LLC has a lot going for it as a business entity. Apart from the limited liability protection, its structure offers multiple perks to beginner and smaller businesses, as well as to bigger enterprises in many aspects. There is one great word embracing all those perks and it is flexibility. LLCs have gained so much popularity thanks to a flexible management system and flexible taxation options along with an opportunity to run multiple businesses without the need to establish multiple legal entities. Legally, an LLC is not confined to a single type of business activity, and there is a lawful base allowing a single LLC to be engaged in different businesses at a time. It’s operating under DBA names. What is a DBA? How to register it? How many DBAs at a time an LLC could have? Our article will throw light on this important legal peculiarity of LLCs.
LLCs vs DBAs: an Overview
For the start, LLCs and DBAs are from different legal levels. While an LLC is a business entity with an independent legal framework, a DBA is rather a status non-existent beyond a company. As such, an LLC is entitled to perform legal transactions and act as a legal person while a DBA is just a name version.
With a limited liability company, you’ll benefit from a corporate veil that will shield your personal assets from business-related risks and set apart your personal and business liabilities for the sake of your personal financial safety. Besides, an LLC brings the benefit of pass-through taxation keeping federal and state income taxes at bay. The company management structure is simple yet adaptable engaging less paperwork and fewer formalities than other business structures. Finally, an LLC protects its legal name within the territory of a state to ensure fair and transparent competition and make sure no other registered entity will use a similar name in this state.
When it comes to a DBA, it offers no add-ons at a legal level. In fact, it’s just another name option different from your registered LLC name. However, it does have a clear purpose. What a DBA (“doing business as”) name does offer is an opportunity to conduct various types of business activities under the roof of the same LLC. And that’s a really great function that allows drawing a line between businesses and separating them on the market without going into multiple legal entities.
Speaking of a formal side, LLCs require state filing and cannot be formed without submitting the Articles of Organization with the state and getting those formation documents approved. DBA rules, on the other hand, vary by state. While most states do need DBA registration, some states have no strict registration requirements for that. Most often than not, DBA name registration is needed when the state has restrictions on using the same DBA by different entities. And it’s a good thing since it gives more protection.
In a word, an LLC is both a legal status and a legal entity, and a DBA is an option LLCs have at their disposal to run their business in a more organized manner and enjoy more business opportunities. Yet, DBA registration is impossible without having an LLC or other official legal structure in place.
Single vs Multiple DBA Application Filings
First and foremost, a DBA name is a so-called business name mostly used for marketing purposes as opposed to a registered LLC name, which is a legal name. To be clear, a DBA by no means changes your company’s legal name. Besides, an LLC could have only one legal name while being able to get multiple DBAs.
When do you need more than one DBA you wonder? A legal name your company is assigned during business formation is your official LLC name you can use anywhere. However, imagine a situation you are going to open say a barbershop and run a food store at the same time. Using the same company name for both businesses will not only be weird but also cause confusion among customers. And what if you project to conduct more business activities? This is where DBAs come to help. Reserving a legal LLC name for all types of paperwork and formal issues, DBAs enable you to pick a separate name for each business you have. A DBA name will be used for marketing materials, advertisements, business logos, online and public events. It’s the name under which each of your businesses will be known to customers and clients. This way, you’ll avoid confusion and will be able to realize all your business ideas without the need of opening a separate LLC for each of them.
As far as DBA registration is concerned, though some states don’t require it, the registration makes your chosen DBA name officially known not only to the public but also to the government. Besides, it makes it clear to which company this name belongs and allows tracing back the owners if necessary. This way, you’ll enhance your business credibility both among the customers and with the state authorities, not to mention that the registration will protect the name from being used by other businesses in this state. Note, however, that to make this name distinguishable nationwide, trademarking is the only alternative to go.
Filing a Single DBA
To run a business under a name different from your legal LLC name (which is called a DBA, fictitious, or assumed name), you need to file an application with your state or local government department, as the case may be, and get it approved. Only after official approval will you be able to legitimately use that fictitious name. It’s worth mentioning that it’s the business owner’s responsibility to check valid state requirements for DBA filing. Some states have one-time DBA registration fees in place payable before submitting the application.
Filing Multiple DBAs
To register more than one DBA for a single LLC, get ready to send a separate application for DBA and pay a filing fee for each of them accordingly. Besides, since most states have requirements toward unique DBA names, it will take you a hassle to check if each variant you are going to register is distinguishable, permissible, and available in your state, county, or city. So, before randomly getting into filing multiple fictitious names, think twice if you really need it.
Are There Disadvantages of Using More Than One DBA?
While a lot has been said above about the pluses of using multiple DBAs including clear market segmentation and better brand control, using several DBAs has its minuses as well:
- Higher Liability Risks: Conducting multiple businesses under a single LLC roof is also holding all liabilities under the same roof since you’ll still have only one legal entity. Despite the practical independence of different business activities, in the eyes of the state law, all of them are reported under the same legal name, hence common liability. It means, should any of your businesses face any problems, all other businesses will be kept liable for that with their assets because those are considered simply LLC assets;
- Common Finances: The IRS service will view your LLC as a single legal entity, no matter how many DBAs you have. Hence, revenues brought by different DBAs will be taxed at a single company level anyway. It means you won’t be able to report losses for one DBA while others remain profitable. This way, problems of one business are offset at the account of other business’s profit;
- Challenging Bookkeeping: Formally, you won’t be able to split finances between different businesses for accounting purposes, which will make bookkeeping quite challenging and make it harder to distinguish between cash flows, incomes, and expenses of multiple businesses. More than that, all finances will be reported under a single financial statement.
So, when thinking about registering multiple DBAs for one LLC, take these downsides into account and get ready for them. To reduce liability risks, you can purchase liability insurance for each DBA. In the meantime, for easier and more efficient financial control, it’s advisable to hire a dedicated accountant for each business activity.