Filing a DBA Versus Forming a Corporation or LLC
Naming a business is an important step. Common advice says the name you select should typically portray what your business does, be easy to remember and help customers find you. Even with all the thought that goes into selecting the right name, it is often the case that a business outgrows its original name or changes focus. If you reach that point in your business, you may wonder whether filing a DBA (doing business as, which is also sometimes called an assumed name or fictitious name) or forming your business as a corporation or limited liability company (LLC) is the right step.
A DBA filing allows a company to transact business using a different name. DBA filings often take place at the county level, but some states have state-level DBA filings.
For sole proprietorships and general partnerships, unless a DBA is filed, the company name is the same as the name(s) of owner(s). For example, John Smith is operating a landscaping business as a sole proprietorship.He files a DBA to transact business under the name Smith’s Landscaping instead of as John Smith.
Corporations and LLCs can also file DBAs to transact business under a name different from the name registered with the state when the business was incorporated. For example, a corporation formed as Smith and Sons, Inc. may wish to transact business under a name that more clearly states what the company does, such as The Corner Market, and could file a DBA to use the more descriptive name. A DBA filing does not change the official name of the corporation or LLC. It only allows the business to use a different name in trade, which can be in addition to or instead of the official corporate or LLC name.
Keep in mind that for sole proprietorships and general partnerships, filing for a DBA does not provide the same benefits that forming a corporation or LLC does. Filing a DBA merely allows the company to transact business with the new name. For corporations and LLCs, filing a DBA does not create a new business entity, it just allows the existing entity to use a different name.
Corporation or LLC Formation
To form a business as a corporation or LLC, formation documents, typically called the articles of incorporation for corporations and the articles of organization for LLCs, must be filed with the appropriate state agency.
As sole proprietorships or general partnerships consider using a different name, it is often a good time to consider whether incorporating the business or forming an LLC is the best next step. The corporate and LLC structures provide advantages to the owner(s) of the business that sole proprietorships and general partnerships do not. Common advantages of corporations and LLCs include:
- Limited liability protection for the personal assets of the owner(s).
- Certain tax advantages
- Opportunity to gain credibility with potential customers, vendors, partners, and employees
- Capital can be raised more easily
Current corporations and LLCs that are evaluating whether to file a DBA to use another name may need to consider items such as whether the business focus the new name projects is allowed under the business purpose outlined in your articles of incorporation or articles of organization, or whether there are advantages to creating a subsidiary or an entirely new business to operate alongside your existing business.
Whether filing a DBA or forming a new corporation or LLC is the right choice often depends on your particular business, your current situation and your business goals. For questions regarding your specific situation, it is best to seek the advice of an attorney or accountant.
For a side-by-side comparison, please review the Entity Comparison Chart.