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If you are a business owner or thinking of starting a business, you may have heard of something called a DBA. Many experts recommend that business owners — especially small business owners — file a DBA.
But what is a DBA, and how can it benefit you as a business owner?
This guide will discuss how a DBA works, how it can benefit you, and whether filing one is a good idea for your business.
A DBA is an acronym meaning “doing business as.” It is a business requirement for businesses that operate under any name that is not their legal name.
When you start a business, you will register it under a legal name and register yourself as the business owner. A DBA lets you operate legally under a name that is different from either of these.
Another way to think about a DBA is as your company’s public persona or alias. For example, all your paperwork may state that your business’s name is John Smith Enterprises. That is its legal, registered name with the state. However, the public knows your business as Johnny’s Fresh Cookies. This is your DBA, which appears on your signs, business cards, advertisements, and merchandise.
The legal name of your business is, by default, the name of the business owner. Registering a DBA is a way to avoid that without registering an official legal business name.
A better question might be whether you need a DBA. Although there are benefits, it is not necessary for every business. The choice to file a DBA depends on several criteria, including your preferences, the business’s legal entity, and your state requirements.
If you have a sole proprietorship or a partnership, you should file a DBA. This is assuming that your business operates under neither your nor your partner’s legal name. Since these business entities are unincorporated, they need only business licenses and permits rather than filing their business with their state of operation.
What does this mean? It means that the business owners and the company are the same legal entity unless they file a DBA.
Franchise owners are not required to file a DBA. However, this is common practice to let them operate as a local business. This also separates the franchise owner from the company as an entity.
Corporations, limited partnerships, and LLCs are also not required to file a DBA. However, the owners may choose to do so to let them operate under a name other than their legally registered identification.
There are some benefits to filing a DBA beyond just avoiding legal trouble. These generally fall under legal, financial, and marketing benefits.
Many business owners prefer to keep their full legal name away from their business name. This is because they have certain legal protections if their name is not directly associated. For example, if their business is sued (in the case of an LLC or corporation), having a DBA increases the likelihood that their personal assets are protected.
It is certainly no guarantee of limited liability protection. But it can be presented as evidence that their personal and business assets are separate and therefore financially unaffiliated.
Similarly, it ensures that all your contracts hold up. If you sign a contract with a client or vendor under your legal name or another name rather than your business’ name, you risk it becoming legally void. If your business is registered as your DBA, these contracts are legal as long as they are under one of your qualified legal entities.
A DBA might also be required to do business with specific clients or qualify for a small business loan with a particular lender.
The financial benefits of filing a DBA can be summarized by the fact that banking is much simpler. Every business owner should keep their personal and business finances separate. This ensures that your personal finances are not directly tied to the success or failure of your company.
For example, if your business is struggling, keeping the money separate from your name protects your personal credit score. You are also more likely to be personally protected if your business is sued.
Having a separate business account also makes potential lenders see you as a professional entity. And, of course, it vastly simplifies the process of filing your taxes, both for your household and your business.
Of course, to open a business bank account, you need an employer identification number or EIN. Filing a DBA automatically gets you an EIN so that you can open your business bank account as quickly as possible.
Registering a DBA lets you run multiple businesses under one entity. Business owners who hope to expand their business presence into new stores, locations, websites, or other entities might want to use a different DBA name for each one. This opens the door to future effortless expansion.
Filing a DBA can also help you if you want to build a company website. Suppose your company’s name is not available as a domain. In that case, a DBA offers a helpful second option so you can do online business, whether through e-commerce, online advertising, or business email service.
The process to file a DBA varies somewhat from state to state. What is more, the process and requirements vary depending on your city and what type of business you are starting. Your local authorities will be able to walk you through the process with your area’s specific requirements. But in general, you can expect the process to look something like this.
You will need to go either to your county clerk’s office or your state government office. There, you will fill out paperwork, usually with a fee between $10 and $100. This varies by region.
You may also be required to post a public ad in a local paper for a specified amount of time in some places. This ad notifies the community of a “fictitious name” and satisfies any state or county level requirements to serve public notice regarding your business.
Once you file your paperwork, all you need to do is file for an EIN. At that point, you are free to open a business bank account, hire employees, build a website, and more.
Yes, when you file a DBA, you can get an employer identification number or EIN.
This lets you open a business bank account as quickly as possible. It is one way that filing a DBA can take some of the work out of getting a business bank account. Usually, to get an EIN, a business owner must register their business name with the state. A tax ID is, for all intents and purposes, the same as an EIN.
Yes, a DBA can become an LLC.
In fact, many business experts recommend changing from a DBA to an LLC to make potential growth more likely. To change your DBA to an LLC, you will first need to find out if you can use your DBA name. This depends on your state’s requirements for forming an LLC.
You will then need to register your LLC with your state. When you have done this, you will receive a new EIN to let you hire employees, open a business bank account, and file taxes. You must open a new bank account — you can incur financial penalties if you continue to use the business account you used as a DBA. The last step is to dissolve your DBA with the state or local institution where you registered it.
Depending on your state and type of business entity, a DBA may be referred to as a fictitious or trade name.
All of these are often described as the “marketing version” of your business’s name. All business entity types and industries use these. These terms refer to the name that goes on your company’s signs, business cards, and other public displays. It is how the public comes to know your business.
The main difference between a DBA and a trade name is that, in some places, a DBA usually refers to the alias used by a sole proprietorship. Meanwhile, a trade name refers to an alias used by a corporation or LLC.
This is highly dependent on where you live; the legal terms vary from state to state. However, it is good to be aware of these regional differences, especially if you plan to expand your company across state lines.
The number of DBAs you can have depends on what types of businesses you own and where you live.
Filing multiple DBAs is generally permitted for an LLC and may be beneficial for this type of business. On the other hand, if your business is a sole proprietorship, you are limited by your state government. Some states allow multiple DBAs to be registered by sole proprietorships, while others limit it to one.
Bear in mind that the more DBAs you have for a legal business entity, the more complicated
your finances will become, especially when it comes to tax season.
The short answer is that there is no official numerical limit, but it does get significantly more complicated the more DBAs an LLC has.
That being said, there are quite a few benefits for limited liability partnerships when it comes to filing for multiple DBAs. For this type of business, having multiple DBAs offers opportunities to concentrate on smaller market segments. This lets you target sectors with specific marketing and increase brand awareness in those sectors.
You can also organize your business structure so that departments, offices, or branches can conduct business under a DBA name.
While there are benefits, however, there are also drawbacks to filing multiple DBAs for a single formal business entity.
First, it costs money to file each DBA. While this might not be enough to be significant in the long run, it is something of which you should be aware.
Similarly, multiple DBAs can make bookkeeping much more complex, especially when it comes to taxes. The IRS views various DBAs as a single business entity, even if they are performing differently.
The last thing to bear in mind is that having multiple DBAs increases your business’ liability. If a person sues your company under one DBA, all your affiliated branches are at risk, not just the DBA named in the suit.
In general, there are not many requirements for what DBA business names can or cannot be.
It comes down to a few basic requirements. First, your company’s DBA name cannot end in anything that implies that it is a corporation or entity which it is not. This includes “Inc,” “Corp,” and “LLC.”
The only other important thing is to ensure that no other local businesses have the same or similar DBA name. It is best to avoid this for the sake of legal confusion.
The Incorporation Academy is run by a group of entrepreneurs who know the difficulties of starting and running a business. We are dedicated to helping businesses get started correctly and run more efficiently.