Can a DBA Company Own an LLC?By Tom Speranza, J.D.
Can a DBA Company Own an LLC?By Tom Speranza, J.D.
A DBA company is any business that has adopted a "doing business as" or fictitious name. It uses a name in the marketplace that is different from its official entity name registered with the state where it formed or, in the case of a sole proprietorship or general partnership, different than the names of the individual business owners.
How do different kinds of businesses use DBAs?
Any type of business entity can adopt a DBA as the primary name seen by its customers and clients. To cite some examples:
- Robert Murphy operates a sole proprietorship out of his house that makes and sells brownies under the brand name "Bob's Brownies." In addition, his business cards, signs, and website always refer to the business as "Bob's Brownies."
- Mary Smith and Jane Doe practice law together as a general partnership. They call their law firm "S&D Law" and use that name on their business cards, stationery, and website.
- Philadelphia Caffeine Company, LLC sells artisanal coffee to local supermarkets under the brand and registered DBA name "Philly Coffee Roasters."
- General Electronic Systems, Inc. provides software consulting services to other businesses using the DBA "GES."
Why would a DBA company own an LLC?
A DBA company might form a limited liability company (LLC) or purchase a membership interest in another LLC for a variety of reasons:
- To establish a new business or purchase an existing business
- To transfer assets—such as a line of business, a building, or item of intellectual property—to an LLC
- To invest in another business with third parties, either as a majority/controlling owner or a minority owner
- To conduct activities or own assets that could subject the DBA company to liability if not housed in a separate entity
How does a DBA company become the owner of an LLC?
The LLC laws in all 50 states allow both individuals and business entities to own an LLC. When a DBA company owns an LLC, the DBA company is called a member of the LLC. If it owns more than 50 percent of the LLC's membership interests, the DBA company is the parent and the LLC is the subsidiary.
If the DBA company is a sole proprietorship, the LLC's owner would be the same individual who owns the sole proprietorship. If the DBA company is a general partnership, LLC, or corporation, then the DBA company is direct owner of the LLC.
The steps needed to form an LLC are similar from state to state:
1. Choose a state to form the LLC.
In most cases, your DBA company will form the new LLC in the same state in which the DBA company does business, but there are situations where you might use a different state. If the new LLC is acquiring a business or property in another state, it may make sense to form the LLC in that state to simplify operations and state tax issues. Similarly, if the LLC wants certain tax benefits or will have investors for a new venture, you may prefer a tax-friendly state or well-known business jurisdiction.
2. Choose a name for the new LLC.
You need to choose a name for the new LLC and confirm that it's available in the state of formation. Each state's online entity name database makes this process relatively easy, but it's a good idea to create a list of three to five possible names in case some are not available.
3. Draft and file a formation document.
The LLC forms by filing articles of organization or formation with the agency that regulates businesses in the formation state and paying the required filing fee. You must include information about the DBA company as a member of the new LLC in the articles. An online legal service provider can draft the articles to fit your particular situation.
4. Appoint a registered agent.
Unless the new LLC will immediately have an actual business location and employees located in the state of formation, you must appoint a third-party registered agent in the state to receive official notices and legal filings. Various companies provide this service for an annual fee.
5. Draft an operating agreement.
An LLC requires an operating agreement to document the rules by which the LLC's members and managers (if the LLC will have managers) govern the company. If your DBA company will be the only member of the LLC, the operating agreement is a simple document. If the LLC will have multiple members, it can be much more complicated. An online legal service provider can assist in drafting an operating agreement that fits your situation.
6. Obtain an employer identification number (EIN).
The U.S. Internal Revenue Service can issue an EIN online or by phone.
7. Open a bank account for the LLC.
To avoid additional liability, your DBA company should keep the LLC's finances separate from the DBA company's. A separate bank account for the LLC is part of this process.
This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.