What is a DBA?
There are significant legal considerations to bear in mind when launching a new company. From deciding on an LLC vs. a sole proprietorship to registering a DBA, there is a lot of legal jargon and acronyms that you may not be familiar with since you are (likely) not an attorney.
The abbreviation DBA will be the center of attention in this piece. Depending on your company entity and the city, state, or county in which you do business, registering your DBA may be legally necessary, but it does not provide legal protection for your business on its own.
Read on for more information on what a DBA is, when your company requires one, and why it’s a smart move for any company.
What does DBA stand for?
“Doing business as” (abbreviated “DBA”) is another name for your company; it may be an assumed name, a trade name, or even a made-up name.
By registering for a DBA, you can use a name different than your own when doing business. This name is distinct from your registered, legal name for your company and your name as the owner of the firm. The reason is that the name of the owner (or owners) of a business automatically becomes its legal name upon formation. Except in the cases when you register your company as a certain type of legal entity (discussed further below) or if you change its name and register it with a DBA.
Therefore, unless Laura opts to file her DBA name as “Laura’s Tech Fix Shop,” her tech repair company will function under her own name. After getting a DBA, Laura’s full name is not legally associated with her business.
And remember that you have to follow the rules set up by your state’s DBA laws, which could vary from one location to another.
What kinds of businesses require a DBA?
DBAs are not required for all businesses. There are a number of factors to consider, including the kind of legal entity, local regulations, and personal choice of the owner.
1. Partnerships and sole proprietorships
If you wish to do business as a general partnership or sole proprietorship but do not wish to use your full legal name, you will be required to obtain a DBA. That’s due to the fact that state filings for entity formation documents or a company entity name are not necessary for unincorporated entities like sole proprietorships and general partnerships. (Although they should still arrange for the appropriate permissions and licenses for their company.)
Thus, unless they establish a DBA, the proprietors and their companies have the same name as they are considered a single entity.
2. Franchises
Franchise owners are not required to obtain a DBA, but many do so to better distinguish their company from others in the area. Consider the case of a Wendy’s franchise you purchased in your area. Since most franchisees choose to incorporate or create an LLC, you may join Wendy’s by forming your franchise under ABC Company LLC and then “doing business as” Wendy’s to notify your state of your affiliation.
3. Other types of companies
Legally, “doing business as” names aren’t required for corporations (S and C corporations), limited liability companies (LLCs), and limited partnerships unless the local, state, or federal government mandates them. These company structures have already gone through the state’s registration process, in contrast to general partnerships and sole proprietorships.
Any company that incorporates under one of these umbrellas might still choose to register a DBA name. Changing the name on their incorporation paperwork wouldn’t prevent them from doing business under a separate name.
When a company needs a different name for a certain area of business, that’s when most corporations or LLCs register a DBA name. Instead of forming an entirely new company solely to run under a different name, the firm can just file a name for a new division. If Anna’s Cosmetics Inc. were to announce a new skincare line under the name “Anna’s Skincare Solutions,” for instance, it may avoid the time and effort required to form a separate corporation or LLC, which would be more suited to a developing enterprise.
Remember that your state will treat your company as a sole proprietorship if you register a DBA without first creating a legal entity.
Creating a DBA name
In general, there are documentation and filing fees ranging from ten dollars to $100 associated with registering a DBA. However, these costs might vary depending on the state, county, city, and kind of business structure. You can submit your documents to the state government or the county clerk’s office.
In some areas, you can also be required to publish an advertisement with your fictitious name in a local paper for a predetermined period of time. Since this serves as an official notification of your company name to the local region, it satisfies the “public notice” criteria for certain states.
One practical rule to keep in mind is that your “doing business as” name cannot end in a corporate letter like “LLC,” “Inc,” or “Corp.” This makes it look like your company is a corporation or has some other corporate standing when it is not.
Apart from that, there are no limitations on the types of DBA names that may be filed. However, to be sure that no other company is using your DBA name, it is recommended that you conduct a basic business name check in your jurisdiction.
Tips on how to file
Having covered the basics of filing a DBA, let’s have a look at some other important information:
Typically, a certificate of good standing is required to obtain a DBA as a corporation or LLC.
Payment options vary by state; some accept electronic funds transfers, while others may ask for a cashier’s check or money order. Similarly, some states permit electronic filing of papers, while others need notarized documentation.
Your state regulatory body has the power to impose hefty fines on individuals who engage in business operations using unregistered assumed names.
Keep in mind that many states require renewal of your DBA after a certain period of time; failing to do so might have serious consequences for your company’s marketing efforts.
When the information that was put in the initial filing is altered, such as when there is a change in officials (in a corporation), partners (in a general partnership), or members (in an LLC), certain states require you to file a new DBA. However, it is important to know that in certain states, you are free to submit an amendment in these situations.
There is usually no need to retain the services of a business lawyer to assist you with the filing process. Most entrepreneurs can manage it independently. Nevertheless, it is always wise to seek professional assistance if you are confused about how to do it or have a more complex business situation.
Benefits of a DBA filing
In addition to the situations when you do not wish to do business under your personal name or the name under which your company is officially registered, there are a handful of very important reasons to think about creating a DBA name.
1. Simplifies banking for businesses
If you own a business, you should open a business bank account that is apart from your personal bank account. This will shield your personal assets from lawsuits, keep your personal credit score intact in the event that your business goes bankrupt, simplify your tax and bookkeeping tasks, and give you a more polished appearance in the eyes of clients and lenders for small businesses.
However, there is a catch: in order to create a business bank account, you need an employer identification number (EIN), which is not available to sole proprietors or general partnerships who have not registered their businesses with the state. But an EIN is also one of the benefits of filing a DBA.
2. Keeps your company in line with all applicable laws
Legal protections afforded to LLC or corporation owners, such as protection from personal assets in the event of a business lawsuit, do not apply if the owner has failed to file the necessary paperwork to operate the business under the name specified in the incorporation documents.
For example, if you are incorporated as Anna’s Cosmetics Inc. and enter a client contract under the name Anna’s Skincare Solutions, without making the second name your DBA, then the contract will not be valid.
Although a DBA does not offer any inherent legal protections, it does further isolate your personal assets from those of your business. For example, in the very remote event that your company is sued, you could present your DBA as proof that your company and its assets are distinct from your personal assets.
A DBA may also be necessary for some clients to enter into contracts with you, and certain business lenders may insist on seeing one before they’ll provide you a loan for your small company.
3. Your reputation is built on your name
To make a good first impression, your business name should represent your service or product and entice people to become customers. For example, if Laura Smith, a sole proprietor, kept her business name as simply “Laura Smith,” no one would know what she sold until they visited her shop. And if they didn’t feel interested in visiting, why would they?
Who knows where your startup will be in a few years? If you’re having trouble thinking of a great name to submit as a DBA, try using a company name generator to get some ideas. It’s not easy to choose the right name for your company before you even open for business.
4. Allows for new avenues of growth
If your original venture has any intention of branching out into other online platforms, physical locations, service providers, food establishments, etc., you should register each of these under a different DBA name so that you can run multiple firms under one ownership.
To avoid steep penalties, you must file a foreign qualification in every new state where your business expands. The name on your company’s certificate of authority will be your company’s legal name in the states where you qualify. If you wish to use a different name, you must file a DBA in that state.
5. You wish to start a website
Filing a DBA allows you to conduct business under the domain name of your company. This is helpful if the domain name of your company is not accessible, or if you are looking to extend your firm into online sales.
6. Simpler process to register a company name
As a general rule, sole proprietorships can register their business name and create legal separation between themselves and their business with the least amount of hassle and expense by submitting a “doing business as” name.
In conclusion
Creating a “doing business as” name isn’t difficult; the key is to follow the proper procedures outlined by your state or county. Ideally, you should complete this process at least thirty to sixty days before you start your company.
You may expect to hear back from your jurisdiction regarding the approval of your DBA name within one to four weeks. After you’ve received the permission, you’re ready to launch your business and begin accepting new clients, opening your doors, and setting up your business bank account.
After that, always use your company name while doing business and verify with the relevant state agencies to determine if a yearly renewal is required.
FAQs
1. Does a DBA have legal status?
No, a DBA is not considered a legal entity. If you create a DBA without first making your business a legal entity, your state will treat it as a sole proprietorship.
2. My company needs a DBA; how can I get one?
In order to apply for a DBA, you will need to visit either the county clerk’s office or the state government, depending on your location, county, and company structure.
Additionally, you may be required by certain jurisdictions to publish a fictional name advertisement in a local newspaper for a specific period of time. This will satisfy the “public notice” requirement in these states and formally declare your business name to the local area.
3. What is the starting cost for a DBA?
Depending on the state, county, city, and kind of business, the paperwork and filing expenses associated with creating a DBA can range from $10 to $100.
4. Is tax filing mandatory for a DBA?
Regardless of whether you have filed for a DBA or not, you are still required to file taxes. The frequency of tax filings depends on your business structure; sole proprietorships file taxes once a year, and partnerships, limited liability companies, and corporations submit returns to the Internal Revenue Service once a year, with the possibility of paying taxes in quarterly installments if they anticipate owing taxes at year’s end.
Additionally, businesses are required to file tax returns with their respective states, with some states requiring quarterly or annual filings.
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