Have you ever heard of a thing called DBA? Well, that is one of the most popular business models in California. Most small businesses choose to operate under an assumed name or do business as (DBA) instead of incorporating because it’s so much easier and cheaper to set up. However, there are some major differences between setting up a DBA and forming an LLC.
What is a DBA?
A “Doing Business As” (DBA), is a name your business does business under other than its official, legal name. For example, if you wanted to start a company called “Best Cat Grooming,” but you don’t want to use your personal name, you can register it as a DBA. You will still be responsible for all transactions under that business. The reason why people set up DBAs is that California laws do not require it to complete any formalities when setting up the business under an assumed name.
What is an LLC?
An LLC, or “Limited Liability Company”, protects the personal assets of its owners from liabilities that arise by running a business. So, if you are sued for something, your personal assets are protected under an LLC. This means that it’s beneficial to set up an LLC if you think you might get sued for something, but not if you are running a sole proprietorship.
To set up an LLC in California, the state requires owners of the company to file articles of organization with the Secretary of State and pay a filing fee. For more information on forming an LLC, you can check out our blog here.
How to Set Up a DBA in California
Setting up a California DBA is very simple and cheap. You can file your business name online at the Secretary of State’s website here, and it will cost $30. Once you fill out your business name, it will be published in the California official state newspaper where creditors that might be looking for you can find you. You then need to include your new business name when completing contracts or transactions to put others on notice that they are doing business with your company under an assumed name.
How to Set Up an LLC in California
Forming an LLC in California is a little more complicated than forming a DBA. This is because you need to file articles of organization with the Secretary of State’s office and pay a filing fee. When you want to open your LLC in a state like California, here are some of the things you need to know, these include:
- Your company name can’t be the same as another registered business in California. Your company name must contain the words “Limited Liability Company” or ” LLC.” It cannot contain certain words, abbreviations, or phrases associated with other types of businesses such as Bank, Incorporated, Insurance Company, Corporation, or Limited Partnership.
- All limited liability companies operating in California must have a designated agent, which is an individual or corporation who agrees to accept legal papers on the LLC’s behalf if it is sued. You can’t set up your LLC online, but you can file your articles of organization with the Secretary of State, and it will cost $70.
- If you are using an assumed name (DBA) or “doing business as” name, this should be the exact same as the LLC’s name. If it is not all businesses in California must put the phrase “Registered Agent – Principal Office.” This is because sole proprietorships have no legal entity, and when suing a sole proprietor, the plaintiff sues the owner’s personal assets.
- In California, a Limited Liability Company cannot do business in any other name other than its legal name. This means that if your company is called ABC LLC, you can’t transact business under a different name without going through another process to register a DBA or fictitious business name.
When Do I Need to Use a DBA?
As we know, the difference between a DBA and LLC is that DBAs protect you from creditors looking for assets, and an LLC protects your personal assets if you ever get sued. Clearly, then, it’s beneficial to set up a DBA when you plan to run a business that might make you vulnerable to lawsuits.
This means if you want to start a sole proprietorship, it’s a good idea to file a DBA. However, unlike an LLC, DBAs do not protect your personal assets from any debts or liabilities that arise from operating the company under an assumed name. This is important because if your business goes belly up and you owe creditors money, they can go after any assets in your name. In addition, if someone gets injured while doing business on your DBA’s behalf, the injured party might have a right to sue you personally for damages.
When Do I Need to Use an LLC?
When you want to protect your personal assets in California, it’s recommended you form an LLC. An LLC provides the protection of a corporation—which means creditors cannot touch your individual properties or bank accounts when trying to collect debts.
However, if you file an LLC with the Secretary of State but don’t do business under its name (putting “doing business as” is not enough), it becomes a disregarded entity. In this case, the LLC won’t provide its owner with any liability protection from legal issues incurred by the company.
Starting a DBA or LLC in California is relatively inexpensive. You can do it yourself by filling out the paperwork with the Secretary of State, or you can hire an attorney to file your documents and answer any questions you might have.