Whats best, A DBA or LLC?

Trying to figure out whats best: DBA or LLC. Basically, I want to protect our home first and foremost. Been married 6 months and the home is in my wifes name only. Im an independent contractor doing delivery and we want to seek our own clients and do our own thing. My wife and I want to form a company. We have the name, etc. and a couple potential clients in waiting.

The dilemma we face is how to form the LLC to alienate ourselves personally and financially from the the LLC and create a veil.

Should we create it in her name only and I sub-contract from her? Do we then open a separate business account at a bank and the company checks go in and she pays me a commission from that?

Would that still provide us any protection in the event of a lawsuit considering we’re married and live at the address listed as our business?

Or, should I just call it a day and open the business as a DBA and keep her completely out of matters to protect our home?

Thank you very much!!!

– Steve, Missouri

Answer

A DBA provides no liability protection to an individual. If John Smith is Doing Business As “XYZ Contracting”, then for the purposes of liability, XYZ and John Smith are the same.

I would suggest creating an LLC in both names. The reason is that separating out the work between the LLC as contractor, and you sub-contracting from the LLC as an individual subjects you to personal liability.

Under your scenario, in the event of a lawsuit against the LLC, the plaintiff would probably name you personally, as the subcontractor who actually did the work, in addition to suing the LLC.

Even worse, if you aren’t careful with the paperwork of the subcontracting arrangement, a court could look at the entire enterprise (you, your wife, your LLC), as all being alter-egos of you and your wife. At that point, all jointly held assets are subject to liability.

The best solution to protect your house is to do one of the following:

1. Form an LLC with both you and your wife as members and be careful about keeping your business and personal assets separate.

2. Operate your business as a DBA but ensure that your wife has absolutely NOTHING to do with your business from an operational or managerial standpoint.

The common address between your home and your business does not automatically pierce your veil.

However, if your wife fields calls/writes letters/signs documents with customers/vendors/etc. and lawsuit arises, there could be a claim against her personally for her own acts of negligence.

That’s why in scenario 2, where you operate as a DBA, you must ensure your wife has no involvement in the company.

Otherwise, forming a limited liability company with both of you as members will be a better strategy.

Also, as an aside, in Missouri, when a primary residence is purchased by a married couple, the default rule is that the property is owned by the couple as joint tenants in the entirety. What this means is that if a creditor has a judgment against only one spouse, they cannot take the home.

Is there a reason why your house is not owned by both you and your wife as joint tenants in the entirety?

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