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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If I have formed a DBA for my business, can it be later converted to an LLC? If, so what would the process be?
Dear Bianca,
The answer is yes. The process to establish an LLC would be dependant on your state’s agency that oversees the establishment of new business entities. For example in the state of Ohio, the Secretary of State Office oversees business-related services.
Keep in mind that one of the advantages of an LLC is its liability protection.
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.
Hi Bianca,
If you choose to convert your sole proprietorship using a fictitious name, you will likely need to cancel the fictitious name before your new LLC applies for the name.
Otherwise, it won’t be available!
All the best…
Hello, I’m looking to start my own brand of Liquor. I currently sell nonalcoholic frozen drinks through social media and at home. I’m confused on the difference between the name I want to use on my frozen drinks vs my business name. Can I use the same name or is it best that I don’t use the same? I want my name or should i say brand, to be legally mine where no one else can use it, Should I file for a DBA or LLC? Please help!!
Hello, SunShine!
Entrepreneurship is exciting and a minefield of choices, too. As for names and protections, take a look at a common brand, Oreo cookies. Oreos are produced by a company called Nabisco. The company name and brand name are completely unrelated.
Your “Nabisco” could be any name whatsoever. You will probably want to make your business as an LLC or a corporation or a partnership. LLC’s are NOT a “fits-all” solution. You should definitely have a conversation with an attorney regarding how an entity choice can protect your assets but also be useful if you are trying to raise capital. You will also want to talk to a tax advisor (like us!) if you want to save money on taxes, too.
But your brand name cannot be a “dba” or an LLC. A DBA is a name you conduct business under. You cannot go the offices of “Oreo”; you go to the office of Nabisco. Brand names and products are protected by Trademarks. You will likely need the help of an intellectual property attorney to help you with a trademark that can protect your brand name nationwide.
If you presently own a business but operating under sole proprietorship, you wish to change to LLC but keep the same operating name when you took over the business with same EIN. Do you have to start the process all over again?
Kay:
An LLC gives you legal protection. As a SINGLE-MEMBER LLC (SMLLC), you get legal protection, but you can still remain as a sole proprietorship for you taxes. The EIN is related to your taxable entity, so in the eyes of the IRS, a sole proprietorship and the owner are the same “person”. For an SMLLC, the entity is disregarded for the IRS, so you can still use the same EIN you have been using as before, but legally you will need to use the LLC same instead of your personal name as the business. As for your taxes, nothing changes.
Now, if you want to use the LLC for tax protection, you will need to make an election to be taxed as a corporation. This is something you should talk to a tax advisor (like us) about setting up. If you choose to be taxed as a corporation, you would need to establish a new EIN and start as a new business, but you could still operate under the same name IF you create a DBA (assumed name) for the LLC.
Hi, my daughter has an Instagram account and she uses a different name other than her real name. She has a huge fan base with hundred thousand followers. She started her own business with Etsy creating and selling her art work along with pins and stickers using her Instagram name as her business name. In the future she plans to have her own clothing line having her set printed on the clothes. Should she open up a DBA or LLC? Can she do both? Example her real name is Jane Doe but she goes by a name she created herself such as Yomoto and that’s her Instagram name. Her Etsy business also goes by Yomoto. Should she create a DBA first and when her business grows that may require her to have employees then change it to an LLC? Appreciate your help!
Hi Seth,
Based on what you’ve described, it appears your daughter has assumed a fictitious name on Instagram.
If she is selling a product under that assumed fictitious name, at a minimum, she should file for an official fictitious name (DBA) in the state in which she resides.
A DBA is not a business entity. In your daughter’s case, registering for the DBA would simply mean she can use the fictitious name to do business instead of her legal name. She will also be able to open up a business account under the fictitious name and file for an EIN under the fictitious name instead of her social security number. In this scenario, she would file her federal income taxes on a Federal Schedule C every year. Selling on Etsy means she may need to collect and remit sales tax in her state and possibly in other states as well.
Filing for an LLC would mean your daughter has a separate business entity from herself. An LLC provides its owner(s) certain liability protections. Whereas a DBA (fictitious name registration) offers zero liability protections.
Selling products online and having a very popular ‘brand’ on Instagram means your daughter is assuming certain risks. Again, a DBA won’t offer her liability protection.
Having employees would mean your daughter’s business would need to collect, pay and remit payroll taxes. This will require an EIN, regardless of the type of business she chooses to operate.
It is possible to operate the business as a sole proprietor (DBA) and then later contribute the assets and liabilities of her business to an LLC she forms.
One of those assets would be the brand name she is currently building. Again, at a minimum, she should file for a fictitious name for her brand.
Hope this helps a bit Seth…
All the best to you and your daughter!
I live in NJ and want to start a business as a Virtual Assistant. Providing graphic design web ect remotely. I want to brand my business just not sure about having a DBA or LLC. The site to file is so confusing to follow.
Dear Jackie
Either are acceptable ways to brand your business. The benefit of an LLC is that it provides a level of liability protection that a DBA does not. Personally, I prefer that extra level of protection.
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.
Hi Jackie,
You are correct… the sites where you file for a business entity, such as an LLC, or a fictitious name (DBA) can be clear as mud!
Here’s a post to help you understand what you are getting into a bit better…
All the best to you!
Good afternoon , my son is 21 and wanting to start his own business . He is wanting to haul from rock, dirt, ect. Could you please advise what would the first legal step ? He has a home but it is still under my name . I was waiting to switch it over when he graduated school. He wants to be protected anyone suing him and taking the little he has . We appreciate your time and help . What would be best DBA OR LLC ..
Dale:
If your goal is asset protection, then a DBA will protect it no better than a wish from the fairy godmother. In other words, DBA, which is nothing more than a name, does absolutely nothing in terms of asset protection.
Asset protection can be created by using an entity, such as a corporation, partnership, LLC, etc. These are legally recognized “persons” in the eyes of the law and provide a legal shield from lawsuits when used properly. I recommend that you speak with an attorney if asset protection is a priority.
Hi,
I want to start my business as a mobile notary and loan signing services. Starting off, I will not have any employees, if ever. However, I am having a hard time deciding whether to file for an LLC to protect my home and car,take advantage of tax benefits or to file dba since it’s just me and I will not have employees and avoid having to pay multiple fees in California.
Ms. Jackson:
You do not need an LLC to get started in business. However, the LLC will provide you legal protection (protection in case somebody sues you).
However, once you form your LLC in California, you will be liable to the FTB for annual LLC tax, which is $800 minimum each year. This is a trade-off: taxes, versus liability protection.
I made a poor decision to file an LLC and only after doing more research, and receiving your response, I realized that I should have simply filed a dba for my new notary and loan signing business. I filed it electronically through LegalZoom and it’s currently pending with the state. I tried to cancel but was told it’s too late. Can I cancel it and refill as a dba?
Hello,
I’m starting a new e-commerce business. My plan is to sell my products to customers in the US through my own online store. Let me introduce my situation:
I’m not American and I don’t live in the US.
I have a LLC registered in Delaware and got the EIN. The LLC has 2 members.
I’ve a virtual office in Orlando.
My goods are produced abroad and I will use a warehouse in California as fulfillment center.
I’ll open an online business bank account with a bank.
The name of my LLC is different from the name of my online store.
My questions are:
1) Do I have to filing a DBA if my LLC is registered with a different name from my store?
2) If I’ll sell my products in different states, where I have to pay taxes?
3) Who can be the professional that can help me with all the bureaucratic / tax issues in order to run well my company and avoid penalties?
Hope your team can help me to find the right solution, thank you for considering my questions.
Eleonora:
It is not required that you register an assumed name for your store, but it is a good idea so that it is clear that it is the LLC that owns the website.
As for SALES tax, you MAY need to collect sales tax depending on the total volume of sales. Each state has a threshold before you need to collect sales tax. If you are running an FBA or store through Amazon or ebay, then these sites will collect sales tax for you.
As for income tax, you will be liable for US Income Tax on your income. Since Florida does not have an income tax, no tax is due to that state,however, as a Delaware LLC, you will need to file appropriate LLC returns in Delaware each year.
I want to start a business from home. It will be about music and I’ll be posting and live streaming on YouTube and the likes. Eventually I’d like this to be a source of income. I’ve considered filing for a DBA or LLC to help with the part of getting more products necessary for my work and covering expenses under my business. Can someone tell me if I have the right idea or give me some advice? Thanks.
Jay:
Congratulations on launching your own enterprise. Keep in mind that neither a DBA nor an LLC will help you get more products for your business. That is not the purpose of these tools. An assumed name or DBA is nothing but a name. Nothing more or less.
An LLC is a type of entity that acts like a “person” in place of you. The LLC provides you protection in case you are sued by another party. It does nothing else by itself.
My advice is to start earning money. You will start off as a Sole Proprietor, by default. Once you start earning some money, then you can talk with an attorney about legal protection and to a good tax advisor about tax-savings strategies.
Hello. I live in Texas and plan to start a t-shirt business soon. I went to the TXSOS website and filed for an LLC and that transaction is currently pending. Do I need to file for a DBA as well? I did not see that option on the state website to file a DBA. Is that specifically with the county?
Howdy, TB:
You do not need to have a separate DBA name if you are going to do business under your LLC name. If you are going to advertise or do marketing under a DIFFERENT name than your LLC but still want to run all the business through the LLC, then the LLC will need a DBA name.
Dear TB
If you filed for an LLC, you do not have to file as a DBA. Suppose you are planning on naming the T-shirt business something other than the name of your LLC. Then you might want to have a DBA.
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.
When starting a home health care agency in Texas would it be a great idea to file a DBA or LLC?
Dear Terrelynn
Yes, it would be a good idea to create an LLC. The liability protection that an LLC can provide you, I feel would be very beneficial. For example, if one of your employees accidentally injured a customer or was accused of stealing. You would be protected personally.
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.
Im in the state of Florida. Which is better to do when creating a music publishing name to collect royalties with BMI or Ascap? A DBA or LLC? It is just me, nobody else. A DBA is like being an independent contractor? So when I file taxes it will be my earnings, not company earnings like an LLC? Im trying to avoid unnecessary fees.
Dear Gisella
If you are only concerned about unnecessary fees then a DBA would work. The benefit of an LLC is that you receive liability protection. Additionally, with an LLC you can file a 1065 return which enables you to deduct legitimate business expenses related to the music royalties.
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.
Hello, I am a photographer/graphic designer in the state of Texas. I already have a DBA and trying to decide if I need a LLC. My main reason is I’m trying to do work for a local public high school. The school wants me to get all of my paper work. I was going to apply for an EIN. Do I still need a LLC or will just the EIN suffice?
Thanks
Hello, Fred:
You do not NEED an LLC to do business in Texas. You do not NEED an EIN for a sole proprietorship unless you hire employees. You may use your SSN as your Tax ID number.
As a therapist is it best to form a LLC or DBA when I will be paid as an independent proprietor (like an Uber employee)for a therapy company?
Linell:
Yes, it is best to be paid!
Whether you are a sole proprietor or operating an entity depends on whether you want/need LEGAL protection and/or TAX protection. If you need neither, then a DBA is just another name for your sole proprietor business.
If you form an LLC, you will at least have some LEGAL protection, but no tax protection.
If you want tax protection, please consult a tax advisor (and/or an attorney) as to how to create that protection.
How is a Series LLC different from just forming an LLC and registering DBAs for the different entities of LLC?
Adelia:
Image that your protection for your LLC is a plastic baggie. You put your assets in the LLC/baggie so that it doesn’t get wet and the sharks can’t get to you easily.
A Series LLC is a Series of baggies. You might have 10 stores. You put each in its own baggie. If a shark eats through one baggie, he can’t easily get to the assets in the other 9 baggies.
Now, if you have just ONE baggie and have 10 different NAMES (or d/b/a’s) inside ONE baggie and the shark gets into the baggie, then all TEN stores are available for the shark to feast on!
If I file a DBA under my current LLC , it’s covered under my LLC for liability right?
L:
A d/b/a or Assumed Name is just another name for your existing LLC. Therefore any business you do under the new name is protected by the LLC entity because it is the same entity.
“A rose by any other name….”
How can I register my business name so that nobody can take it? If I choose LLC how long does it take to get it approve? Also does that come with an ein number once I register my business to an LLC?
Diana:
Within your state, the state will not allow two active businesses to charter with the exact same name or too similar of a name. Likewise, if you register your assumed name with the state, the state will not approve if the name is too similar to an existing d/b/a name.
Unless you register your business in all 50 states, you company name might be in use in another state. There are other legal protections you can get on a federal level, such as a trademark or servicemark which can protect your name or other mark on a national level.
An EIN does not “come with the business”. You need to apply to the IRS separately for a new entity.
Most entities can be created with the Secretary of State in a day or two. Some may take longer, particularly in the current environment.
Dear Valerie
It is my understanding that you can create an LLC and have your DBA. Having an LLC does provide you with a certain level of liability protection and is a business registration process.
Disclaimer
The information provided is not designed or intended as legal or financial advice. It is for the educational or sharing of information purposes. Please consult with your legal or financial advisors.
HELLO,
Myself and 2 close friends are starting a podcast together. We created a DBA, instead of an LLC. Now we want to create an LLC and not sure if we cant after creating that DBA… My question is can we create an LLC and have our DBA under that ??
Also, isnt creating a DBA a form of registering a business ?? I am lost when it comes to this.
I feel like by creating a DBA i did not register my business, therefore anyone else could take the name.
Hi Valerie,
Filing for a DBA (fictitious name) is not a form of business or registering a business. Instead, it is the registration of an individual’s fictitious name used in a business.
It’s not possible for two individuals to file for a DBA. Only a single individual or a business entity may file for a DBA, so it’s not clear to me what you and your two friends filed for.
By filing for the DBA, you did not register your business.
If you want to form an LLC with your two friends and use the fictitious name (DBA) you filed for, you will need to cancel or terminate the DBA first. Then form the LLC with the official name you desire. If that name is the former DBA, you should be able to use it if it’s been terminated.
There is no such thing as having an LLC with an DBA under it. You have an LLC (a business entity) with an official name, which can be the former fictitious name you chose. Or, you can form an LLC with any official name that’s available and then have the LLC file for the fictitious name.
Does this help?