Many first-time entrepreneurs believe they've formed a legal business entity and gained protection because they've secured a DBA or "Doing Business As" certificate. Unfortunately, this isn't true. A DBA isn't a legal business entity, and as such, it does not offer any kind of liability or asset protection.
DBAs can be useful, but they don't take the place of a legally-formed entity that offers liability protection. If you aren't sure what the nuances are between the two or are wondering which your business needs, we are here to clear up any doubts. We'll help you distinguish between a DBA and LLC and explain why it might be in your best interest to make the switch sooner than later.
What Is a DBA?
A DBA is short for “doing business as.” Some states also refer to a DBA as a trade name, fictitious business name or assumed name. A DBA gives you permission to operate a business under a name that's different from the legal name.
What Is an LLC?
An LLC or Limited Liability Corporation is the easiest and fastest business entity to form. It’s a bona fide, legal business structure that distinguishes you personally from the "business."
DBA vs. LLC
At a glance, both a DBA and LLC might seem similar. Yes, they both give you permission to operate under a different name; however, that’s where the similarities end. Let’s take a closer look at what separates the two.
A DBA is a permit; it's relatively simple to get — you just need to file an application online. However, there are a few downsides to operating under just a DBA. Think of the DBA as a nickname for your business, and since it’s not a legal structure, it doesn’t offer the level of protection that an LLC or another legal business structure would.
The filing fees are also different for a DBA vs. LLC. DBAs usually have a one-time filing fee and no recurring expenses; typical fees for a DBA range from $15 to $100. Remember that while some states allow you to hold a DBA without refiling, others might require you to refile every year or so.
Forming an LLC requires slightly more paperwork and higher fees. You'll first have to pay the LLC filing fee and then a recurring annual or biannual fee. The registration costs again differ by state; for instance, California has a filing fee of $85, while Texas has a filing fee of $300.
Although LLCs might require you to adhere to more state formalities and increased out-of-pocket expenses, there are several advantages to operating as an LLC.
Why You Should Change from a DBA to LLC
Here are four reasons why you should shift from operating under a DBA to an LLC. Let’s explore each in further detail.
A DBA doesn’t protect you personally from the business's liabilities and debts. With a DBA, you're essentially leaving the door to your personal assets (personal savings, car, house) open if you face any financial or legal troubles.
Even though a DBA allows you to operate under a fictitious business name, it doesn’t protect your name from being used by someone else. By forming an LLC, you gain increased protection on your business name within the state because the state ensures no other business entity can operate under the same name. However, neither a DBA nor LLC protect your business name at a federal level — that requires a trademark.
You also don’t gain any tax benefits via a DBA. With an LLC, you have the option to choose how you want to be taxed. The IRS taxes a single-member LLC the same way as a DBA or sole proprietorship. However, if you have LLC members, then you can opt to be taxed as an S Corp or C Corp.
Forming an LLC makes your business legitimate and more credible, which in turn increases trust and can help gain clients/sales. It’s also easier to raise funds as an LLC.
How to Change from a DBA to an LLC
So you might be wondering, "I've been operating under a DBA, but now wish to grow and protect my business. Can I turn my DBA into an LLC?"
Yes, you can. Here's some more good news, making the shift from a DBA to an LLC isn’t overly complicated — you just need to follow the correct procedure. Our step-by-step guide will help you transition your business from a DBA to an LLC with ease and confidence.
Step 1: Find Out If Your DBA Name Is Available
Did you think long and hard about your DBA name and don't want to come up with another one? You might be able to keep the same business name for your LLC. Run a business name search on your Secretary of State website to confirm the name's availability.
Before you jump ahead to forming an LLC, appoint a Registered Agent. Having a designated Registered Agent (not you or an employee) protects your privacy and saves your business from penalties that could result from missed legal compliances. It's required when you form your LLC, and if you do so with Incfile, it's free for the first 12 months.
Step 3: Dissolve or Withdraw Your DBA
You must dissolve or withdraw the DBA with the local or state government before (in some cases, it's after) filing for the LLC. This process varies as per locality. Therefore, it’s best to check with the place you filed your DBA, especially if you intend on using the DBA name for your LLC.
Step 4: File for a New LLC with Your State
Complete the "Articles of Incorporation" or "Certification of Formation" documents online. One thing we would like to highlight here is to ensure your business has all the necessary business licenses and permits. Why? Because your business has to be recognized as an entity at the local and state levels before the LLC gets approved.
In order to be able to open a bank account and file for taxes as an LLC, you'll need to get an EIN number (Employer Identification Number). Incfile can help you file for this or you can apply for it online.
Step 6: Open a Business Bank Account
Get an entirely new business bank account under your LLC and EIN, even if you have a dedicated account for the DBA. You could face penalties if you continue transactions under the DBA account. All your invoices, credit cards and vendor accounts should reflect the new banking details.
Make the Change — The Sooner, The Better
DBA or LLC? In the end, it all comes down to your business goals. Operating under a DBA might make sense initially; however, as your business grows, so do its potential liabilities. If you're serious about your protecting your business, then forming a formal business structure like an LLC is the way to go.
Ready to make the switch but need some help? Incfile offers $0 LLC and business formation. Incfile has helped over 800,000 small business owners across the country with their filing and compliance. We'll make the transition seamless and even file your business filing paperwork for free!
Swara Ahluwalia is a freelance content writer with experience in the technical, B2B and SaaS domain. She also has curated content for various lifestyle brands. In her downtime, you will most likely find Swara training for her next marathon or spending time with her two daughters.