Many small business owners think that they can get by without forming an LLC and instead decide to operate with a DBA, also known as “Doing Business As” and fictitious business name.
What is DBA or Fictitious Business Name?
A DBA is often used by sole proprietors that want to operate their business under a separate business name that is different from the individual’s name. In most states, registering a DBA name gives your business the ability to use a fictitious business name, however, a DBA name is not the same as a legal business entity and it does not give you the same limited liability or legal protections as an LLC or other corporate structure for your business.
Why Would You Use a Fictitious Business Name?
There are two main situations where business owners would want to use a fictitious business name or DBA:
- Sole proprietor or partnership: If you are a sole proprietor or cofounder of a partnership and you want to do business with a name that is different from your personal name, you can register a DBA name. This gives your business a certain marketing identity that is separate from your personal name, but it’s not the same as a corporate structure in the eyes of the law.
- Corporation or LLC: If you already have set up a business structure and incorporated, but you want to use a different business name other than the name of your corporation, you can register a fictitious business name for this purpose.
Advantages & Disadvantages of Using a DBA
Using a DBA name for your business is better than nothing — it gives you a more “official” name that you can put on business cards and on your business website. It helps give your business an identity that is separate from simply doing business under your own name. However, the advantages mostly stop there. If you do not have a corporate structure set up for your business, such as an LLC or S Corporation, a DBA name does not offer you any special protections and can even be risky.
There are a few key reasons why operating your business with a DBA can be risky:
- Lack of Naming Rights: Using a DBA does not give you official rights to your business name. If you have not incorporate a business and assigned it the name of the DBA, this means that anyone who registers a legal business entity can take your DBA name — just because you have been using the DBA name, even for years, does not give you any permanent rights to that business name. Here at Incfile, we often hear from customers who tell us stories like, “I’ve had this business name for 10 years” as a DBA name, but because they never officially filed an LLC or incorporated a business with that name, the DBA name was not officially “theirs” and so it was free to be taken by a competitor.
- Lack of Legal Protections: Using a DBA also does not give you the same legal protections and limited liability as an LLC or other corporate structure. With a DBA, you have a name to put on your business cards and that’s about it. You don’t have the “corporate shield” to protect your personal assets from your business liabilities, and you do not have the various tax benefits that are available from setting up a legal business entity. If you’re doing business with a DBA name, you are mostly unprotected from the risks and liabilities of doing business. You’re not much better off than if you were just a sole proprietor with no business name at all.
- County Level vs. State Level: DBA names can be registered at the state or county level, depending on where your business is located; some states do not require any registration of DBA names at all. Using a DBA name is often limited to the local county where your business is located; it doesn’t mean your business name is protected everywhere. A DBA name just means you’re able to do business in that county, but anyone else who wanted to incorporate a business under that name could potentially register that business name and use it for their own. A DBA by itself does not offer you much protection outside of your local area.
A few other common questions (and answers) about using a DBA name:
What if I have set up a corporate entity but I want to operate under a different company name — will I still be protected?
One of the best reasons to use a DBA name is if you already have set up a corporate structure for your business. Let’s say that you have a business that provides residential painting services and one day you decide to expand your services and start providing residential flooring services. Your original company name is Joe’s Residential Painting LLC, but this name does not necessarily reflect the new services you are planning to offer.
What you can do is obtain a fictitious business name or assumed business name, which will allow you to operate under a name that is relevant to your new service offerings. In addition you will still be able to use the same EIN and not need to file a separate tax return for the new business. The Assumed Business Name will essentially allow you to operate the new business as an extension of the existing LLC.
There are two caveats associated with this type of filing: one is that not all states offer the Assumed/Fictitious Business Name at the state level, and if this is the case, then your secondary option is to obtain a DBA under the LLC or Corporation structure, which will essentially achieve the same thing. The second caveat is that all the ownership of the new business must be identical to the original, or else it may cause complications in filing the company’s taxes.
If I have an LLC do I still need a DBA?
For most people, the answer is no unless you want to operate your business under a different name than the LLC. For most people who use a DBA, it means that they are operating as a sole proprietor. For example, Jackie Jones operates as a sole proprietor graphic designer, and she decides to do business as: “Jackie Jones Designs.” In this case, for a sole proprietor, the DBA is an extension of the natural person. But if you are operating as an LLC or Corporation then the company is treated as a separate legal entity that is different from the person or people who own it.
The only circumstance where a DBA would factor in for an LLC is if your LLC has the name of (for example) John’s Residential Painting LLC and you want to start offering services for Carpet Installation. You can keep your existing LLC but start doing business as “John’s Carpet Installation” under the overall umbrella of that same LLC. This lets you expand your services and conduct business under a different name but still be protected under the LLC; your first choice would be to obtain an Assumed Business Name also referred to as a Fictitious Business Name. However, if your state does not offer that option then you would obtain the DBA under the LLC. For example: “John’s Residential Painting LLC DBA: John’s Carpet Installation.”
The bottom line: if you are a sole proprietor, you’re probably going to be better off setting up an LLC instead of just operating with a DBA name. A DBA name in and of itself cannot protect you or offer you the same advantages as an LLC or other corporate structure. However, if you already have an LLC or other corporate structure for your business, a DBA can be a useful way to expand your services or change your business name without losing the existing business entity.
Are you ready to set up an LLC? We can help you start a business in 3 easy steps.
Latest posts by Ben Gran (see all)
- Despite Challenges, Small Business Owners Remain Happy - July 11, 2018
- Using Sustainability to Give a Growing LLC Longevity - July 5, 2018
- Guide to Creating a Real Estate Investing Business Plan - June 12, 2018