When you sign up for a new business, you might consider filing a DBA, or “Doing Business As” in order to operate under a name other than what your business is officially registered as. Many companies might use a DBA for tax purposes or simply because they choose to. If you are considering using a DBA for your new LLC, you need to consider legal and tax ramifications before you move in this direction. This article will break down what a DBA is and why it can be useful to give you the best possible understanding of the options available to you.
What is a DBA?
A DBA, which stands for “Doing Business As”, is a trading name or registered business name that acts as a pseudonym for a company that doesn’t want to operate under their registered company name.A DBA might also be referred to as a fictitious business name or an assumed business name. While it might seem suspicious that a business would not want to use its registered business name, there are many reasons why this is perfectly acceptable. Think of a DBA as the commercial version of a company nickname. In the same way that an individual might go by their middle name or go by a name other than what appears on a government document, a company is also allowed to go by another name.
Why Would a Company Use a DBA?
The necessity of a DBA came about because businesses were changing their name in order to avoid legal trouble. Therefore, the DBA was created as a form of consumer protection so that the government knew the true business owner and the business would be legally obliged to report a name change through local and public media. Not all businesses get a DBA for legal protection. A sole proprietor is not legally required to purchase a registered business name if they can operate under their own name. However, a sole proprietor could file a DBA in order to have an unregistered business name that speaks more specifically to the services offered. For example, if Angela Davis was a sole proprietor who provided graphic design services and she wanted to operate under a name other than her own name, such as Electric Design, then she could file a DBA or register that business name. A limited liability company (LLC) or corporation can also use a DBA if it plans on conducting business in a name other than the name that is on the LLC or corporation paperwork. Sometimes LLCs or corporations will use multiple business names as a way to separate internal operations from client-facing operations.
When Do You Need a DBA?
If you’re not sure if you need a DBA, it is very easy to find out. The simple answer is that a DBA needs to be filed whenever a business is operated under a name that is not the registered business name. For a sole proprietorship, if the business is using the individual’s name, the business needs to include that name in any version of the business name. If it does not have the sole proprietor’s full name, a DBA is required. Most banks require that a sole proprietor file a DBA in order to register for a business bank account and begin collecting money. For an LLC or corporation, a DBA is required any time that the LLC or corporation wants to use a name that is not the registered business name. It’s that simple.
Is a DBA a Good Idea?
A DBA is required if the business wants to use a name different from their registered business name and with some types of business structures. However, owners need to ask themselves why they would want or need to use a name other than their registered business name. If they can’t think of a good reason, there is really no need to use another name or file a DBA. If you’re operating as a sole proprietor, filing a DBA is simpler and easier than registering a business name. A DBA is useful because you may not be entirely set on a business name in the early years of its existence. It also might be unnecessary as a sole proprietor to file for limited liability (LLC) or corporation. So, a DBA makes more sense in that you can operate under a name other than your own without needing to incorporate or without needing a limited liability company license. LLCs and corporations usually file DBAs when they want to operate more than one business without needing to form and register a separate LLC or corporation. If one business is performing two different tasks (i.e., such as accounting services and tax services) and they want to market and operate separately, the business can easily create a DBA for one or both of the businesses. This is also another way that a business can partition and then shell smaller portions of their business into one company. Other reasons why a business might operate using a DBA include wanting to be distinct or creative, not wanting to operate under your personal name, staking a claim on that business name, or capturing a different market. You might also find that getting a DBA and acquiring the federal tax ID number (EIN) associated with that DBA will allow you to open a business bank account.
Protecting Your Business Name
Protecting your business name is important so that you have a brand name that works with your identity as well as the goods and services that your company offers. Once you decide on a business name, there are four ways to protect that business name, and a DBA is one of them:
- Filing an entity name with the state
- Trademarking the name, which will protect the business name at the federal level
- Filing a DBA, which might not provide legal protection but it might be legally required
- Choosing a domain name (URL website address)
Filing a DBA is relatively straightforward as long as you have the forms filled out and you pay the fees. However, each of the requirements for doing so will differ based on the state and country in which the company resides.