Why Your DBA Needs an LLC

Written by Wesley Henderson

May 4, 2024

doing business as

Your business success and growth depend on many factors, including choosing the right name and legal structure. As an entrepreneur, you may have heard of LLCs (limited liability companies) and DBAs (doing business as). They are both popular business concepts, but they serve different purposes. And if you don’t know how to use them, then you could open your personal life up to a lot of legal exposure (spoiler: get an LLC no matter what!)

In this article, we will discuss the key differences and explain why your DBA needs the backing of an LLC.

Understanding DBA vs LLC

These two terms often get confused, but they are not interchangeable. Learning their distinct differences is crucial to understanding the importance of having both for your business.

A DBA is a fictitious name under which a business operates that’s different from its legal name. It allows a company to function under a more marketable name rather than the legal entity’s less-than-brand-friendly name.

In contrast, an LLC is a formal business structure that provides limited liability protection to its owners or members. This protection means the owners’ personal assets are safe from business liabilities, such as debts and legal actions.

In short, a DBA is your business’ trade name or alias, while an LLC is the legal structure. For example, your company’s legal entity name is “John Smith Enterprises, LLC.” Your DBA can be “Smith Software Solutions.”

The Problem With Only Having a DBA

Operating solely under a DBA without an LLC poses a significant risk, as a DBA is just a name. It doesn’t provide any legal separation between the business and its owners. If the company incurs debts or faces legal action, the owner’s personal assets — like savings, home, or vehicle — could be at stake.

A DBA DOES NOT PROVIDE ANY LIABILITY PROTECTION FOR YOUR BUSINESS OR YOU. Good news is that an LLC does.

Why You Need an LLC

Having an LLC is crucial for securing your business and personal assets. An LLC creates a separate legal entity, shielding your personal wealth from business liabilities. If the company were to face a lawsuit or debt, only the LLC’s assets would be at risk, not your personal property.

Additionally, an LLC adds credibility and professionalism to your business. Clients, partners, and investors often prefer working with a formal business entity rather than a sole proprietorship or DBA.

Why Your DBA Needs an LLC

Having an LLC backing your DBA offers the best of both worlds. You get the trade name and brand recognition of your DBA while having the legal protection and advantages of an LLC.

Moreover, starting with an LLC as your legal structure allows room for future growth and expansion. As your business evolves, you can add multiple DBAs under the same LLC, making it easier to operate different divisions or brands under one umbrella while still enjoying the LLC’s limited liability protection.

Final Thoughts

Forming an LLC is a critical step if you want to protect your hard-earned assets and mitigate potential risks. While a DBA provides a distinct business identity, it alone does not offer the necessary legal protections. Opting for an LLC ensures that your personal finances remain separate from your business liabilities — a fundamental aspect of responsible business ownership.

At Drafted Legal, we specialize in helping small business owners navigate complicated legal structures. Whether you want to form your LLC or need legal templates for your business, we’ve got you covered.

Contact us today to get started on securing your business’s success.

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