If you are an entrepreneur already doing business, you may have heard about comparing DBAs and LLCs. Many people think that DBA is better than LLC, whereas many think the total opposite. You can also hear that some people say DBA and LLC are the same entity. But do you think they are the same? Aren’t you ever confused about which is better, a DBA or an LLC?
If yes, you are most welcome to this blog. We will show you real pictures of these two important business elements, DBA vs. LLC, today. So let’s take a deep breath and look at the battle between the pros and cons of DBA vs. LLC.
What Is a DBA in Business?
You may be wondering, “What is DBA?” if you hear this word for the first time. Simply put, DBA is a nickname for businesses to use for branding and marketing purposes. The word “DBA” stands for “doing business as.”
If you use a separate name other than your legal, business, or real name, it’s addressed as DBA, or doing business as, or a fictitious name. A DBA can be a good fit for those who don’t want to open a separate LLC or want to expand their current business structure.
A DBA is not a legal entity or a business structure such as a corporation or LLC and doesn’t provide personal asset or liability protection. There are different business structures that use DBAs for different purposes.
Such as:
- Sole proprietors use DBAs to avoid using their personal names for privacy reasons.
- In partnership, businesses use DBA to get more distinctive names to avoid using the real names of all partners.
- LLC owners use DBAs to operate businesses under different names while maintaining overall legal protections.
- Large corporations use DBAs to open subsidiary companies without forming new corporations.
For example, there is a corporation called “Spicy, Inc.” that wants to expand into the business of selling chicken fries. They could start a second business by filing a DBA as “Spicy, Inc., Fresh Chicks.” This allows the corporation to conduct business without building a new entity.
What Is an LLC?
In simple words, an LLC is a business structure. An LLC, or Limited Liability company, is a business or corporate structure for private companies in the United States. It’s a hybrid entity that combines aspects of partnerships and corporations. Do you know LLC owners are protected from being sued? This business entity protects the owners from being personally pursued for repayment of the company’s debts or liabilities. In contrast, using a DBA doesn’t provide any additional benefits for liability protection.
Additionally, establishing an LLC makes seeking funding, expanding operations, and selling the business easier.
Most professional services, cafes, bars, restaurants, builders, and contractors conduct their businesses as LLCs. You will be amazed to know that brands like Apple, Tesla Motors, The New York Times, and Airbnb operate as LLCs.
DBA vs. LLC
Now that you know the basic meaning of DBA and LLC, let’s jump into the differences to get clear insights into these two. Let’s explore them briefly-
- Legal Identity: An LLC is a legal entity or business structure. On the other hand, DBA is just a trade name used for all kinds of business structures.
- Business Structure: DBA doesn’t affect the business structure. Different business structures can use a DBA. But an LLC is a specific business structure that offers flexibility regarding ownership, management, and taxation.
- Responsibility: An LLC separates personal and business liabilities. The owner’s personal assets are typically safeguarded in financial troubles or lawsuits. The individual or partnership behind the DBA remains fully responsible for any debts, legal actions, or liabilities incurred by the business.
- Purpose: A limited liability company, or LLC, aims to shield the business proprietor from liability for the company’s debts. But a DBA is primarily used for branding purposes and allows a business to operate under a name that differs from the owner’s legal name.
- Compliance and Formalities: Forming an LLC involves filing formal paperwork and following certain rules. But getting a DBA is a simpler process.
- Liability Protection: An LLC provides liability protection. A DBA provides flexibility and enables entrepreneurs to establish multiple business identities without needing separate legal entities.
- Cost: Forming an LLC is way more expensive. You must pay various fees to set up an LLC. Filing DBA costs less money.
- Flexibility: Forming an LLC gives you the advantage of switching your tax status to a partnership, corporation, or sole proprietorship. A DBA lets an existing legal entity use a nickname for its business. It doesn’t provide tax benefits.
LLC vs. DBA: Pros And Cons
Now let’s take a brief look at the advantages and disadvantages of a DBA compared to an LLC based on what we have discussed so far.
Advantages of DBA
- The process of filing a DBA is simpler and less costly.
- Filing a DBA requires less paperwork and administrative burden.
- You can open a bank account by using a DBA name under which your customers can make payments.
- You can operate multiple businesses without forming separate entities for each structure.
- You can avoid using your real name in public records.
- A DBA helps identify businesses with distinctive company names.
- Using DBA, you can apply for a DUNS number and EIN.
- DBAs can launch different product lines or businesses under the same umbrella.
- DBA helps to expand your business, especially when your existing business is formed as a corporation or an LLC.
- Choosing the right name can boost a business’s credibility, particularly for sole proprietors and general partnerships.
Disadvantages of DBA
- A DBA is not considered a legal entity or a business structure.
- The main disadvantage of filing a DBA is that it doesn’t provide liability protection.
- Filing a DBA doesn’t provide you with name exclusivity from being used by others.
- Using a nonregistered DBA name can result in fines or punishment.
- If your existing entity isn’t LLC, your personal assets aren’t protected by using DBA.
Advantages of LLC
- An LLC is a legal entity.
- An LLC provides limited liability protection for owners, which means that you or LLC members are not personally liable for any kind of debts or liabilities of the business.
- LLCs offer flexibility in taxation. LLCs themselves do not pay taxes on their business income.
- In LLCs, personal assets are protected.
Disadvantages of LLC
- If you form your business as an LLC, you must get a different business name for other LLCs.
- Forming an LLC requires more paperwork and compliance with the state.
- Forming an LLC is costly and takes time to file official paperwork.
- In some states, you can’t operate more than one business with a legal name.
How Does a DBA Work Under an LLC?
A DBA allows an LLC to legally conduct business under a different name. If you are a sole proprietor or a partnership that hasn’t established an LLC or corporation, filing a DBA lets you do business under a name other than your own.
- Let’s say your name is Adam Cavin, and you want to open a confectionary food shop but don’t want to operate it under your own name. You could file a DBA for your shop—give it the name “Fresh Food—and start a business under that name.
On the other hand, if you already have an LLC, filing a DBA means you can do business under a name other than your LLC.
- For example, you decide to turn “Fresh Food” into an LLC, and it’s doing so well that you plan to expand into the coffee shop. You want to stay under “Fresh Food LLC” but also wish to do business under “Fresh Coffee.” In this situation, you can have a DBA. And the best part is that you don’t have to go through the hassle of creating multiple corporate structures.
In another scenario, Fresh Coffee is just one of the LLC’s assets. If something goes wrong with it, the assets of the food confectionary are also at risk. If you wanted to separate the liability, you’d have to open another LLC.
The correct legal presentation of a DBA under an LLC is for the fictitious name to come after the registered name of the business, such as,
- John Holmes Enterprises, LLC, DBA JH Roof Repair and Replacement Specialists, could market itself as “JH Roof Repair and Replacement Specialists.”
You Must Follow These Measures to Use DBA Under an LLC
- Check your state’s naming rules for LLCs choose a unique legal name that includes “limited liability company” or LLC. Use this name in all legal documents, taxes, licenses, and loans.
- Your LLC can also use a different public name as a DBA. File articles of organization and submit an annual report to update your company’s information and address changes.
That is how the fictitious name must be documented on any bank accounts, contracts, and so on when explicitly used for business activities under the DBA. An LLC can only promote and advertise the fictitious name for marketing or branding purposes.
Do I Need a DBA for My LLC?
Now that you know how a DBA works under an LLC, you already understand that LLC owners can get a DBA for their business. Do you know many business legal experts suggest registering your LLC? There are specific reasons you should get a DBA, such as:
Multiple Business
If you plan to form any more businesses under the same LLC, a DBA can help you operate multiple businesses under the same roof. You don’t have to form a separate entity for that.
Marketing Niche
Choosing a name for your company will give you marketing advantages. The DBA name better describes your industry, provides local resonance, or ranks higher in the alphabet in directories like the phone book or web directories.
Let’s say your LLC’s official name is “Texas Beverage Outlets LLC,” but if you plan to open a store in Dallas, you might want to call it “Dallas Beverage Outlet” instead. The full name of your business would then be “Texas Beverages Outlets LLC, DBA Dallas Beverage Outlet.”
Expanding Your Business Reach
Adding a DBA to your LLC can open doors to new business opportunities. Having multiple unique business operations or expanding your business reach is common for successful companies. For this reason, it’s a wise idea to get a separate name for each business operation. By registering or filing a DBA, you can run many businesses while still being part of the same single LLC.
Facilitating Banking and Financial Transactions
When you establish a business bank account or enter into financial agreements, financial institutions may require you to provide a DBA.
Legal Protection for Non-Residents
If you are conducting LLC business as a non-resident, you can enjoy specific legal protections. But these protections could fail if you conduct your LLC under a different name and don’t file for a DBA.
For example, John Watson wanted to keep his assets protected, so he formed an LLC instead of doing business under his own name as a Sole Proprietorship. He makes an LLC named “JW Enterprises LLC” but wants to do business as “John’s Antique Shop.” So, his LLC files “John’s Antique Shop” as a DBA name. Therefore, “JW Enterprises LLC” and “John’s Antique Shop” are the same.
Complying with Legal Requirements
In many states or counties in the U.S., a DBA is required to conduct business using a name other than your LLC’s legal name. You could face penalties and fines, including legal disputes if you don’t.
Additionally, if you purchase a franchise as a business owner, the franchisor offers the franchisee specific trademark rights. Also, when you want to borrow the names of popular local brands, you will need a DBA. It’s typical for franchisees to form an LLC to secure their personal assets. You have to operate under the franchise name. So, for instance, if you decided to invest in the Crunchy Cookies franchise, you would first create an LLC (for instance, “GRE Holdings LLC”) and then register a DBA called “Crunchy Cookies” with your state or county.
FAQs
Q1: Do I need an LLC for my online business?
Answer: Yes, it’s better to get a DBA name for your online business to reach customers at a high level. Also, having a DBA reserves your privacy on online platforms.
Q2: Can an LLC Get a DBA?
Answer: Yes, in most cases, an LLC can obtain a DBA for branding purposes.
Q3. Is a DBA the same as a subsidiary?
Answer: A DBA is not a separate company, unlike a subsidiary. Rather, it is the same company operating under a different name, which is known as “doing business as” (DBA).
Q4. What is the opposite of a DBA?
Answer: In general, a DBA is different from an LLC. A Limited Liability Company (LLC) is a separate legal entity from its owner, providing limited liability protection. This means that, unlike a DBA, you will not be held responsible for any losses or fraud experienced by the business.
Q5. Can I use a DBA or my LLC?
Answer: If an LLC conducts business under a name other than its official LLC name, it must register a fictitious business name, also known as a DBA.
What Is Better, LLC or DBA?
Now you know DBA vs. LLC in detail, including their advantages and disadvantages. You can easily decide which option is right for you. Still, we suggest talking with a business attorney to make the right decisions according to your needs.
You can have the best premium business consultation only a click away.
