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. I’m going to be selling hair, apparel & other items online, located in Mississippi. 1.) Do I need a business license & seller’s permit. 2.) I have created an LLC, received my certificate. Since I’ll be selling more than hair extensions, I would like to know if I could change/edit the name once its been created? 3) I usually do my own taxes, however now that I have business, I’m very scared to do them myself. Any suggestions?
I have a mobile Dj business and I was advised to make in an LLC because I do work for municipalities that require a Business Registration Certificate.
I formed my LLC in October of 2011. I did not realize that I had to file an annual report. I just had to reinstate my “revoked” company and pay past annual fees.
With other fees it came to $535.00 as I have been in revoked status since 2014.
Should I continue to pay the filing fee each year, or dissolve my LLC and just make a D/B/A? Any advice? My business is part-time and makes about $7,000 annually. By the way, my lawyer charged me $1400 to form this LLC back in 2011.
Is it worth it?
Hi Joe,
The decision to keep (or form) an LLC (or any other type of business entity) generally comes down to whether you desire to have liability protection outside of the protection you gain from having an insurance policy.
Every business owner has to assess the risks, based on their own circumstances. So, it’s not possible for me to advise you.
We do have a series of posts to help business owners like you Joe to assess the options and to weigh the risks. The learning series starts here.
It’s always best to obtain a business insurance policy to cover potential risks, regardless of the decision you ultimately make about your business entity.
All the best Joe…
My husband and his partner have had a paving business w/ a dba for the past 13yrs His partner is omitting himself from the busineas, legally of course. My question is my huaband wants to add my 3 sons to the dba Is this possible or does he have to incorporate
Coleen:
Your statement is very confusing. “My husband and his partner have a…business”, then “His partner is omitting himself from the business, legally of course”.
You either have a business partner in which case you are operating a partnership and the partner is an owner, or the partner is NOT an owner at all and therefore, is NOT a partner.
Second, you did not mention the legal type of entity the paving business is. Is it a sole proprietorship (can’t have any partners), is it an LLC? or a Corporation?
Therefore I cannot advise you on adding sons to a d/b/a because a d/b/a is NOT an entity. And I do not know what type of entity you have; a d/b/a is a name only. You cannot add something or someone to a name only.
Sorry if we have confused you. But to answer your question, we’re going to need clarification on the situation first.
My friend and I are starting a cleaning business and are struggling to figure out if we should file a co partnership/DBA or file as a LLC. Also wondering if we file a co partnership and decided to make it a LLC that no one can take our name and file a LLC before we get the opportunity. We will start out with the two of us cleaning but know in the future we will want to have employees. We know for the time being that we can 1099 people but we want to know what would be most beneficial for us and our business.
Hi Heather,
There are many things to consider with regard to the business entity you choose to form when you start your business.
Unfortunately, there is no ‘one-size fits all’ approach to the decision.
We’ve got a series of posts here to help you get started on the decisions you will need to make.
Thank you so much for this useful information. It helped me a lot.
I have an interesting question.
I started doing some personal shopping for people when it comes to clothes and it seems to work! It’s like an Instacart but with clothes. They pay the price tag and shipping and I ask them to leave a tip of their choice because I don’t know what to charge yet.
Can I file for a DBA with this? It’s not upselling any products but simply connecting people to the deals I find in store.
I pay for the item and they pay me, I also provide the time and material to ship.
Lastly, any tax advice on this type of idea?
Kay
Congrats, Kay on making up a new business! This is what entrepreneurs DO!
Right now, your business is a sole proprietorship. That means at tax time you file your income and expenses on Schedule C.
a D/b/a is nothing more than a NAME for said sole proprietorship. You register this name with your county or state. D/b/a is also known as an Assumed Name.
If you operate your business under an assumed name, it does NOT CHANGE any tax reporting or provide tax protection.
As for your business, what you need to do is think about your BUSINESS MODEL. The model is how you will charge your customers and operate the business. Think the Apple iPod business model: Apple said “We could sell widgets that play music and sell them for $200 so we can get a $100 profit!”. Instead, they created a BUSINESS MODEL that said “We can sell widgets for $0 profit but make a HUUUUUGE profit by selling music for $1 a song that can only be played on our widget!”
HI Holly,
I am in the process of starting a virtual company for health and wellness coaching.
Can I start with a DBA and move into an LLC when ready? I also did check to make sure the name I came up with for my business was available through the the
ASIC website, is there anywhere else I need to check for this?
Thank you so much for your time
Hi Donna,
Yes it’s possible to start your business as a sole proprietor, file for your (individual) fictitious name (DBA) and then subsequently take the assets and liabilities associated with that business operation and contribute them to an Limited Liability Company. When you take that last step, you will have to cancel your individual DBA before the LLC will be able to assume the name.
I am not familiar with the ASIC website. Here’s a post to help you understand how to protect your business name.
All the best Donna!
Hi, I have filed an oneten Universal LLC and got entity number. This business is for wholesale General Merchandise. But I want to do other business which is totally different, it is Furniture Finishing business. In this situation is it important to apply for fictitious name. Do I need separate Tax ID or the one I already have is enough for both business.
With regards.
Hi Ali,
First, it’s important to understand that if you choose to keep the LLC and have the LLC file for a fictitious name (DBA) for the furniture finishing business, you have one business, not two.
If you have one business entity (your existing LLC) and file for the DBA, you do not need to have another federal EIN (Tax ID). Everything you do will fall under the existing LLC’s EIN.
With that said, if you intend to market your furniture finishing business under a trade name that differs from your LLC’s official name, then you will need to file for a fictitious name.
Hope this clarifies things for you Ali!
All the best…
Hi, I am just starting out and I am bit confused. I am currently working on a natural body scrub and skin cleanser. Im not sure which license I should get. I am currently selling them from home. no website as of yet.
Hi Tenaya,
Licensing is handled by State and Local governing bodies and other private organizations.
It’s best to start your research in your state and local governments and then look for those organizations that may require (or promote) certifications/licenses associated with your business.
A DBA or the type of business entity you choose to form for your business is a separate matter from its licensing requirements.
All the best…
Hello!
I am starting a hair extensions company but I also am planning to open a salon. I want to know if I should start the salon as an LLC and then have the hair extensions company as a DBA, under the LLC of the hair salon. Is that possible?
Hi Toni,
Yes, this is possible. The LLC would apply for the fictitious name (DBA) and all operations, income, expenses, assets & liabilities would be part of the LLC.
All the best…
Thank you!
It’s our pleasure to help you Toni!
I am retiring from public schools and the school district that I work for wants to hire me as a consultant. In order for them to do so, they need me to form an LLC or DBA. Since I am only offering services to this one district, which would make more sense to create (LLC or DBA?).
Hi John,
Whether you choose to form a business entity, such as an LLC, or simply operate your business as a sole proprietor with a fictitious name (DBA) is truly a personal decision which you must weigh carefully.
We’ve got another post here that covers business entities in greater detail which may be helpful to you.
All the best…
I am starting an online sales business selling handcrafted jewelry and hats. Can I start with a DBA and later change to an LLC?
Hi Keturah,
Yes, you can operate your new business as a sole proprietor and file for a fictitious name (DBA) and later contribute the assets and liabilities associated with the business operation to an Limited Liability Company.
You will need to cancel the DBA associated with your personal name and then either use that tradename when you form the new LLC or have the LLC file for the DBA if you want to keep the same name.
Does this make sense?
I am looking to starting at least 2 businesses. One for Yoni Care services and products and an online business selling a collection of things like clothing, hair, lashes, purses and handbags, etc. Can my online business be a LLC or a DBA?
Hi Kiera,
Your online business can be either. It’s really a matter of whether you’d like to form a business entity or not.
If not, it’s important to understand that operating as a sole proprietor with a fictitious name offers you no personal asset protection.
And if you do chose to go down the LLC path, you will have more to take care of from an administrative perspective, especially when you get started.
All the best…
Hi. I am in the process of creating an LLC for my production company. My LLC will be named “ICDAT LLC” and I am filing dbas for three separate entities within the company. One covers the films that I produce for clients, the other is for films that I write and produce personally, and the final one is for the books I’ve written. I know that I may have to create LLCs for all of these individually but wanted to be sure this was enough to start. Also when completing my operating agreement does it need to list the name of the company and all the dbas I have filed as the company name?
Hi Freedom,
Love your name!
Yes, when preparing your operating agreement, including how the company’s various lines of business is helpful. Especially so if they will be related in how they market, maintain records, customers, etc.
All the best…
Good evening, I am currently in the process of forming my online t-shirt business with my wife. I would like to know could I fill my business taxes separate from my individual taxes. Do I need a llc to file my taxes separate or can I just file it through my dba.
Hi g,
If you want your business’ tax returns to be filed separately, you will need to form either a Corporation or a Partnership. Those business entities require a separate tax filing on federal forms 1120 or 1065.
All the best…
I have two companies. Finally Home Solutions and Semper Fi Solutions. I have much of my branding under Semper Fi Solutions but need to dissolve it due to both companies being very similar in what they do . I want to dissolve Semper Fi and continue doing business as DBA Semper Fi Solutions under Finally Home Solutions. They are both LLCs. Can I do this and still have the protection LLC offer.
Hi Alex,
If you dissolve Semper Fi Solutions, LLC and desire to use its name for marketing purposes by Finally Home Solutions, LLC, Finally Home Solutions, LLC will need to file for the fictitious name Semper Fi Solutions.
Doing so will mean you have one business entity and it will be an LLC which will provide you with the legal protections any LLC offers.
It’s also important to understand this means that if you’re providing services under either ‘brand’, the income and assets of the LLC will be at risk should something go wrong for either brand.
All the best…
I’m in the process of starting up an online vintage store. I have my assumed business name as a DBA. For this type of business, which business type is best, LLC or DBA? I will not have an onsite location where customers can come into, I will be using my Home Office to conduct my business.
Hi Elisa,
If you’ve already filed for a fictitious name, it’s likely the DBA will be issued to you as an individual. This means your business will be operating as a sole proprietorship.
A DBA is not a business entity. It’s permission granted to either you individually or a business entity to use a name for marketing and banking purposes which differs from either your legal name or the legal name of your business entity.
The decision to form a business entity or to assume a fictitious name for yourself and operate as a sole proprietor is an important one. I can’t tell you which is best because it truly depends on your unique situation and objectives.
Here’s where you may learn more before about your choices: Business Entities Business Entity Definition & Overview
All the best…
Why is there less tax advantage to using a DBA? An llc has a lot of other things to pay for as in licensed etc to start up and maybe annually. So do you actually save money doing an llc vs a DBA?
Hi Libby,
When you have a dba associated with a sole proprietorship, the net income from the business is considered to be net self-employment income which is subject to Federal, State, Local and employment taxes. The employment taxes for a self-employed person is the fica and medicare that an employee pays as well as the same amounts the employer pays.
For this reason, many see the self-employment form of income as more costly. That’s where you may have gotten the ideal that there is less tax advantages associated with using a DBA.
I don’t agree with this line of thinking and here’s why…
Whether you file for a DBA associated with your sole proprietorship won’t change the fact that the income will be subject to self-employment taxes.
The net income from an LLC may or may not be subject to self employment taxes. It depends on how the LLC elects to be treated for federal tax purposes.
If the LLC is treated as a single member LLC or partnership, then the self-employment income tax rules described above apply.
If the LLC is treated as a C corp or an S Corp, the owners who work in the business will need to be paid a salary or reasonable compensation and report that income on a W-2.
Regardless of how the LLC is treated for federal tax purposes, the full amount of social security taxes (fica and medicare) are either paid by the business owner or the business owner and the business in the case of the S Corp and C Corps.
Does this help Libby?
I am starting two businesses of completely differing services, construction and transportation. I was planning on one LLC with DBA’s for each business. Is it beneficial to have two LLC’s to keep bookeeping and banking cleaner and separate, or is that unnecessary?
David:
An LLC gives you legal protection. You generally don’t want to combine the liability of two independent businesses (in other words if the construction business is sued, do you want to risk losing the construction business assets AND the transportation business assets together?)
Therefore, for protection, you “wrap” each business in its own LLC. Each business stands alone. Each egg in its own carton, so to speak.
If you don’t care about protecting your assets and just want to be lean, mean, and cost-efficient, then stick everything in one company and just keep one set of books. Going cheap, though, may cost you a lot more in the long-run.
How can I add a additional name on my ein number?
I’m not sure what you mean by adding another name to an EIN number. An EIN or tax ID number is assigned to your legal entity. You cannot “add” a name to it. If you have a DBA, it is not considered your primary legal name. It is not linked at the IRS. You reference the legal name and DBA by stating “ABC Inc dba XYZ co.