What Is A DBA (Doing Business As)
It is not unusual to see the acronym DBA listed in conjunction with the name of a company. One of the most common question people ask when they see this is, What is a DBA? The acronym DBA stands for the term ‘doing business as‘. Using the DBA designation is an easy, cost-effective way for a person or company to do business under a new name without having to go through the paper work and hassle associated with registering an entirely new company. By establishing a DBA, an already existing business entity can run a new business, open a separate business account and accept payments under another name.
Introduction to DBA
In essence, a DBA is another name under which an individual or business is conducting business. Many entities use DBAs when they are venturing into a new industry to do business and don’t think their current name adequately reflects the work which their new enterprise is undertaking. For a lot of business people, using a DBA is a simple, yet effective way to launch a new company when they already have one. That’s because all you have to do to establish a DBA is to file the new name with your state, county or local government and pay the appropriate fees and taxes. The process is fast, easy and relatively inexpensive.
Why Create A DBA
Business owners have many different reasons for filing a DBA. Those reasons often vary by the type of business in which they are already engaged and the new one they would like to start. Some of the most common reasons people create a DBA include:
1. Sole Proprietors Wanting A Business Name
Many people who have consulting businesses would rather not use their personal name as the company name. Legally, the sole proprietor’s name and their business name are the same. This is also true for general partnerships. By filing a DBA, the business owners create a new name under which they can conduct business while keeping their personal names private.
2. It Is Required By A Bank
Sometimes a person operating as a sole proprietor or people involved in a general partnership have trouble opening business accounts. They may be told by the bank they are required to use a DBA in order to get a business bank account. This allows them to have the name of the DBA and not their personal names on their checks and other business documents and transactions.
3. A Prospective Client Requests It
Some clients require a person to have a business name in order to sign a contract to receive their services. Freelancers sometimes run into this problem when they bid for jobs with some major corporations. Filing a DBA is a fast, simple and cost-effective way around this stipulation. The freelancer is quickly able to take care of the DBA filing and qualify to receive the contract. In some cases the client wanting to protect their interests may request that the freelancer form an LLC or become incorporated.
4. Entering A New Industry
Sometimes when a company decides to expand their services or enter a new industry, their old business name no longer covers the services they offer. For example, if Mike’s Landscaping expands into power washing homes, automobiles and driveways, they can simply register the DBA Mike’s Power Washing And More. This allows them to continue to use their old name for landscaping clients and the new name to attract clients who need power washing services.
5. You Begin Offering Specialized Services
A seamstress who has a lucrative business making clothing for people of all ages, but wants to take advantage of the booming market for children’s clothing may file a DBA for Sue’s Children’s Clothing. This allows her to be able to promote both her general seamstress services and her specialty children’s clothing simultaneously. Filing the DBA is cheaper and easier than establishing an entirely new company and allows her to use her reputation as an experienced seamstress in her marketing to establish more credibility.
Any Business Can Register A DBA
The nature of your primary business does not matter when it comes to filing a DBA. Sole proprietorships, general partnerships, LLCs or standard corporations can all file a DBA. Often the DBA is a trade name that reflects the new line of products or services the company now offers. The important point is that the DBA is not a business in and of itself. It has to be associated with and belong to a legally registered entity. The DBA is simply an alias that describes another group of services that the primary company offers. Some companies may have several DBAs that are active in the marketplace.
Advantages Of Filing A DBA
There are a number of advantages to registering a DBA. One of the key ones is cost.
A. For people or business entities with a small budget
Filing a DBA is one of the most cost-effective ways to begin doing business. It eliminates the initial costs commonly associated with creating an LLC or a corporation as well as the ongoing maintenance fees. Once the DBA becomes profitable, it can easily be converted into a stand alone corporation.
B. Helping Sole Proprietorships
Filing a DBA is an advantage for a sole proprietor because it means they don’t have to use their personal name when conducting business. They can use the DBA. The DBA not only gives the sole proprietor a measure of anonymity, it also lends some business credibility when potential customers hear the company’s name.
C. Benefitting Organized Entities
Being able to use trade names or DBAs can provide a definite advantage for a corporation, LLC or any other organized business entity. In many cases filing DBAs enables one legal business entity to operate several companies without the need to create a new legal business entity for each one of them. Some very large business entities have a long list of DBAs that are essentially subsidiaries of the parent company and are able to use its resources and connections to grow and take advantage of new opportunities.
A DBA Is Geographically Limited
A DBA certificate enables a commercial entity to do business legally under a specific name. It also enables the business owner to open a bank account under the name of the DBA. However, the DBA can only legally do business in the jurisdiction in which it was filed. That means to operate the business in other states, cities or counties the business owner must file a separate DBA in each one. This motivates many business owners to register their DBAs as a stand alone company as son as it becomes profitable and shows the potential for significant growth into lucrative new jurisdictions.
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Get professional help throughout every step of the process.
How To File A DBA
It is relatively easy to register a DBA. However, the process may be slightly different in different jurisdictions. In most places, all that is required is to fill out a simple application listing the name of the entity to which the DBA will be linked. Many municipal jurisdictions and counties require the DBA application be completed in front of a notary public and duly notarized. In some jurisdictions the primary entity must publish the names of the linked businesses in a local newspaper. A modest fee is usually required to file the DBA application.
In Person Or By Mail
Some jurisdictions require the application process be handled in person, while in others the notarized application can be mailed along with a money order and a stamped return addressed envelope. The applicant will be notified once the DBA has been successfully registered. Some jurisdictions also offer DBA applicants the option to handle most of the process online. In most states, if an entity does not file a DBA application they can only do business under their name or the name on the formation document of their legally registered corporation or LLC.
A Corporation In Good Standing
In order to file for a DBA, the applicant must present proof that the corporation or LLC is in good standing in the state. Once this requirement is met and the filing process is complete, the entity may begin to use the DBA once the DBA’s public notice has been completed. In most states the DBA name registration only lasts for a limited time period. The most common time period is 5 years. After that time, the DBA will expire if it is not renewed. In some states, if the information about the company changes substantially, the DBA filing must be redone or it will be considered invalid.
Risks Associated With DBAs
There are a number of risks associated with operating a business using a DBA. Those risks involve issues like:
A. Lack Of Naming Rights
B. Lack Of Legal Protections
C. State Versus County Registration
A. Lack of Naming Rights
Even though a company has filed for and received permission to use a DBA, it does not have any official rights to ownership of the business name. Unless the entity incorporates the DBA and has the name legally assigned to it, there is nothing to prevent someone else from registering and incorporating a company using the name. Just because you have been using the DBA for years and have an established business, does not mean you have permanent rights to or control of the name. There have been companies that used a DBA for over a decade only to have someone else create a corporation with the same name and capitalize on the reputation that was established.
B. Lack Of Legal Protection
When you incorporate a business or create an LLC you are provided a ‘corporate shield’ that goes with the corporate structure and offers some legal protections as well as limits your liability if you are sued. A DBA does not offer any of that. The DBA allows you to use the name, open a bank account and even enter into contracts, but you will have to face the full brunt of any legal action personally. A DBA also does not provide the diverse tax benefits available to corporations. Doing business using a DBA leaves you virtually unprotected when it comes to risks and liabilities. You can legally use the name, but that is the extent of your legal rights with a DBA.
C. State Versus County Registration
People can register DBA names at the state level or the county level. In some states registering your DBA is not required. In some places use of a DBA for a business is limited to only the county in which the business is located. That means the business can legally use that name only in the confines of that county and nowhere else. State level registration means the company can do business using the DBA anywhere in the state. However, if the business is not incorporated, it is possible and legal for another entity to register and incorporate a business under the same name and the person with the long-held DBA would have no legal recourse or standing to prevent it.
DBA Filing Costs
The cost of filing a DBA can vary widely from state to state and even among cities and counties within the same state. In some jurisdictions it can cost a business as little as $10 to file a DBA. Other jurisdictions charge as much as $100. There are even places where the office of the Secretary of State charges people $25 to file a DBA and the price the county clerk charges is only about $15. Some people find navigating the state, city and county DBA filing procedures to be too complex and time consuming. Fortunately, there are companies that can handle the entire DBA filing process and all it entails quickly, easily and for an affordable price.
Type Of Businesses A DBA Can Help
Probably the most common question people ask after, What is a DBA, is what type of businesses need a DBA? The answer is almost any type of business can benefit from creating a DBA. Some types of businesses that have benefited from DBAs for a variety of reasons include:
Brick and Mortar Businesses
For this type of business, a DBA enables them to name their business anything that is relevant to their industry or the segment of the market they are trying to attract.
Countless people have enjoyed great success by using multiple DBAs with unique names to draw visitors to each of the many online business sites they own.
Companies that provide a wide array of services often find they can be more effective in attracting customers when they use a separate DBA for each group of services. This often catches the eye of people looking for specific services more than having all the services offered under the same business name.
Consumer Product Businesses
For businesses that market a wide range of consumer products, using DBAs can help potential customers to more easily identify the source of the specific products they are trying to find.
A Valuable Business Tool
For businesses of all types, being able to use a DBA to attract new customers makes filing a DBA a valuable business tool.