If you’re a business owner looking to register an alternate name for your company, you have a couple options.
You could either form a limited liability company (LLC), or you could acquire a doing business as (DBA) name. Both of these routes give your business the ability to refer to itself in an official manner using an assumed name, but there are some vital differences between them. While your specific business may have its own unique needs, we generally prefer one of these options over the other.
Are you wondering whether you should form an LLC or register a DBA name? You’ve come to the right place!
We get plenty of questions from our readers about these options, so this article discusses the pros, cons, and important details of each one. Let’s find out if the LLC or the DBA is the better option for you.
What Is an LLC?
The limited liability company is a formal business entity owned and operated by one or more people, who are often referred to as “members” of the LLC.
The limited liability company is a hybrid business structure that combines the casual flexibility of sole proprietorships and general partnerships with the limited liability protection of a corporation.
The main reason for the LLC’s popularity is because it provides personal asset protection, which means that creditors can only pursue your business assets in a lawsuit against your company, while your car, house, and personal bank accounts remain protected.
In addition, many entrepreneurs save a considerable amount of money on taxes thanks to the LLC’s “pass-through” taxation, which has the LLC owners claim business profits or losses on their personal returns, and there is no corporate-level taxation.
What Is a Doing Business As (DBA) Name?
A doing business as (DBA) name is not a distinct business entity, but instead is used as a way of modifying the public perception of an existing business.
Even though the DBA itself is not an entity, when used for a sole proprietorship or general partnership, the doing business as name does share some common characteristics with forming a formal business entity (like a limited liability company or a corporation).
If you operate an unincorporated business like a general partnership or sole proprietorship, a DBA gives you the ability to create an assumed business name that you can use in an official capacity for your company. Because these business types typically do not have fictitious names, but rather operate under the owner’s personal name, the DBA can be a good way to maintain some privacy while also enhancing your professionalism.
Sometimes, you’ll also see an LLC or a corporation use a DBA, but this is far less common. LLCs and corporations already have fictitious business names, but a DBA can be used as an alternate name. This usually occurs when a company has a new product line that they’d like to market separately from the rest of the business.
Regardless of the exact circumstances surrounding the DBA’s usage, the common characteristic is that the doing business as name allows a business to diversify the way they present themselves to the public, without having to form a separate entity to do so.
Similarities of the DBA and the LLC
There aren’t many noteworthy similarities between a doing business as name and a limited liability company, but the most important one is that they both allow business owners to use fictitious names for their companies in an official capacity.
Beyond that, the only other common characteristic is the fact that both the LLC and the DBA have some sort of fees involved to acquire and maintain them, along with some rather simple documentation.
Advantages of the DBA
The one significant benefit of the doing business as name, when compared to a limited liability company, is that the DBA is typically simpler and less expensive to acquire and maintain.
The application you’ll need to fill out to obtain a DBA is a simple, self-explanatory form, and you’ll only need to renew your DBA on occasion (once a year in some states, once every few years in others). Both of these processes usually have fees attached to them, but those fees are quite reasonable in the vast majority of states.
The formation process for an LLC isn’t all that complicated either, but it’s definitely more involved than a simple DBA acquisition. Furthermore, LLCs in most states will need to file timely annual reports, and/or pay annual franchise taxes, etc. ― none of which are applicable to DBA names.
Advantages of the LLC
In our opinion, there are many more advantages for the limited liability company than there are for the doing business as name, starting with the LLC’s personal asset protection. The LLC is a formal business entity, which the DBA is not, and as such the LLC’s owners get to enjoy many benefits of the business structure itself.
One of those is the way an LLC limits its owners’ liability, so that your personal assets are protected if there’s a lawsuit against your business ― only your business assets will be available to your creditors in the case of a successful lawsuit, while your car, house, personal bank accounts, and other personal assets are shielded from the suit.
Another massive advantage for the LLC is the way this structure reserves your unique business name for your exclusive use. It’s a common misconception that a DBA will also reserve your name in this manner, but in reality, registering a DBA does not give you any sort of exclusivity regarding the usage of that name.
In fact, if someone decides that they want to use your DBA name as their own business name, all they would need to do is form a business (like an LLC) using that name. At that point, that other business would actually receive the exclusive rights to your name, and you wouldn’t be allowed to use it anymore.
Finally, an LLC gives you the opportunity to expand your business in ways the DBA does not. The LLC business structure makes it easy for you to take on partners, hire employees and staff members, expand into additional states, and more ― none of which are quite so easy with a sole proprietorship or general partnership operating with a DBA.
Remember, the DBA doesn’t provide a structure for your business, as it is simply a way to legally create an assumed name that you can use in an official capacity.
While it’s true that every business is different, and there are rarely any one-size-fits-all answers in the business world, we think that forming a limited liability company is almost always the preferred option compared to registering a doing business as name.
The DBA’s lack of exclusivity is a major reason for this preference, but it’s not the only one either, as the LLC has a number of significant advantages over the DBA.
All told, we’re not big fans of DBA acquisition, but we think that forming an LLC is an excellent move for many entrepreneurs.
The personal asset protection alone is a plenty good enough reason to form an LLC, as it can help protect you from the catastrophic effects that a lawsuit can have for an informal business structure like a sole proprietorship or general partnership.