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, CPA, CFP
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.
HI,
Thanks for all the info. Im looking to start an online business and would like to start out with just an DBA as I test out this business. I did read that I could later change to an LLC which is what I plan to do but my question is when registering a DBA does the name have to be exact. ex: I want my LLC registered as allthings LLC but can I register my dba name as allthings shirts and more.
Sorry. What i mean is if I register my DBA as Allthings can I use Allthings shirts and more as my name for my ecommerce store or am i limited to just Allthings.
Hi Tia,
If you want to market your business under a name that differs from your legal name, then whatever that trade name is should be applied for as a fictitious name.
So in your case as you’ve described, your fictitious name (DBA) should be Allthings Shirts and More if that’s the name that what you want to market your business under.
There are other things you should consider when naming your business and obtaining website domains. Here’s another post that covers this topic in more detail.
All the best…
Hi Holly,
Fantastic article!
I am starting a tutoring business where I will work with students 1 on 1 at public places like libraries or Starbucks. I eventually have plans to expand and allow a small group or tutors to work with my clients under my business name. I suspect going the LLC route makes more sense, for the liability aspect – is that the route you would go as well? Also in addition to filing an LLC, what other key legal matters would I need to complete before making my business “official”?
Thank you so much.
Hi Kevin,
Forming an LLC for your new business will provide you with certain liability protections. Whether it is the best option for you depends of several factors and are different for everyone. What may be best for me may not be best for you.
Here’s another post to help you understand the options and the factors you may want to consider.
As for the other matters you’d need to address as you start your business, it’s important to understand there are legal matters, operational matters and tax matters.
Legal matters include the creation of the entity in the state where you choose to incorporate, drafting the legal documents required for the entity you choose, public notifications and any other state-required steps. Every state has its own requirements and these requirements may differ according to the type of business entity you choose to form.
Operationally, you may have to obtain licenses to operate your business. And it will be important to obtain liability insurance too. If you have employees, you will need to obtain workers’s compensation insurance for them.
And you may need to register your business to pay income, sales, employment and any other type of tax in your state of incorporation (and/or operation) as well.
You should carefully consider the naming of your business and any trade names you may want to use so you don’t start off on the wrong foot. Here’s a post to help you with that.
So Kevin, you can see… there’s a lot to do when you startup your business!
All the best to you…
Hello Holly, I opened an LLC to operate my construction business but I no longer like the name. I have insurance, minority status, bank account, etc in the LLC name. I would like to change the name of the company but someone told me I should create a DBA for the LLC and still operate the LLC. Is this possible and convenient?
Hi there!
It is possible to have the existing LLC file for a fictitious name and then you’d have to provide the documentation to your insurance company, any governmental group that deals with the minority status, banks and any other party that your doing business with. It does take a bit of effort to do this.
Another option is to apply for a name change for your LLC. Most states will allow a business entity to change its name. You’d still have to provide the documentation to the various parties, however you’d have the name you desire for your LLC and skip the fictitious name route.
All the best…
I am buying a ice cream shop in Florida. I just applied on Sunbiz.org for a LLC I did my own application and I stated I was my own Registered representative. Did I do this correctly? I don’t need a DBA do I?
Hi Erica,
If you formed an LLC (which is a business entity), you do not need to file for a fictitious name (DBA) as long as you use the official name of the LLC when you market and represent the business.
And yes, it’s perfectly fine to be your own Registered Representative for your new business.
I love ice cream way too much! Hope a lot of people in Florida do too!
All the best…
Hello, my name Ruben Jauriquiand I wanted some insight as to wether to go with a DBA or LLC when form a moving and labor business. Which would benefit me more? Thank you.
Hi Ruben,
The greatest difference between an LLC and a sole proprietorship (with you filing a fictitious name/DBA) is that under an LLC (business entity) you would be shielded from certain personal liabilities.
Whereas as a sole proprietor, you have zero personal liability protections whatsoever.
If personal asset protection and personal liability risk exposure matters to you, you should think twice about forming your business as a sole proprietor.
Here’s another post which may be helpful to you as you consider your new business options.
All the best…
Hey Holly,
I’m trying to start a residential cleaning business. I’m thinking with going with a DBA to start off until I get my business up and running. Will I be able to eventually make my business a LLC once up and running. Once I see some growth I would love to expand.
Hi jamica,
Yes, it is possible to do this because the business you’d be creating under a fictitious name (DBA) will belong to you individually.
When you’d form the LLC (or other business entity later), the assets and liabilities associated with the business operation can be contributed to the new business entity.
You will have to terminate the DBA and then file for the business name when you form the new business because the DBA will belong to you individually.
All the best…
My question is about taxes. I am a contractor, my question is – can I build a house using my business’ money lets say for $400K then sell it to a family member for $200K and claim a $200K loss on my taxes? IF the fair market value for the house would $450K, can I then do a $250K gift to the family member.
Or is this a big No No in the eyes of the IRS as it will seem like money laundering. Thank you.
Hi Ruvim,
The short answer is no.
When you sell something to another party (whether it’s inside a business or personally), the loss from such transactions may not be taken as a tax deduction if the transaction is not at arm’s length.
This means if the value of what you are selling is $450K and you sell it to your relative for $200K, much lower than its fair market value, it’s not a tax deductible loss.
If you sold the same property to someone unrelated to you, then the loss would be tax deductible. The arm’s length terminology is in regard to your relationship and whether the price negotiated and paid would be valid if the parties were unrelated.
As for the second part of your question, if you are trying to build a home for a family member and sell it to them for less than it’s fair market value and make the difference a ‘gift’, there are ways to do this which do not involve taking a loss on your tax returns. You’d sell the home for its full fair market value, include a personal note for what they can’t pay ($250,000) and then create a self-canceling note which you’d use the annual gift exclusion for. This is not something you should try to do without legal and tax counsel Ruvim! Here’s where you may request additional assistance if you’d like.
Hope this helps a bit…
My wife and I are buying a Karate School. The current owner is an Inc. business. We are wondering if we should just start as a DBA since we currently don’t really own any property or if it would be better to go the LLC route. I understand the LLC gives us more choices with filing taxes, but we don’t really know which is best.
Hi Seth,
For most the deciding factor has more to do with reducing liability exposure as a sole proprietor (by filing individually as a DBA) by forming a business entity such as an LLC.
Here’s another post which may be helpful to you as you think through your business entity formation decision.
All the best to you and your wife in your new business…
Hi I am having a hard time deciding if I need an LLC or a DBA. I have been consulting for over 10 years and am considered an independent consultant. I file my taxes and am able to report business-related expenses. Everyone tells me that I should register as a business to get tax breaks but I am not seeing the benefit and I already have deductions for my business expenses. I also have business only credit and checking accounts.
Can you please help me understand why I would want to register as either of these options (LLC or DBA)? Are there any additional benefits that I am not aware of? I live in Florida by the way. Thank you.
Hi Julie,
If you are currently filing your income taxes on a Federal Schedule C because you are a sole proprietor, you are paying federal income tax and self-employment taxes on your net income earned from your consulting work.
As a resident of Florida, you do not have any state income tax — good for you! Some of our visitors wish that were the case where they live!
So, your contemplating two options — to file for a fictitious name (or DBA) or to form an LLC, which is a separate business entity.
If you file for a DBA for your consulting practice, your federal income taxes would not change in any way whatsoever. Same federal tax forms and same federal income taxes and self-employment taxes would apply.
If you form an LLC and do not choose to elect a different federal tax treatment, again… your federal income and self-employment taxes would not change. Your LLC would report your consulting income of a Schedule C as a single-member LLC.
So far, either choice will not change your federal income taxes (or any tax deductions).
Starting in 2018, a new tax deduction was built into the Tax and Jobs Act which is known as Section 199a. This deduction may be helpful to you as it will allow for a 20% deduction of your income IF CERTAIN CIRCUMSTANCES ARE PRESENT. Note the capital letters! This new tax deduction is very complex!
What’s relevant to you and your question is that while this new tax deduction may be helpful to you, as long as your business is considered to be a true trade or business (under code section 162), sole proprietorships your current status) and LLCs are eligible for this deduction.
I suspect “everyone” who is telling you that you should register your business to get tax breaks may be thinking you will be missing out on the 20% deduction if you do not.
If so, they are incorrect.
That said, there are many hoops to jump through to get this deduction. It does not apply to all taxpayers and their businesses. You should address your situation with your CPA to determine if you are eligible for this deduction.
Generally speaking, the decision to form a business entity (such as an LLC) should be weighed against the risks your business operation poses to you individually. Here’s a post on the various types of business entities which may be helpful to you.
As for filing a DBA for a fictitious name, this should be done if you are using a trade name for your business which differs from your legal individual name! In such a case, not registering your fictitious name is not an option.
Hope this helps you Julie…
I am currently trying to open up a online business and I was wondering if I have to have a DBA OR LLC to start my business? If so which one is best for an online business?
Hi,
There is no ‘one-size, fits all’ way to decide which is best for you.
You may want to learn more by reading through our new business entity series here.
All the best…
i have a LLC and want to start using a DBA will my insurance for the LLC still cover the DBA, and can i still use my LLC’s bank account or would i need a new account and a different insurance policy?
Hi Scott,
If you choose to add or create a fictitious name (or DBA) for your existing LLC, you should ask your insurance agent to include the DBA as an ‘Additional Insured” on your policies.
The insurance company may not want to do this if the risks associated with the new line of business differ greatly from your existing business.
If you want to collect payments and may payments under the new DBA (fictitious name), then you will need to open up a new bank account.
Hope this helps a bit…
I am trying to start a lash business where I dibble in makeup just wondering would I start llc or dba?
Hi Roshawnda,
The answer to your question really depends on several factors, mostly related to risks.
Here’s another post that addresses some of the factors you should be carefully considering.
All the best…
My company is an LLC. I just received a packet from a lawyer stating that his client has had the same business name prior to our registration for the LLC. However the other guy has proof of his DBA and fictitious name prior to our state filings. He merely registered at his local county clerks office as a DBA. Everything im seeing says us as an LLC trumps his fictitious DBA name. Our business are pretty much the same services. However we are 150 miles apart. As a lawn company I don’t see how this could stand up in court with anyone mistakenly one for the other. As neither one of us drive 150 miles to cut grass.
Example of business names but not actual names.
Theirs: concrete and tile. John Doe, owner
Ours: concrete and tile llc
Theres a large difference in the name and a large geographical distance between us two.
We called the county clerks office in which he provides services in which we do not. They said there is no law in that county for 2 companies with the same name to operate.
Im not very smart with the current laws and only do research online. As everything i read says that we trump him and he cannot force us to change our name.
Any incite would be appreciated.
Oh at the end of the letter the attorney made a smart comment about our attempt to take their name. Which seemed very unprofessional.
Thank You
Hi Rick,
I am sorry you are having issues with your trade name.
The packet sent to you is likely a claim that your business’ use of the trade name it registered is an infringement of his/her client’s intellectual property rights.
It very well may be the case that this company has the intellectual property rights to your trade name. The only way to know if that’s so or not is to do a thorough IP rights search.
If this is something you need assistance with, here’s where you may request additional help.
All the best…
I’m trying to start a music publishing company to collect our labels artists’ publishing monies, can we file for a fictitious name filing under the llc formation, we don’t want to go all out on the actual llc as we are just collecting money from our own songs? Thanks
Hi Terell,
If you form an LLC, you are forming a business entity. There’s no way to simplify this which is what I interpret your desire by the statement “we don’t want to go all out on the actual LLC”.
It’s possible for the LLC business entity for file for a fictitious name, however I don’t see how that would help you.
If you would like to expand on what you are trying to accomplish, I will give it another whirl and try to assist further.
I am operating under a DBA for my recruitment company for more than 10 years in CA. Is there an advantage for me to form an LLC?
Hi Vanessa,
If you are operating a sole-proprietorship with a fictitious name (DBA) and are considering the formation of a business entity (LLC, corporation or partnership), you may want to read this post that highlights the attributes of each type of business entity.
Unfortunately, there is no one-size fits all advantage when selecting a business entity.
All the best…
Hi trying to open a small online store. Need an EIN number. Would a DBA or LLC be needed and could I switch from a DBA to a LLC if and when I get a store front?
Hi Desiree,
It is true, if you start an online store (on any platform), you will likely need an EIN to get started.
You could file for the EIN as an individual which means you are operating your business as a sole proprietor.
Optionally, as an individual you could choose to file for a fictitious name (or DBA). If you are using a name for the business which differs from your legal name, then filing for a fictitious name will be necessary.
The choice to form a business entity such as an LLC is just that, your choice. Doing so offers you certain benefits outlined in this post. That said, it is not required.
And lastly, yes you can form an LLC later and transfer the DBA (fictitious name) to your new business entity. Typically, as an individual you have to terminate the DBA and then form the LLC with the tradename you desire (your former DBA).
Hope that helps you!
I run a summer basketball league. It’s run one month out of the year. It brings in $15,000 and bills are about $10,000. I’d like to start a DBA to collect fees and pay bills. That’s about all I need it for. Would I be taxed on the small profit any differently if I filed an LLC? Based on the amount and only needing it one month each year had me leaning towards DBA account.
Hi Brad,
Whether you form an LLC or choose to operate the basketball league as a sole proprietorship (with or without a DBA), the income and expenses should be filed on a Schedule C on your personal income tax return. So, the taxable income and the tax you pay would be the same regardless of your decision.
That said, depending on where you file for an LLC, you may have other entity taxes owed to the state. This is not typical, however there are states that assess fees, taxes, etc. to business entities and an LLC is a business entity. So, check that out first.
And you truly should consider the personal liability exposure you may have if you do not file for a business entity.
All the best…
I want to register a sign language business where I’ll be teaching classes at nearby locations. The locations will have liability insurance. My husband is military so we may have to move and I’ll want to have the business in other areas.
What is the basic, most simple, business structure? I was going to do sole proprietorship and DBA but, considering LLC.
Do I need additional general liability insurance? If yes, do you recommend doing a DBA and added insurance or doing an LLC which is insured?
Hi Danielle,
It’s important to understand that a sole proprietorship, even if you file for a fictitious name, is not a business entity. Business entities offer its owners certain benefits. Here’s a comprehensive post on business entity structures which may be helpful to you.
There are several types of insurance you should attempt to obtain. First is a general liability policy which will be tied to where your business is physically located. The second is professional liability insurance if this is available to you as a professional sign language teacher. The latter is typically sourced through professional associations. The general liability insurance is always tied to the business whereas the professional liability insurance is tied to the individual providing the professional services.
Hope this is helpful to you Danielle…
I have a small business where I make and sell furniture and home decor. I rent a space in a vendor marketplace and pay a monthly rent. I want to be able to claim my rent, supplies, tools, and home “office space” on my income taxes. Do I need to file for an LLC to do this? Thank you
Hi Diane,
It is not necessary for you to form a business entity of any kind (LLC, Corporation, Partnership) to be able to take ordinary business expenses as a deduction against your business income.
When you are a sole proprietor (or a Single Member in an LLC), the income and business expenses from your business operation are reported on the Federal Form 1040 Schedule C.
All the best…
Good Afternoon,
My wife would like to create a company for her crafts/ apparel. However, we are trying to figure out which route would be the best for us. If we create a DBA and things work out to where we want to expand. Is it possible to create an LLC and transfer the DBA to the newly created LLC? Or are we completely overthinking this and a DBA would be sufficient enough for our needs?
Thank you for all your guidance.
Roger B.
Hi Roger,
You are not overthinking this decision at all.
Whether a DBA (which is not a separate business entity) is appropriate for you and your family depends on many factors. Here’s another post which may be helpful to you about the various types of business entities.
If you do choose to start out with a sole proprietorship and file for a fictitious name, it is possible to take these personal assets you’ve developed and transfer them into an LLC.
Technically, the business your wife starts as a sole proprietor and its intellectual property will belong to her. If she subsequently forms an LLC, she would transfer these assets by contributing them to the LLC at startup.
The DBA may need to be terminated by her first and then a separate application be made by the LLC to accomplish the transfer properly.
Does this help Roger?
My partner is a truck driver, an owner operator, and he has a DBA for his company name that he drives under. Would it be beneficial for us to obtain an LLC? How would it help us, other than protecting personal assets from litigation?
Hi Charity,
Without doubt, the most compelling reason to form a business entity (such as an LLC or corporation) is to obtain certain personal asset protection and to reduce personal liabilities exposure.
Another benefit may be that it’s easier to obtain general liability and other forms of insurance for the business.
There are also potential tax savings if the LLC elects to be taxed for federal purposed as a corporation or s corp.
To determine if such a tax election is right for your situation, it takes careful consideration of many factors. One such factor is how much income your operating business produces each year.
Again, there are many factors to consider so I am sorry to say there is no ‘one-size fits all’ best way to elect a tax structure when forming an LLC.
All the best..
If you have multiple DBA’s under one LLC, can each DBA have a different ‘pass through’ income rate for the members of the LLC?
For example, ABC LLC has 2 members (John & Steve) and 3 DBA’s.
With DBA 1 – John shares 50% profits/loses & Steve 50%
With DBA 2 – John shares 80% profits/loses & Steve 20%
With DBA 3 – John shares 30% profits/loses & Steve 70%
If this can be done, would you just outline the details in your articles of organization or operating agreement?