Do you want to create a fictitious name for your business, but you’re not sure whether you should bother forming a business entity to do so?
There are a couple options available to you, including registering a doing business as (DBA) name or forming a limited liability company (LLC), but it’s not always easy to determine which one is the best option.
As it turns out, there are quite a few differences between getting a DBA and forming an LLC, and we generally think one of them is a much better option for the vast majority of our readers. In this article, we’ll break down the details about DBAs and LLCs, and hopefully along the way we’ll figure out which one is the right choice for your business! Let’s get started.
What Is a DBA?
A doing business as name (DBA) is not a business entity, like a limited liability company or a corporation is. A DBA allows you to register a fictitious business name that you can legally use in an official manner. Most often, a DBA is acquired by a sole proprietorship or general partnership so that they can use a business name instead of the owner(s) own personal name, but there are some applications for registered businesses to use DBAs as well.
On occasion, you’ll see an established business register a DBA to create distinct brands for advertising reasons. Using a DBA in this fashion can be more convenient than forming a separate LLC or a corporate subsidiary, and the name can still be used in an official capacity. Typically, this is done when a company creates a new product line that they want to position separately, while still tying it into the main business. For example, “Product A, brought to you by Company B.”
Regardless of the strategy behind its use, the DBA’s big selling point is the ability to change the image of a business or introduce a new advertising strategy, without needing to form a new business entity to do so.
What Is an LLC?
Unlike a DBA, a limited liability company is a legal business entity, with significantly more organization involved than you’ll typically see from an unincorporated business like a sole proprietorship or a general partnership. Compared to a corporation, the LLC is much easier to set up, and there’s not a whole lot of responsibilities regarding maintenance either.
As the name implies, the limited liability company limits the owners’ liability, or in other words it protects their personal assets. If there’s a judgment against your business in a lawsuit, or if you reach a settlement, the LLC business structure adds a layer of protection to your personal assets, like your car, house, and personal bank accounts.
The LLC can be operated by one person ― commonly known as a single-member LLC ― or by an ownership group as a multi-member LLC. A limited liability company also has the option of having its owners manage the company themselves, or they can hire a separate manager from outside the company, who does not have ownership interests.
What Are the Similarities Between DBAs and LLCs?
There are more differences than similarities when it comes to doing business as names and limited liability companies, but there are a couple of aspects they have in common. First off, both DBAs and LLCs have fees involved, both in the initial stages and regarding ongoing maintenance.
Aside from that, the only significant commonality is that the DBA and LLC both allow you to use an assumed name for your business.
Advantages of the DBA
A noteworthy advantage of the doing business as name when compared to a limited liability company is the fact that the DBA is cheaper and easier to register and maintain. The application process for a DBA can be completed in just a few minutes, and while the fees vary by state, they’re almost always cheaper than those of an LLC. Furthermore, while you will have to occasionally renew a DBA, the LLC has annual reports and other maintenance filings that must be kept up with.
Advantages of the LLC
Where do we begin? We’ll start by saying that the limited liability company’s personal asset protection is a massive advantage over the DBA. Because the LLC is a separate legal entity from its owner(s), whereas the DBA is not, the LLC’s ownership is able to keep their business and personal assets separate. As we mentioned earlier, this can help protect your personal assets in the case of a lawsuit against your LLC.
Another difference that’s also incredibly important is the fact that your LLC’s unique name is reserved by the state solely for use by your business, which is not the case with a DBA. In fact, there’s nothing exclusive about registering a DBA name, because if another business entity wants to use it, there’s nothing stopping them from doing so. Someone else could even “steal” your DBA name and form an LLC with it, at which point you would actually be prevented from using it!
The LLC also leaves far more room for growth and expansion than a DBA does. A limited liability company is a formal business entity that allows you to hire employees, take on partners, and expand into other states ― all of which are not nearly as easy for a sole proprietorship or a general partnership that acquires a doing business as name, because the DBA does not change the actual structure of your business at all.
Honestly, in our opinion, the lack of exclusivity with a doing business as name is enough to basically discount it entirely. While the limited liability company costs more money and takes a bit more work to set up and maintain, a DBA doesn’t even give you the unique rights to your business name in your own state. In a worst-case scenario, you could come up with a great name and register it as a DBA, only to watch someone else take your name and register an LLC with it.
Due to this possibility, we don’t really recommend the DBA to anyone. If you want an assumed name for your business, you should just form a business entity. Not only will that give you the rights to your name, but you can also enjoy all the other benefits as a bonus.