Still, the DBA is sometimes used by LLCs, usually as a way to expand advertising options, or as a means of creating distinct product lines. In this article, we’ll discuss the five biggest myths regarding DBA names for LLC owners.
Why would an LLC use a DBA, and is it a good idea? Let’s find out!
Unlike the official name you selected for your LLC, registering a DBA does not guarantee that you’ll have exclusive use of that name. Because the DBA is not an actual entity structure, there is no exclusivity involved with using one.
While it is true that your DBA must be distinct from the official names of formal business entities in your state, this is not a two-way street ― in theory, you could lose your DBA if another business incorporates using that name.
For example: Let’s say you register a DBA for the name “Jimmy’s Burger Shop.” At the time you register the name, there are no other businesses using this name (or similar names) in your state. However, another entrepreneur decides that they want to open a restaurant called Jimmy’s Burger Shop. They form an LLC and use “Jimmy’s Burger Shop, LLC” as their registered, official business name. At this point, you can no longer use your own DBA, because someone else claimed it as their own.
If you’re serious about creating a new assumed name for your business, you should form a new business entity for the new name, rather than just hoping no one else likes your name enough to steal it.
It’s definitely true that DBA registrations are far more common for sole proprietorships and general partnerships than they are for limited liability companies, but that doesn’t mean that LLCs have no use for DBAs.
One instance where you’ll see an LLC using a DBA is if the business introduces a new product line that they want to keep distinct from their other products. In this situation, the LLC will sometimes register a DBA in order to have an alternate name that they can use to distinctly market this new product line, in a way that does not tie into their other offerings.
Let’s illustrate this point by using the example of a high-end restaurant called “Phil’s Fine Dining.” If Phil decides that he also wants to open a fast-food restaurant, he can register a DBA for “Fast Food by Phil,” which allows him to market this new business under a different name, while still maintaining the connection between his restaurants.
Not only is this not true, but we believe that the lack of personal asset protection is one of the biggest drawbacks of the DBA. A doing business as name is actually not a business structure at all, as it only provides the rights to use an assumed name in an official capacity.
This is an important fact to note, because we sometimes hear readers asking whether they should form an LLC or register a DBA.
The answer to that question is that this really isn’t an either/or proposition at all, as it’s a bit like comparing apples to oranges ― the DBA and the LLC have entirely different purposes in the American business landscape, and one cannot be substituted for the other.
Sometimes, you’ll hear about an LLC using DBA names as a way of dividing up different segments of a business for accounting purposes. While this can help you keep your finances in order, we will mention that DBAs do not legally shield one segment of your business from the others when it comes to issues of liability.
If you want to separate the liability of different segments of your LLC from each other, you’ll need to form a series LLC (if this is an option in your state), or simply form separate LLCs for each segment of the company.
The key word here is “much.” While it is true that it’s less expensive to register a DBA than it is to form an LLC in most states, DBAs are not significantly more costly than LLCs in many states. DBA registrations can often cost $50 or more, and there are plenty of states where you can form an LLC for under $100.
Therefore, the LLC is typically more expensive than a DBA, but the difference is much less than you might expect in some states. In our opinion, the personal asset protection provided by the LLC as a formal business entity far outweighs the minor cost differences between setting up an LLC and registering a DBA.
To be perfectly honest, we’re always somewhat surprised by how popular the doing business as (DBA) name is in the modern business landscape. Between the lack of exclusive name rights and the absence of personal asset protection, we think forming a limited liability company (LLC) is almost always preferable to obtaining a DBA.
Simply put, the LLC provides layers of legal protection that you don’t get with a DBA. Furthermore, the LLC isn’t a terribly expensive business type to form.
In short, if you’re thinking about registering a DBA for your business, we strongly advise that you instead look into forming an LLC ― or, if you already own and operate an LLC, form a new one for your alternate business name, rather than registering it with a DBA.
That said, if you need help creating an LLC, service like ZenBusiness drastically simplify the formation process.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
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