The Basics of DBAs and LLCs

DBA or LLC first is a debate that many business owners have had, and it refers to the choice between operating under a DBA name or an LLC name, and all the ramifications that come with either choice. While LLC—or limited liability company—refers to an actual business structure, DBA merely means “doing business as,” and it refers to the name a business owner uses to provide services or sell products. It is not a business entity of any kind, but rather functions as an assumed name or pseudonym for a business enterprise.

An LLC, on the other hand, is a business entity wholly separate from the owner or owners of the LLC. It is a very popular business structure, as it combines qualities of a corporation, like limited liability protection, with qualities of a partnership, like operational flexibility. If one chooses to do business with a DBA, they will not get these benefits, the most important of which may be limited liability protection.

That said, a DBA does have qualities that some may find appealing. For instance, if you are a sole proprietor and do not want to incorporate or deal with the requirements of an LLC, you may find a DBA to be the more desirable choice. Freelancers too, will often go the DBA route, as an LLC will often be of little service to their needs.

And, of course, if you wish change the name of your enterprise, a DBA offers a relatively easy way to do it, at least in the public sense. If, for instance, your LLC was formed under the name “Reginald’s Tractor Repair, LLC,” and you’ve moved on to repairing recreational vehicles, it would be more appropriate to be able to present your business as “Reginald’s RV Repair, LLC,” which a DBA allows you to do.

However, it is important to again remember that a DBA does not operate as a separate legal entity from its owner or owners, so the protection you would have from limited liability does not apply, and you will be at risk for any legal issues that could arise because of that.

Ultimately, what the right choice between these two options is will depend on your own particular business situation—a blanket statement in favor of one or the other is not possible.

Business Name Differences Between DBAs and LLCs

There are far more restrictions for LLC names than there are for DBAs. When choosing a name for an LLC, one must undertake an LLC name search with the state to make sure that no other LLC in the state has the same name.

Additionally, there are other naming restrictions, which include:

• Terms like "Attorney" and "Bank" are restricted to LLCs with individuals licensed to hold such titles or with the proper permits to use such terms.

• Terms like "FBI" and "Secret Service" are forbidden; confusion with or impersonation of government entities is not allowed.

• All names must have some variation of "limited liability company" in them.

DBAs, on the other hand, have more general restrictions, a main one being that they cannot misrepresent the nature of their enterprise with their name. One cannot for instance, put “LLC” in their name when their business is not an LLC.

If one wants to imply with their name that another owner is part of the business when this is not the case, they are required to fill out a fictitious name business statement (example). One should also be careful of violating trademark rights with their DBA name.

Tax Differences Between DBAs and LLCs

DBAs grant no special tax status with the IRS, while LLCs open the door to many different ways a business and its owners may be taxed. When using a DBA, the business person is taxed the same way they would be if they did not have a DBA. In contrast, when operating an LLC, one can elect how they wish their enterprise to be considered and taxed by the IRS—as a corporation (C or S), partnership, or sole proprietorship.

Name Expiration Differences Between DBAs and LLCs

The main difference here is that LLC names are permanent, while DBA names are not. A DBA name can expire after a period of time (varying by county or state), before which it must be renewed. An LLC name, on the other hand, lasts as long as the business does. That said, although LLC names don't require renewal, LLCs themselves must in many states pay annual fees or meet minimum tax thresholds to stay in business.

Taking all of this into account, it can be seen that choosing between a DBA and a LLC is a weighty matter, so consulting with a lawyer or accountant well-versed in these issues is advised. If you need help understanding the DBA or LLC first decision, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5-percent of lawyers. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law, and average 14 years of legal experience, including work with, or on behalf of companies like Google, Menlo Ventures, and Airbnb.