Rules of DBA Vs. LLC

By Rob Jennings J.D.

A limited liability company, or LLC, is created by state law and has a separate legal existence from its owners. A doing-business-as entity, or DBA, on the other hand, is a person, corporation, partnership or LLC transacting business under an assumed name. Although an LLC may do business under an assumed name, the rules for forming an LLC are completely different from doing business under an assumed name.

A limited liability company, or LLC, is created by state law and has a separate legal existence from its owners. A doing-business-as entity, or DBA, on the other hand, is a person, corporation, partnership or LLC transacting business under an assumed name. Although an LLC may do business under an assumed name, the rules for forming an LLC are completely different from doing business under an assumed name.

Forming an LLC

State law governs the formation and operation of LLCs. While the specifics of the law vary from state to state, generally founders must draft and file articles of organization -- and an operating agreement, in some states -- with the secretary of state or secretary of corporations in their state. They must file an annual report every year confirming the essential information for the company and reporting any changes in addresses, membership or registered agent for service of process.

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Registering a DBA

State law also controls the registration of DBA entities, but the documentation requirements for doing business under an assumed name are usually even less stringent than those for forming LLCs. In general, an individual or entity wishing to do business under an assumed name needs only to file a certificate of assumed name with the register of deeds in the county where he will be transacting business under the assumed name. Some states may require a filing with the secretary of state or corporations, as well. Additional filings with the state are necessary where the entity doing business under an assumed name is a foreign corporation or LLC.

Protections

Doing business under an assumed name offers the registrant no protection from suit. The registration requirements for assumed names exist only to promote transparency in the conduct of business and make it more difficult for individuals and companies to hide their true identities from creditors and potential litigants. A sole proprietor doing business under an assumed name can be sued personally for the torts of his employees and partners. An LLC, on the other hand, provides a member with limited liability for those same acts.

Taxation

As a DBA is not an entity at all but rather an assumed name, the individual or entity doing business under an assumed name must pay taxes in accordance with its own filing status. The DBA confers no special income tax status. The LLC, on the other hand, can choose how it wants to be taxed -- either as a sole proprietorship, corporation or partnership. An individual doing business under an assumed name must file taxes as an individual.

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Reasons for Establishing a DBA

Not everyone who starts a business chooses to incorporate or set up a limited liability company, or LLC. Certain business owners can be sued personally for their acts, and the limited liability of LLCs and corporations doesn't help all entrepreneurs. In businesses where the owner expects to be doing all the work, such as sole proprietorships where there are no partners, co-owners or employees, an assumed name, or DBA, for "doing business as") may be appropriate.

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