It’s easy to dream of the days when starting a business was as simple as selling lemonade in front of your house to thirsty neighbors.
But when you grow up, a successful business is about more than just making sure your lemonade is the best on the block. You have to make sure you understand how to set up your company and what structure would work best for it.
As a small business owner or an entrepreneur, you might be looking for options outside of the typical sole proprietorship or limited liability company (LLC). That’s where a DBA comes in.
But what is a DBA?
DBA stands for doing business as and is sometimes called a fictitious business name. It’s another name that your company can use to do business under.
A DBA can be a good option for those who would rather not open a separate LLC or who want to branch out within their current business structure. Entrepreneurs can also use it if they don’t want to do business under their own name.
A DBA is a suitable option for large, small, old, or new businesses. Once you understand what a DBA is, you’ll have more opportunities to operate and grow your company.
Read on to learn:
- What is a DBA in business
- What a DBA is used for
- Advantages and disadvantages of using a DBA
- Naming your DBA
- How to set up a DBA
This article is for informational purposes only. Consult with a financial or legal advisor for more information.
What a DBA Is
DBA means “doing business as,” and it is the name your business can operate under. This name might be different from your company’s legal name, another branch of your business, or the name you do business with that isn’t your own name.
A DBA is also called an assumed business name and a fictitious business name.
That may sound confusing, but essentially a DBA is just another name your company uses for business.
A DBA is not a legal entity or a business structure, like an LLC or corporation, so it doesn’t provide liability or personal asset protection. But a DBA lets you open a business bank account and accept checks for that business name.
A sole proprietor or general partnership might want a DBA so they can do business under another moniker. And an LLC might wish to use a DBA, so it doesn’t have to create a separate entity if it wants to expand or use a different name.
A DBA name is mostly used for financial reasons, transparency, and consumer protection.
You register your company with the government, and then your information is available and verified for customers. If a customer has a complaint against your company, they can report it to the state.
Examples of DBA Uses
Let’s say your name is John Smith and you want to open a lemonade stand, but you don’t want to operate it under your own name. You could file a DBA for Yummy Lemonade and then start doing business under that name.
In another scenario, you decided to turn Yummy Lemonade into an LLC, and it’s doing so well that you plan to expand into milkshakes. You want to stay under Yummy Lemonade LLC, but you wish to do business under Yummy Milkshakes, as well.
In this situation, a DBA helps differentiate the businesses without creating various corporate structures.
If something goes wrong with Yummy Milkshakes, then the lemonade company’s assets are at risk because it is just another asset owned by the LLC. If you wanted to separate the liability, then you’d have to open another LLC.
DBA vs. LLC
An LLC is a formal business structure, while a DBA is another name your company can operate under. The difference is an LLC provides limited liability protection and certain other legal protections that a DBA does not.
It’s up to you to decide what is a DBA’s advantage over forming an LLC. While an LLC is a legal structure for your company, DBAs can be used for alternative business structure decisions. An LLC can choose to use DBAs for business growth without creating separate entities.
What a DBA Is Used For
Setting up a DBA gives you certain privileges. Once you file for a DBA, you can start accepting checks under that name and open a business checking account and other bank accounts. A DBA also lets you apply for an employer identification number and federal tax ID number.
A sole proprietor might consider a DBA when they want to start a company without going through the hoops and spending the money associated with starting another entity type.
A sole proprietor might also want to operate under a business name that isn’t theirs. This path is beneficial for entrepreneurs who might open multiple businesses in their lifetime. Unless you file a DBA for each one, then each company will be linked to just your name.
Plus, some companies require a DBA before doing business with an entrepreneur or freelancer. So a DBAs is an essential concept for lone business owners.
An LLC or corporation might want to use a DBA to launch a different product line or business under its umbrella.
Companies could also use it to rebrand or change its original name to a nickname (e.g., if Yummy Lemonade became better known as Yummy’s). Or a DBA would be useful if expanding offices or operations into an area that doesn’t reflect the original name.
Advantages and Disadvantages of a DBA
Learning what a DBA is can help you understand if it’s a tool your company could use. But what are the advantages of a DBA?
- A DBA is simpler and more affordable than creating a separate legal entity.
- It offers privacy protection, so you don’t have to use your personal name or information for your business.
- A DBA adds more legitimacy and credibility to your business.
- It can be useful for marketing and branding.
A DBA’s most significant disadvantage is the lack of certain benefits from having a different business structure, like limited or personal liability protection and tax breaks.
The other downside is a DBA doesn’t guarantee exclusive rights to that name. So take care when choosing your DBA and consider if more permanent solutions are necessary.
Naming Your DBA
If you decide to create a fictitious business name, keep in mind there are some guidelines. A DBA can’t be your legal name, and it can’t have the words like “incorporated,” “LLC,” or “inc” that would confuse it with other entities.
Note that having a DBA doesn’t mean you legally own the name. If you want to make sure your name belongs to your company, you’ll need to trademark it.
Sometimes, if your company name is combined with your service, you don’t need to file for a DBA (e.g., John Smith’s Lemonade Stand). But if you only use your first name, you’d need a DBA. For more concrete guidelines, contact your county or town clerk’s office.
How To Get a DBA
Filing for a fictitious name registration looks different in each U.S. state, so you’ll have to look up the specific requirements where you operate. But like most other business name filings, DBA registration will start at your state’s official website for business registration.
You’ll see if the name is available, submit the necessary paperwork, and pay the filing fee, which is anywhere between $10-$150.
Some states require a public notice announcing your new name. This provision is usually an ad in a local newspaper and has certain stipulations, such as running the ad within a certain period and how long it needs to run. Check with your county clerk’s office to know if this is necessary.
There will also be an annual cost when you register your DBA, and your DBA is only valid for a certain number of years. Make sure you know when you’ll need to renew it.
Remember, if you expand your business into another state, you’ll need to file again per that state’s requirements.
It’s better to set up the paperwork before you start operating under your fictitious business name in case it’s already taken or if there are any issues with the files. Be prepared and plan accordingly.
As always, it’s a good practice to hire legal counsel or use a DBA filing service that can help you through the legal document process.
DBAs can be an excellent tool for both new and established businesses. A DBA gives you the flexibility to grow and adapt your business in an affordable and straightforward way that doesn’t involve creating new legal entities.
Now that you know what a DBA is, you can decide if a fictitious business name is the right choice for your company.