When it comes to running multiple businesses, there are a lot of decisions to be made. One of those decisions is whether or not to have a DBA (Doing Business As) for each separate business. A DBA is a legal term that refers to a business that operates under a name that is different from the legal name of the owner or owners. We will weigh the benefits and drawbacks of using a DBA for two different businesses in this article to guide your choice.
Pros of Having a DBA for Two Separate Businesses:
- Separate Brand Identity: If you have two separate businesses with distinct products or services, having a DBA can help you maintain separate brand identities. This can be particularly useful if you plan to expand your businesses in the future.
- Legal Protection: A DBA can provide legal protection for your businesses. By having a DBA, you can protect your personal assets in case of any legal issues that may arise. This is because the DBA is a separate legal entity from the owner or owners.
- Improved Credibility: Having a DBA for each separate business can also improve your credibility with customers and vendors. It shows that you are serious about each business and have taken the necessary steps to establish them as separate entities.
Cons of Having a DBA for Two Separate Businesses:
- Increased Costs: Having a DBA for each separate business can increase your costs. You may need to pay separate fees to register each DBA and file separate tax returns for each business.
- Confusion: If you have similar names for your two businesses, having separate DBAs can create confusion for customers and vendors. This can also make it difficult for you to keep track of your business finances and expenses.
- Administrative Burden: Having a DBA for each separate business can also create an administrative burden. You will need to keep track of separate bank accounts, financial statements, and other paperwork for each business.
Conclusion
Your specific situation will determine whether or not you need a DBA for each different business. Having a DBA may be advantageous if your two businesses offer unique goods or services and you want to maintain separate brand identities. But, if your enterprises have similar names or you are concerned about increasing costs and administrative complexity, it may be wiser to operate them under the same legal body.
Regardless of your decision, it is important to consult with a legal and financial professional to ensure that you are making the best decision for your businesses. They can help you understand the legal and financial implications of having a DBA for each separate business and guide you through the registration process if you choose to go that route.
Video Transcript
Should you have a DBA for two separate businesses? That is the question I am answering today. AdonaiOfficial wrote, “I have a photo booth rental business, but want to venture into vending machine businesses. Would a DBA work for this?” It is a great question. The real issue here is, do you want to separate the liability, or do you want to have it consolidated in the same company?
So say you have a photo booth rental business, and there is a lawsuit from one of your customers against your company. Well, let’s say you lose. Everything in that business would be exposed to the lawsuit and paying the judgment to the creditor. So whoever sued you, everything you have in the company is exposed to that lawsuit. That means if you have the vending machine business in the same company, all the value of the vending machines are exposed, and you could lose them. So it may be better to have the vending machine business in a separate business entity that would be a corporation or an LLC. That way, if there is a lawsuit for the photo booth business, you don’t lose the vending machines. And if there is a lawsuit for the vending machine business, you don’t lose the photo booths.
What is the downside to doing that? Well, it is going to be that you will have to have separate bank accounts, keep separate books, maybe separate credit cards for each, track your time working for each. If you have employees, they will have to be separate employees, possibly separate tax returns. So it can just turn into kind of a paperwork nightmare. By the way, too, all that adds to your expenses for an accountant or bookkeeper or the work you are doing if you are the bookkeeper. It also adds to your expense for insurance policies because you may have to have a policy for each. It is probably much less expensive to have an insurance policy for one company instead of two.
So, usually, business owners start out with one entity, and then they may expand to two entities down the road. And that is because as you start getting more customers and more revenue, and more risk, it makes sense to separate that risk between the two companies. But in the beginning, you don’t have a whole lot of money; you don’t have a whole lot of assets, you don’t have a whole lot of risk. So it is simpler and less costly to just keep it in one company when you are starting out.
Now, if you have that all-in-one company, then the question is, do you have a DBA? So, for example, let’s say you have Photo Booth Delights. That is one company. And then you have a wedding machine, or I’m sorry, a vending machine business. And so you are thinking, well, photo Booth Delights LLC doesn’t really work for a vending machine business. What do I do about that? Well, you could start up a new web, a new DBA called Vending Machine Delights or Vending Machines Are Us, or Vending Machine Rentals, or whatever you want to call it.
So you are essentially creating a nickname for the original Photo Booth Delights LLC. Two names, one company, one bank account. By the way, you could have multiple bank accounts, that is fine. But the scenario we are talking about here is where you have a single LLC, and you just have different names. The reason you would have a different name, or a DBA, is for public relations purposes, marketing purposes, branding, and advertising. There is no legal distinction. In other words, it is just different names for the same entity. So people set up DBAs because the original name that they had no longer works for all of their purposes. Sometimes when a company starts out, they have an LLC that is called like John’s Concrete Services. But then, John gets into selling other types of materials, and concrete is too narrow. So John might expand or set up a DBA that is called John’s Hardscape Surfaces. So he doesn’t just do concrete anymore; he does other hardscapes. So DBAs are just nicknames. They are just for advertising and marketing purposes. They don’t really have a legal effect on the entity.
Conclusion
Hopefully, that helps answer the question of whether to have a DBA versus two LLCs. As with anything, I recommend you consult with an attorney who can really understand the risks of your business and your plans, and what your budget is. If these businesses are million-dollar businesses, well, it is a no-brainer set up separate entities. But if they are generating, you know, $2,000 a year, well, that is a case where every penny counts, every dollar counts. It doesn’t make sense in that scenario typically to spend the money on two separate LLCs and the startup cost for that, the accounting costs, and all of that.
I am Aaron Hall, an attorney for business owners and entrepreneurial companies. I provide exclusive videos to people who subscribe to my free list, aaronhall.com/free. Go there and sign up. You will get free videos and free resources to help you as a business owner avoid legal problems, grow a great company, and hopefully, create a better life for yourself.