What Is the Difference Between an LLC and a DBA?
DBA is an acronym for "doing business as." In some states, a DBA might be called a fictitious name, trade name, or assumed name. To the point, a DBA is essentially a nickname for your company.
An LLC is a type of business entity that allows its owners to protect their personal assets from business liability.
A DBA is NOT a Type of Business Structure
A DBA isn't a type of business structure — that is, a DBA isn't a business entity type like a sole proprietorship, partnership, or LLC.
And since a DBA isn't a type of business entity, it provides zero liability protection.
A common misunderstanding held by new business owners is thinking that when they get a DBA, they are creating a formal business structure with liability protection.
But, this is not the case — they are creating a sole proprietorship (or partnership if more than one person) that has a DBA name (for branding and banking purposes).
A DBA isn't a business structure and will not protect your personal assets in the event that your business is sued.
Should I Start a Sole Proprietorship (with a DBA) or an LLC?
To answer this question, consider these three things:
- Naming and Branding
- Personal Liability Protection
Branding and Naming
When you start a business without a formal structure, you are a sole proprietorship (or a partnership if there is more than one owner).
Sole proprietorships have the same name as their owners. For example, your business's name would be John Smith if your name is "John Smith." Partnerships take on the surnames of all of the owners.
This can be awkward for branding purposes, which is why sole proprietorships and partnerships often get a DBA.
When you form an LLC, you can name your LLC the brand you want without getting a DBA.
Personal Liability Protection
Sole proprietorships with a DBA aren't formal business structures and don't have personal liability protection. Therefore, a business owner's personal assets (e.g., car, house, savings) are at risk if the business is sued.
LLCs are a formal business structure and do provide personal liability protection. Therefore, a business owner's personal assets (e.g., car, house, savings) are protected if the business is sued.
DBAs allow sole proprietorships to accept and deposit checks made out in the business's name to any account associated with the DBA rather than the owner's personal name.
On the other hand, if you form an LLC and open a bank account under the LLC, you won't need a DBA and can accept checks made out to the LLC's name.
Find the best bank for your startup company with our guide to the best banks for startups and entrepreneurs.
In Summary: DBA vs. LLC
When starting a business, it is usually better to form an LLC. You won't need a DBA for branding because you will use your LLC name, and you will have personal liability protection.
LLCs also offer increased business credibility and can help boost your business credit record.
Interested in hiring a professional LLC formation company to form your LLC? Check out our review of the best LLC services.
Frequently Asked Questions
Are there any reasons not to use a DBA?
The only real disadvantages to using a DBA are maintaining it, paying for it, and dealing with any confusion the extra name might cause (which really should be minimal).
When does a DBA expire?
This depends on your state. Each state has its own set of rules. Your DBA could expire after some number of years or be valid indefinitely. Check your state’s specific regulations to see how long a DBA is valid.
How much does a DBA cost?
The cost of registering a DBA varies from state to state but usually falls between $10 and $100.
Check out our state guides to see the potential costs in your business’s home state.
Can a DBA get an EIN or Tax ID?
DBAs aren’t required to have a separate Employer Identification Number (EIN) because DBAs aren’t a business entity. The business entity that the DBA is under would have an EIN if an EIN is required.
To learn more about EINs and when you would need one for your business, read What Is an EIN on How to Start an LLC.
Can a DBA become an LLC?
Your DBA is just a name. A DBA is often confused with a sole proprietorship. If you mean “can my sole proprietorship become an LLC?” then the answer is “Yes. Absolutely.”
To learn how to form an LLC, visit our Form an LLC state guides.
How can I add a DBA to an LLC?
The process of adding a DBA to an LLC can vary slightly from state to state. Check out our state DBA guides to find the information that is relevant to your business.
When is a DBA required in my State?
If you are operating a sole proprietorship, you will need a DBA in order to open a business bank account or accept payments in a name other than your legal name. If you have an LLC or a corporation, you will likely need a DBA if you want to conduct business under a name other than the one you already registered.
However, these rules can vary by state. Check out our state DBA guides to see what the regulations are in your business’s home state.
Can a DBA have two owners?
A DBA doesn’t have owner’s per se because a DBA is just a nickname for the main business entity. The main business entity can have two owners depending on the organization’s business structure.
Is my DBA protected from being used in other places?
There are some state-level laws that prevent DBAs that are too similar to existing ones from being used, but this varies from state to state. It is possible to trademark a DBA, which would offer stronger protection across state lines.
Can a DBA be transferred?
Most states don’t allow DBAs to be transferred but you can usually change the contact information for the DBA by completing a form and paying a fee. For state-specific information, check our state DBA guides.
Can my DBA become an LLC?
If you currently have a sole proprietorship with a DBA, you can convert it into an LLC. Visit our sole proprietorship to LLC guide to start converting your business.