LLC or DBA?

LLC or DBA? We start conversations at our company with this basic question more times than I can tell you. Many customers don’t understand the fundamental difference between an LLC and a DBA, and choosing the wrong one can have unbelievably huge consequences!

Let’s start with what the abbreviations mean:

LLC is short for Limited Liability Company.

DBA is short for Doing Business As.

Getting a DBA is basically an application that is filled out and filed with your state and/or county to let them know you wish to conduct business under a name that is not your own. Once your application is approved, you can advertise under the name, take payments under the name, open a bank account, etc. However, from a legal perspective, it is YOU conducting business and that is a very important distinction to understand.

Getting an LLC is also an application, which is filed with the Secretary of State. Similar to a DBA, it allows you to operate under a name other than your own, however, there is a major difference…from a legal perspective, it is the LLC conducting business and not you personally. What does that mean to you? This seemingly small difference means everything when things go badly!

Business is inherently risky and many entrepreneurs and small business owners have learned the hard way that you can be sued for anything…even if you are completely upfront and above board with your business practices. The smart business owner considers this form the beginning.

If you find yourself in a lawsuit and you are operating as a DBA, you are being sued personally! Every one of your assets is up for grabs. Think about the equity in your home, your car, your kid’s college fund, savings…really anything and everything you have can be lost. This is why you will not find a business owner who will recommend a DBA as your primary business structure.

Take this same scenario and apply it to an LLC. In a lawsuit, it is not you personally who is being sued. It is actually the LLC and as a result it is the assets which belong to the LLC that are up for grabs, and not typically yours. This distinction makes the LLC a very attractive choice for small business owners.

So why do DBA’s even exist? Not too long ago, Limited Liability Companies didn’t even exist. Business owners had to choose between a full-on incorporation or a DBA and incorporations have a relatively high level of maintenance and work that must be done just to maintain the corporation, which doesn’t work well in many cases. In current times, DBA’s are still used regularly, sometimes by those who have not done enough homework to understand the difference, but more often they are used by corporations and LLCs. That’s right, an LLC or corporation can apply to do business as a DBA. For them it can still make sense because the liability will still stop with the LLC or corporation and not go back to the owners of the company.

Before you file a DBA, look carefully at the LLC as an option.