Transitioning from an LLC to a DBA: A Comprehensive Guide

Starting a coaching company or any other business often involves making decisions about the legal structure of your organization. If you initially formed your Limited Liability Company (LLC) to provide added protection and then transitioned into marketing, you may now find that the name of your LLC is no longer relevant to your current business activities. This article will explore the options you have—dissolving the LLC and forming a new one, or creating a Doing Business As (DBA)—and provide guidance on making the best choice for your business.

Understanding the Benefits of LLC vs. DBA

LLC (Limited Liability Company) offers a high level of protection, shielding you from personal liability for business debts. This means that your personal assets are protected in the event of legal issues or financial difficulties faced by the business. However, the process of changing the name of your LLC can be complex and may involve additional legal and administrative tasks.

DBA (Doing Business As) is a simpler option for conducting business under a different name. A DBA essentially allows you to operate under a business name without the formal registration and ongoing compliance requirements of an LLC. However, unlike an LLC, a DBA provides no legal protection or liability shield. You remain a sole proprietor.

Why Consider a DBA for Your LLC?

Wray Rives, a well-respected expert in the field, correctly points out that an LLC offers significant protection against liability and lawsuits. On the other hand, Steve Degener’s advice to set up a DBA is also spot on because it is relatively easy to establish. By combining the two, you can achieve the best of both worlds: retain the LLC for the benefits it provides and use a DBA for the name change.

Step-by-Step Process

Check with the Secretary of State: Begin by checking the requirements and process for changing the name of your LLC in your state. In some states, this process is straightforward and may not require extensive filings. Consider the Ease of Change: If changing the name of your LLC is relatively simple and doesn't involve significant hassle, follow Wray’s advice and change the name. Create a DBA for Your LLC: Alternatively, if the process of changing your LLC name seems cumbersome, consider setting up a DBA for the LLC. This allows you to operate under a new business name without the complexities of forming a new LLC. Consult Legal and Financial Advisors: It’s always a good idea to consult with your accountant and lawyer to get professional advice on the best path forward. They can help you navigate the legal and financial implications of your decision.

Why Did You Form the LLC in the First Place?

The decision to form an LLC was likely driven by certain business needs, such as liability protection or tax benefits. As your business evolves, it’s crucial to reassess these needs. Consider the following questions:

Was the LLC primarily established for liability protection or tax benefits? Has the core purpose of your business changed significantly? Do you need the existing LLC for other reasons, such as ongoing management or branding consistency? Are there any other legal or financial implications you should consider?

Engaging with your accountant and lawyer for a quick review can help you make an informed decision. They can provide insights into the long-term implications of each option and guide you towards the best course of action.

Cost and Formality Considerations

According to Steve’s experience, creating a DBA for an LLC can be a cost-effective solution when the existing business name does not match the current business activities. For example, in California, creating a DBA is much cheaper than forming a new LLC. The process involves simply filing a form with the County and publishing a notice in the newspaper. The DBA is valid for three years.

Alternatively, if you decide to change your LLC name, you may need to handle more formalities:

Obtaining a new Federal Tax ID number Opening new business accounts Handling paperwork for existing contractors and vendors Updating business licenses and permits

Each of these steps can add time and expense to your transition. Therefore, it’s important to weigh the costs and benefits of each option carefully.

Ultimately, the choice between changing your LLC name or creating a DBA lies in your specific business needs and the practicalities of the legal and administrative processes involved.

Remember: This guide is not legal advice. Always consult with a professional to ensure you understand the full implications of any business structure changes.