It is often the case that when you are running a business under the ‘doing business as’ category, or a sole proprietorship, you reach a limit where you need a proper structure for your business. Once your business has expanded wide, it is a brilliant idea to change it to an LLC over DBA or sole proprietorship, and almost every business that is an LLC now once was a DBA.
It is a giant leap towards protecting your private assets because as long as you have a DBA or sole proprietorship, your assets are always vulnerable and in a state of jeopardy. This guide explains how you can change your DBA to an LLC and all the possible benefits of this change of structure.
Steps to change from a DBA to LLC
While each state has its own rules and regulations and application form for changing your business from a sole proprietorship or DBA to an LLC, the transition procedure is almost similar in all states. Follow the steps given below to begin this transition:
- First and foremost, do the name check
Before you have started the paperwork, it is critical to find out that the name you’re looking for in your LLC is available or not. If you haven’t checked it, you may spend days filling the forms only to find out at last that the requested name is not available. Almost all states offer an online database where you can search for the available names for your LLC.
- Get the required forms
Once you have checked the desired name’s availability, you can now move ahead for getting the proper forms for changing your DBA or sole proprietorship to an LLC. These forms are available at the secretary of state’s office, and many states also offer these forms online.
- Choose a registered agent and file for articles of organization
Sometimes also known as articles of incorporation, certificate of formation, certificate of organization, or another name similar to them, this document’s exact name will depend upon your state. It would help if you then chose a registered agent to act on your behalf to be the company’s contact and send and receive legal documents.
Once that is done, pay the filing fee. In your organization’s articles, don’t forget to include the name of your LLC, your registered agent, niche of your business, information about members and managers, and comprehensive information about the whereabouts of your business.
- Get EIN
Employer identification number, also known as EIN, is a crucial registration number that works as social security number for your business. It is essential to understand that even if you already have an EIN for your sole proprietorship or DBA, you will need to apply for a new EIN for your LLC.
- Dissolve or close your DBA or sole proprietorship
You have to dissolve your DBA and all the accounts related to your sole proprietorship or DBA once you apply for an LLC. It is essential to understand that anything in DBA’s name must be closed before you can proceed with the application. There are always more accounts under DBA’s name, so always be very thorough in this quest.
- Update all the required documents
Change all your listings with the vendors and landlords, and open new bank accounts. On top of that, don’t forget to update your website, social media, and phone number accordingly.
- Obtain all the necessary licenses and prepare an operating agreement
Since DBA and LLC’s primary difference is protecting private assets, you will need to prepare a separate operating agreement and then acquire all the necessary licenses for your LLC. If you’re feeling overwhelmed with all the documentation for permits, you can hire an attorney to work it out on your behalf.
Your operating agreement should include information like who owns the shares (if any), all the names of directors and managers, voting and other rights and responsibilities of all the members, and details about dividends, etc.
How is an LLC Similar to a DBA?
Both LLC and DBA are equally similar and different. Both DBAs and LLCs allow their respective business owners to name their business something other than their names. Both DBA and LLC enable their owners to perform bank transactions under the business’ name.
LLC vs DBA: Pros and Cons
The primary difference, as discussed earlier, is the protection of private assets that an LLC offers, while a DBA doesn’t. In a DBA, you’re personally liable for your business’s accumulated debts, and you don’t exclusively own rights to your name.
On the other hand, DBA offers a lot of business flexibility, while LLC is comparatively a rigid business structure. It also provides other advantages like targeted branding and easy legal compliance.
- DBA vs LLC tax advantages
A DBA has significantly less to offer when it comes to tax advantages, while an LLC offers various tax advantages. The existence of pass-through taxation in an LLC is an excellent incentive for business owners.
FREQUENTLY ASKED QUESTIONS
Here are some of the frequently asked questions answered about this topic:
- Can an LLC have a DBA?
Yes. A limited liability company can still register a DBA or “doing business as” name and do business under LLC’s title. A DBA will then operate much like a nickname for the LLC.
However, it is critical to understand that LLCs are not legally required to file for a DBA and continue to operate with the organization articles’ business name. An LLC that chooses to use a DBA must file a DBA with the secretary of state or state department where the respective LLC is formed.
- What is better: LLC or DBA?
This has been discussed in details in the article. When you consider all pros and cons, it is safe to say that an LLC is a better option than a DBA.
- Can you have multiple DBA under one LLC?
Yes. One LLC can hold multiple DBAs or ‘doing business as’ names. It can be done without forming numerous businesses.
