A limited liability company (LLC) is a business entity that provides asset protection. A Limited Liability Company (LLC) is a hybrid business structure that has characteristics of a sole proprietorship, general partnership, and corporation. It has the tax advantages of the non-corporation entities and limited liability protection of corporations. Depending on the state, you will be required to have an Operating Agreement that delineates some key aspects of the business. An LLC can get a tax identification number, open a bank account, and perform business under its own name.
In comparison, “doing business as” (DBA) means that the same company is operating under a new name. A DBA isn’t a a business structure and will not protect your personal assets against lawsuits or creditors.
Here are things to consider with a DBA:
- Naming and branding - A DBA allows sole proprietorships to operate under a name different from the owner’s legal name, which can make the company appear more professional. Example: Your business’s name would be “Kevin Johnson” if your name is “Kevin Johnson” unless you get a DBA.
- Personal protection - DBA’s do not protect your personal assets (like your car, house, savings) if your business is sued. If you are concerned about this risk, an LLC will offer you asset protection and be the better route.
- Banking - DBA’s are not required to have a separate bank account, and you can have one bank account with multiple DBAs. Although it’s not recommended, some business owners may find that it is the best decision for them. If you must have one bank account with multiple DBAs, keep the following in mind:
- Place payment instructions and terms on the payment quote in case customers need to recall the account number for better tracking purposes.
- Create an organized sales ledger that carefully tracks the income of each DBA.
- Keep detailed records in a cash book.
Overall, you should have a reliable bookkeeping process if you are audited or sued because you will need to retrieve information in an organized way. Otherwise, you might be left paying more in taxes or liabilities than you would have with more than one bank account setup.
DBAs can also be useful when a company wants to introduce a new product or line of business under a different name, but doesn’t want to create a new legal entity.
Example: Kevin’s Bakery LLC decides to open up a coffee shop called Kevin’s Morning Coffee. At that point, you can open Kevin’s Morning Coffee and register a DBA for the name. However, these informal businesses really should have organized as a formal business structure as an LLC. This way, you’ll have all of the benefits above as well as personal asset protection.
Do you need an EIN for a DBA?
DBAs are your business nicknames, and therefore, you don’t need to have a separate EIN. To read more details about an EIN for your DBA you can go here.
Not all businesses need an EIN. Whether you’re required to have one depends on how your business is organized and what kind of taxes it pays.
Do you need an EIN? Check out the 4 ways you can apply for an EIN.
How to file a DBA