fictitious name (DBA) may be part of what transfers to the new owner.
If so, the purchase agreements signed by the seller and buyer of the business will state so and the attorney handles the transfer. This is typically done once the attorneys verify that the transfer is possible — i.e. the State clears the business entity. The fictitious name is transferred as well.
If the LLC and/or fictitious name is not part of the sale, then once the business entity has wound up its affairs and closed its business checking accounts, the entity and/or fictitious name is terminated by filing a form to do so.
Hope this helps…
If a person has a sole proprietor DBA and has a bond would there be a reason to change into an LLC for liability reasons?
Hi Mary,
An LLC offers the business owner more legal protection than a sole proprietorship with a fictitious name or DBA.
So, it’s a matter of assessing how much legal liability protection you desire.
There are also tax considerations because an LLC may be taxed (by your election) as a corporation, s corporation or partnership. Whereas a sole proprietorship (with or without a fictitious name) may only be taxed on the 1040 Schedule C.
Hope this helps a bit.
Howdy, Texas Neighbor!
Sorry, no, you cannot convert yourself to an LLC. No, you cannot re-use the tax ID number.
A d/b/a by itself is nothing more than another name for you. If I call you “Chelle”, you are still Michelle, legally. Your d/b/a is the same thing–another name for YOU individually.
An LLC is a SEPARATE PERSON in the eyes of the law. Yes, you can form an LLC online, but like many things, just because you can do it yourself doesn’t mean you should.
If you create an LLC, you will need to get a new federal tax number (EIN).
Let us know if you need help!
Can you change a DBA to a Limited Liability Company in Texas online? Also, will the Tax ID Number remain the same or will a new one need issued?
Howdy, Texas Neighbor!
Sorry, no, you cannot convert yourself to an LLC. No, you cannot re-use the tax ID number.
A d/b/a by itself is nothing more than another name for you. If I call you “Chelle”, you are still Michelle, legally. Your d/b/a is the same thing–another name for YOU individually.
An LLC is a SEPARATE PERSON in the eyes of the law. Yes, you can form an LLC online, but like many things, just because you can do it yourself doesn’t mean you should.
If you create an LLC, you will need to get a new federal tax number (EIN).
Let us know if you need help!
I have a photography name that i have been using for years…FTF Photography. I want to start a media company (as an LLC) that does photography, flyer/obituary/website design, & t shirt printing. I’m thinking of naming this company FTF Media Solutions, LLC. Since I have been doing photography under the original name, is it wise to go ahead and file the DBA for that name at the same time that I file for the LLC, or wait until the LLC is approved, then file for the DBA?
Also, are LLC’s taxed as corporations? I was speaking to someone who suggested to just do the DBA with a EIN & a D.U.N.S. number to be able to do banking and apply for a line of credit while allowing me to avoid the corporate taxation.
S: You can do whatever you want in terms of how you set up your business. Advice you find on the internet regarding this is as good as the money you pay for it. Since all we have here is about three sentences about you and your business, as a tax pro, I cannot give you general advice that is going to be truly helpful as personalized advice knowing a lot more information. Imagine you have a pain in your abdomen. Telling a doctor over the internet that you have a pain isn’t really going be enough information to help resolve your pain. Doctor can only guess what might be going on unless he does a full exam. Well, the same is true in business advice.
As for how LLCs are taxed, the answer is “any way you want!” LLCs are not recognized by the IRS. You must decide whether your LLC is an “ignored entity”, taxed as a C-Corp, S-Corp or partnership. You choose.
So the BEST advice I can give you is: Talk to a tax pro about YOUR situation and goals one-on-one. It’s worth the money.
If an LLC being taxed as a sole proprietor renewed a DBA certificate and added 2 partner names not on the LLC then what business ownership and tax implications does that place upon the new partners?
Megan: An LLC does not have “partners”, but “members”. Once your LLC has more than one member, by default, it becomes taxed as a partnership (but its legal form is still an LLC). So it does have significant tax impact in both reporting (you’ll have to file a partnership return at the end of the year) and accounting as a partnership. The partnership accounting starts the moment there is more than 1 member. If you need help with your partnership accounting and tax, let us know! We work with many entities of this type.
Thanks Randall, but members have not been added to the LLC, only to the DBA form. Does this have any implications for the additional ‘owners’ added to the DBA form?
Megan: You cannot have members OR partners of a DBA. A DBA is a name, not an entity. If your entity is “Green, LLC, doing business as Redco”, no individual persons can own Redco. Redco is JUST another name for Green, LLC. Green LLC has owners called members. So if the DBA is another name for your LLC, then these “partners” MUST be members of your LLC, or they are nothing at all.
Thank you, Randall. That answers my question well.
What is recommended for a small venue business LLC or DBA
Eduardo:
Yes! It is best to visit a tax advisor before you make this decision!
There are too many considerations to give you blind advice.
If you think it costs too much to get the advice of a professional, you will reconsider once you find out how expensive it is to NOT have such advice.
Hi, i’m in FL. let’s say my LLC is named XYZ LLC but I am not using the LLC designation for my website and social media (I use XYZ instead of XYZ LLC). Do I need to file a DBA to use XYZ?
Hi YR,
Anytime you or your business uses a tradename which differs from the legal name you were given or your business applied for, you need a fictitious name certificate (DBA).
Even if it’s a URL.
And you should be certain using the name is not infringing on another party’s IP rights.
All the best…
My daughter and I are starting our own separate business. If we get an LLC. name and operate under two different DBA’s, will it be covered under the LLC. can we have separate bank accounts and do we file taxes together?
Hi S. Robinson,
If you choose to form one business entity (LLC) and then file for two separate fictitious names (DBAs), you will have one business with two lines of business using different trade names.
Yes, you could each take your DBA fictitious name certificate to a bank and open up your own bank accounts.
And yes, you would file a single tax return for the LLC. By default with two members in the LLC, you’d have to file the taxes as a Partnership, unless you choose to elect to treat the LLC for tax purposes as a C or S corporation.
Hope this clarifies things a bit for you!
I’m a Graphic Designer/Illustrator currently operating as a sole propriator. I’m interested in expanding to include merchandise design and sell items online or at events. I would like to name my business and trademark my work under the business name. I’m trying to decide between a DBA or LLC. It seems like a DBA is the way to go, however I would like to expand into various other directions, such as a line of children clothing or whatever. Is an LLC the better way to go?
Hi Jose,
The decision to form an LLC or to simply use a DBA for the additional brands you’re contemplating often comes down to whether or not you need to isolate one brand (or more) from the others and the operating business.
It’s wise to consider liability exposures between the business and brands.
And of course then there is the additional cost of filing multiple tax returns for more than one LLC, if you choose to go that direction.
All the best…
When I start my business under LLC, why do I have to pay $800 every year to IRS. And is that mandatory how does that work?
Josephine:
There is no $800 minimum tax to the IRS. It sounds like you may be in California where there is an $800 minimum state franchise tax. Yes, it is mandatory in order to maintain your LLC in CA.
I am starting a roofing company. Which would be better LLC or dba
Hi Melinda,
There is no blanket answer and that’s because there are a number of important factors to consider. The type of business and its associated risks is one factor to consider.
That said, there are many others as well — here’s a post covering the topic in more detail.
All the best…
LLC vs Corp and DBA, which one of these I should apply for? I estimated $60,000 annual income!
Hi David,
There is no simple answer to your question — regardless of your anticipated income.
Here’s a post intended to help you understand your choices.
All the best…
Olivoil:
Hope you had your Spinach today!
Without seeing the actual documents, more than likely you are personally liable for the debt you signed. Unless the debt instrument has some language that allows you to assign your debtor responsibility to another person, you remain personally liable. However, consult with a live attorney if this is an important issue for you.