Understanding DBAs and How They May Be Beneficial to Your Small Business
Many small business owners looking for alternatives to forming an LLC often come across DBAs (“Doing Business As”), also known as a fictitious business name or trade name. While a DBA may be right for your business, it’s important to understand how they work and when to use them.
What Is a DBA or Fictitious Business Name?
A DBA is often used by sole proprietors who want to operate their business under a business name that is different from their individual name. In most states, registering a DBA name gives your business the ability to use a fictitious business name; however, keep in mind that 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 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 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 (for instance, you operate in multiple states and want to use those states as part of your business name), you can register a fictitious business name for this purpose.
Pros and Cons of Using a DBA
There are many reasons to use a DBA for your business, and they offer a lot of benefits. It’s important to keep in mind though, that a DBA doesn’t replace the benefits you get with a legal business entity. But, when used in conjunction with your legal structure, a DBA can help your business grow and thrive.
- Makes Your Business Name Official: DBAs can give your business added credibility, especially for sole proprietors who don’t want to use their own name. It helps separate you from your business, and gives you a name you can use to market it.
- Helps Expand Your Business: Consider the example above. Let’s say you operate flower shops in Minnesota and Wyoming. You want to market the business to customers in those states, and help them understand where and how to find your services. So your business, “Blooms by Barb,” can operate as both, “Blooms by Barb – Minnesota,” and, “Blooms by Barb – Wyoming.”
- Makes You Hyper-Localized: Many DBAs are filed at the county level, so if you operate your business in multiple locations within your state, you can give each location its own name using a DBA. This is a great option for brick-and-mortar businesses who want to be a thriving part of their local communities.
- Can be Used in Conjunction with Your LLC: If you’ve already formed an LLC, you can still take advantage of a DBA to operate your business under different names. That way, you can market each individual name, while still benefiting from the liability protection of your LLC.
The downsides of a DBA mostly occur when they are used in place of an LLC or other legal business entity. DBAs and legal formation is not mutually exclusive, so to avoid these pitfalls, simply ensure you have a legal entity in place before filing a DBA.
- Lack of Naming Rights: Using a DBA does not give you official rights to your business name. If you have not incorporated a business and assigned it the name of the DBA, anyone who registers a legal business entity can take your DBA name. The best way to protect your business name is to register a trademark for it.
- 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. 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.
Common Questions (and Answers) About Using a DBA
If I have to set up a corporate entity, but I want to operate under a different company name, will I still be protected?
As mentioned above, one of the best reasons to use a DBA name is to grow an already established 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.
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 service line of your business. The assumed business name will essentially allow you to operate the new business line 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. A DBA does not allow you to get a separate business bank account for that aspect of your business, or manage the finances for that aspect of your business separately; it is just a name.
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.
As mentioned earlier, a DBA is useful for an LLC if your LLC has a name that is not relevant to part of your business, and you want to offer a different product line or different area of service.
For example, let’s say you own a business called Joe’s Handyman Services LLC and you want to start offering services for plumbing and general mechanic services. Filing DBAs for these separate types of services will let you keep your existing LLC without having to form a new business entity. You can keep your existing LLC and file DBAs for “Joe’s Mechanic Services” and “Joe’s Plumbing Services,” but all are included 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 your existing LLC. For example: “Joe’s Handyman Services LLC DBA: Joe’s Mechanic Services.” This indicates that your company is able to offer multiple lines of business under the same LLC name.
Another example: Jane Smith is a real estate agent who runs her own business called “Jane’s Real Estate Sales LLC.” In addition to selling homes, she decides to start offering consulting services to help other real estate agents with staging and photographing homes for sale.
For this new line of business, Jane decides to file a DBA called “Jane’s Home Staging and Photo Services.” In this case, filing a DBA can help a business owner create a separate identity for one aspect of her business, without having to set up a separate LLC or other business structure.
The bottom line: DBAs are best used in conjunction with a legal business entity, to expand your business or grow your service offerings. It can also be useful in changing your business name without losing the existing business entity.
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