A DBA (continuing with fill in as) name is simply a registered agent name for a business. DBAs can be used by sole proprietorships, partnerships, LLCs, and corporations.
In our DBA vs. LLC guide underneath, we will figure out why forming a LLC is the best decision for most business owners.
What is a DBA?
A DBA isn't a sort of business structure. A DBA is a fictitious name that can be used by sole proprietors, partnerships, LLCs, and corporations for the ultimate objective of branding.
An ordinary misconception held by first-time entrepreneurs is envisioning that when they get a DBA, they are making a formal business structure with liability security.
But, this is not the case — they are essentially making a sole proprietorship with a DBA name for branding and banking purposes.
A DBA isn't a business structure and won't safeguard your personal assets against lawsuits and/or creditors.
When you start a business, is it better to be a sole proprietorship (with a DBA) or to form a LLC?
To answer this question, you must consider three things:
Naming and Branding
Personal Liability Insurance
Banking
Naming and Branding
Right when you start a business without a formal structure, you are essentially a sole proprietorship (or a partnership if there is more than one owner).
Sole proprietorships have the same name as their owners. For instance, your business' name would be John Smith if your name is "John Smith." Partnerships assume the surnames of the owners overall.
This is obviously off-kilter to brand, which is the reason sole proprietorships and partnerships get a DBA.
LLC Branding
Right when you form a LLC, you can name your LLC the brand you really want without getting a DBA.
Personal Liability Assurance
Sole proprietorships and partnerships with a DBA aren't formal business structures and have no personal liability insurance. Subsequently, a business owner's personal assets (e.g., vehicle, house, savings) are at risk if the business is sued.
LLCs are a formal business structure and do provide personal liability security. As such, a business owner's personal assets (e.g., vehicle, house, savings) are safeguarded in case the business is sued.
Banking
DBAs enable sole proprietorships and partnerships to recognize and deposit checks made out in the business' name to any EIN number account associated with the DBA as opposed to the owner's name.
On the other hand, if you form a LLC and open a bank account under the LLC, you will not require a DBA and can recognize checks made out to the LLC's name.
Quick Answer: DBA vs. LLC
While starting a business, it is usually better to choose a formal business structure like a LLC. You will not require a DBA for branding because you will use your LLC name, and you will have personal liability security.
LLCs also offer increased business authenticity and can assist with boosting your business credit record.
Exactly when You Should Get a DBA
There are two essential reasons why businesses get a DBA:
1. The essential reason to get a DBA is the place where your formal business structure, such as a LLC or corporation, has multiple brands or lines of business.
Model: Morning Pastry kitchen LLC decides to open up a coffee shop called Morning Coffee. By then, at that point, they can open Morning Coffee and register a DBA for the name.
Visit our How to Name Your Business guide to figure out more.
2. Informal businesses, similar to sole proprietors and partnerships, get a DBA for:
Branding
Security
Banking
Regardless, these informal businesses really should have composed as a formal business structure, usually as a LLC. This way, they will have every one of the benefits above as well as personal asset insurance.
