How do you do business under an LLC?

I recently answered a question from a Reddit user in the /r/Entrepreneur subreddit. This is a question clients ask often – or do not ask at all and just take action on their own – so I am posting my answer with some additions:

Question:

Subject: How do you do business under an LLC?

If I have an LLC and want to do business do I have to have LLC in my title? I know you will have to have LLC in your corporation name but lets say I own Jim’s Burgers, do I have to advertise as Jim’s Burgers LLC?

Answer:

You are required to “hold yourself out” as a business entity if that is what you’re operating as. The thinking is that people will recognize that you are operating as an entity separate from yourself as a natural person who is doing business under a fictitious or trade name. You CAN – and in my opinion should – register “Jim’s Burgers” as a trade name of your LLC if you plan to use the name without the LLC designation.

The main considerations are 1) transparency and 2) traceability.

Your LLC or trade name should be traceable back to your statutory agent in your Secretary of State’s database so that people who want to sue you know the proper entity to sue, the identity of the designated statutory agent and where to serve the agent with process. It should never be difficult for someone to find the true identity of your company and to discern what type of entity you are doing business as. It should also never be difficult to find your agent for service of process.

Failure to register a trade or fictitious name can be considered deceptive under consumer protection laws because a person trying to sue you would not necessarily be able to determine the correct party to sue and find your address and agent for service. If you are just removing the “LLC” from the end of your name (calling yourself “Jim’s Burgers” rather than “Jim’s Burger’s, LLC”) it would be less likely that someone could convince a jury or judge that you were being deceptive because a search of your name in the Secretary of State’s database would trace back to the LLC. The person trying to trace you would likely be able to determine that “Jim’s Burgers” and “Jim’s Burgers, LLC” are the same business. However, in a consumer deception case it could be another “building block” against you to show you are not operating in a wholly transparent manner.

Additionally, a person who wants to sue you (in a variety of types of cases) could attempt to argue that he/she thought you were operating personally under a dba since you did not hold yourself out as doing business as a business entity and on that basis could name you personally in a lawsuit. This danger is heightened if your name is “Jim” and you are doing business as “Jim’s Burgers” since a person could more plausibly argue that they believed that they were doing business with Jim himself and not with a company owned by Jim, thus opening Jim to potential personal liability.

Failure to hold yourself out as a business entity would probably not alone justify a judgment against you personally but it could, again, form a “building block” against you and also could open your business records to disclosure so that the person suing you could scrutinize your records to determine whether you were operating as a separate entity and observing the formalities required to retain protection from personal liability.

I could go on with the parade of worst possibilities. The point is it does not cost much to register the trade name ($50 in Ohio) and filing is an indicator that you are fastidious about operating above board. Operating without “holding yourself out” as an entity would probably not alone expose you to liability for deception or personal liability for business dealings but why give anyone those arguments against you? I file the trade name for all my clients who wish to use their name without “LLC” or other company/corporate designation (Ltd., Limited, Inc., Corp., Co., etc.) on any advertising, marketing, invoicing, business cards, etc. or even if they think they just may not always use the entity designation.