By Ty Kiisel –
If you’ve ever asked, “What is a DBA?” this article is for you. The short answer is, a “Doing Business As” is when the name under which a business operates is different from its legal, registered name. A DBA may also be called a trade Name.
Why Would a Business Choose a DBA?
There are reasons why a business would choose a fictitious name (another term for a DBA). A sole proprietor or partner might choose a DBA so they can operate with a typical business name without the need to create a formal legal entity (like an LLC or a corporation). For example, John Smith, a plumber, might choose to operate under the name of Eveready Plumbing. He’d need a DBA to do that. If John wanted to run his business under the name of John Smith’s Plumbing, he wouldn’t need one.
If your business was a corporation or a limited liability company (LLC) and wanted to operate the business under a name that is different from the name of the corporation or LLC, you would need a DBA. For example if John Smith & Joe Bonanza LLC wanted to operate as Mount Olympus Real Estate Investment Company, they would need one.
Is a DBA a Legal Entity?
That’s a good question and the short answer is, “No.”
When you form a corporation or an LLC, for example, you are creating a separate legal business entity. If you compared an LLC vs a sole proprietor, when the entity (the LLC or the corporation) conducts business, it does so as a separate entity rather than as you personally. In other words, you may be an officer of the corporation or a member of the LLC, but it is not you. An LLC, will also require you to acquire an Employer Identification Number or EIN, which is not required of a DBA.
On the other hand, as mentioned above, a DBA is still you. In fact, most states won’t allow you to use words like “Corporation” or “LLC” in your DBA because that would be misleading to anyone doing business with you.
Additionally, as a DBA you do not enjoy any of the personal liability protection afforded to an LLC or a corporation. For example, because an LLC is a separate legal entity, the personal assets of the members (or owners) of the LLC remain separate from the assets of the business. This provides the members of the LLC with a level of liability protection against creditors or in the event of a lawsuit. Because you and the DBA are the same entity, there is no similar protection.
Registering a Trade Name
In most states there is some kind of registration required for a DBA. It could be a requirement to register your name with the state, county, and city where you do business. Some states even require you to get approval for the name and then use it in a printed publication and some have rules based upon the type of business it is. The county clerk where you do business is a good place to start.
There is no cut-and-dried answer to, “Do I need to register my DBA?” but in addition to the county clerk, here are some guidelines that will help you determine the first place to start looking for an answer:
Alabama, Alaska, Arizona, Delaware, Florida, Hawaii, Kansas, Maryland, Mississippi, New Mexico, Nebraska, Ohio, Wisconsin, and Wyoming don’t require you to register your name with the state.
There are 19 states that require you to register at the county level. Arkansas, Colorado, Delaware, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Michigan, Nevada, New Jersey, New York, North Carolina, Tennessee, Texas, Virginia, West Virginia, and California (if you’re an out-of-state business in California).
Maine, Massachusetts, and Rhode Island all require you to register at the city level. Alaska and North Dakota will allow a business exclusive rights to the DBA so a new business can’t take your trade name or anything similar.
Once you have registered your name, you’ll want to make sure you don’t need to renew your DBA every year. In other words, some states require you to update your DBA renewal on an annual basis.
Are There Any Benefits to Filing a Trade Name?
The primary benefit to a DBA is that it allows a sole proprietor or a general partnership to do business with a typical business name like Eveready Plumbing (above example) without the need to create a separate legal entity. A trade name could make it easier for potential customers to identify with the business and what it does.
A DBA doesn’t necessarily protect your business name from being used by someone else in your state (with the exception of Alaska and North Dakota (see above)). You’ll need to seek trademark protection for that.
So far as LLCs or corporations are concerned, it allows the company to operate multiple businesses without creating separate legal entities for each business. If you have multiple websites or restaurants, for example, as an LLC you could operate each as a separate DBA.
Nav’s Final Word: Doing Business as a DBA Although doing business with a trade name doesn’t offer any liability protection to the business owner, it does allow the business to operate with a business name that could help customers identify with the business and what it does, while… Click To TweetFor business owners who see a potential need for the liability protection offered by a separate business entity like a corporation or LLC, creating the separate entity might be a better option — even with the increased recordkeeping and reporting required for those legal entities.
Additionally, although it’s not a requirement to qualify for a small business loan, there are lenders who give preference to corporate entities and LLCs when considering a loan application. This was evidenced by many sole proprietors who struggled to qualify for a Paycheck Protection Program (PPP) loan with many SBA lenders. The clear separation of business and personal entities makes a lot of sense to a lender when evaluating a business’ creditworthiness.
This is particularly true for early stage businesses seeking a startup business loan. A separate legal entity won’t guarantee you’ll find the financing you’re looking for, but it’s one more cue to a lender that you have your financial and accounting ducks in a row — and could increase the odds of success.
Ultimately though, whether you operate with a trade name or not is up to you and the nature of the business you want to create.
About the Author: Ty Kiisel is a Main Street business advocate, author, and marketing veteran with over 30 years in the trenches writing about small business and small business financing. His mission at Nav is to make the maze of small business financing accessible by weaving personal experiences and other relevant anecdotes into a regular discussion of one of the biggest challenges facing small business owners today.
This article originally appeared on Nav.com.