What Is a DBA?
When you start a business, the business’s legal name automatically becomes the person’s full name or entity who owns it. That’s just the way local governments keep records of companies. Even though the business Steven Clark created is called “Steven’s Pasta,” the business’s legal name will be “Steven Clark” until a DBA is filed.
Registering for a DBA (sometimes called an “assumed name” or even “fictitious name”) allows you to conduct business-related activities (advertising, accepting payments, etc.) under a name other than your own. Once you register a DBA, your full name is no longer legally attached to your business.
Why Should I File For a DBA?
There are many reasons for a business owner to file a DBA. Presenting your business under a name that isn’t its proper legal name can technically be considered fraud. Let’s say your business’s legal name is “Steven Clark.” If you were to put up a sign in front of your business that says “Steven’s Pasta,” you would technically be committing fraud.
You may need a DBA to open a business checking account or register an official business phone listing. Specific clients you intend to work with might also require a DBA before signing a contract. A business lender you are looking to borrow from might have a similar requirement for approving small business loans.
In most cases, a business owner files a DBA primarily because it makes sense for their business type. We’ll explain this further in the next section:
Which Types of Businesses Need a DBA?
1. Sole Proprietorship or General Partnership
Without a DBA, sole proprietors are legally required to use their personal name as their business name. The same concept applies to general partnerships and the names of all partners involved.
Sole proprietors and general partnerships must also file a DBA to open a business checking account. Such businesses are not legally required to register with the state. Doing this gives you a federal tax ID number (EIN) necessary to open a business checking account. When you file a DBA, you get an EIN.
This last reason applies to sole proprietors only: You must file a DBA if your business name implies more than one owner. An example is a sole proprietor that wishes to be known as “Pearson and Sons.”
2. You Want to Operate Under a Name That isn’t on Incorporation Documents
Corporations (S-corps and C-corps) and limited liability companies (LLCs) are not legally required to file a DBA. However, they have the option to do so if they want to do business under a new name.
The most common example is when a business wants to enter another area that isn’t reflected by its current legal name. A DBA prevents the corporation or LLC from forming an entirely new business entity to sell new products or services under a different name. A sporting goods business, for example, might want to use a different name for advertising its upcoming line of outdoor gear. Thanks to a DBA, the company does not have to file the paperwork to register an additional LLC or corporation.
Registering as an LLC or corporation protects the owner’s personal assets in the event of a lawsuit. But if an LLC or corporation operates a business under a name that isn’t on its incorporation documents and hasn’t filed for a DBA, those protections will be useless.
However, it’s important to remember that a DBA does not provide legal protection on its own because it does not create a separate business entity. If you’re a sole proprietor with a DBA, your personal assets would not be protected following a lawsuit.
3. You Want to Operate Multiple Businesses
A common goal for small businesses is to operate several physical stores or websites with different names. With A DBA, you don’t have to form a new business entity (another LLC, another sole proprietorship, etc.) every time you open a new store or launch a website with new products or services. Each time you expand in this fashion, you have to register a separate DBA name.
4. You’re Not Sure Your New Business Will Work
Filing a DBA is much less expensive than incorporating a new business. This is why some people file a DBA instead of incorporating them to test out their latest idea. Incorporating a company that doesn’t work out is a significant waste of money.
How Do I File For a DBA?
The first step to registering a DBA is to check if any other local businesses have names that are similar to yours. Names of all small businesses within your jurisdiction are likely available in an online database. A simple Google search for your business name wouldn’t hurt as well. Also, your DBA name cannot have a corporate-sounding ending like “Inc.” or “Corp,” since it suggests that your business is a corporation.
Every state, county, and city has its own DBA requirements for different types of businesses. If the requirements you see online aren’t clear, call your county clerk’s office to get a better explanation. Expect to fill out a moderate amount of paperwork and pay a fee ranging anywhere from $10 to $100. You’ll probably have to go to your county clerk’s office or state government’s office to file your paperwork. Owners of corporations or LLCs may have to prove good financial standing to gain DBA approval.
What Happens After I File For a DBA?
Depending on your home state, you might be finished with the registration process after paying the fee and filing your paperwork in-person. Some states require you to place an ad in a local newspaper as an official announcement of your new business name. You might also have to submit an affidavit to prove that you have placed this ad.
Once your DBA has been filed, you may not learn whether or not you’ve been approved for several weeks. For this reason, it is often recommended to file a DBA at least one to three months before you plan on using your new name. The name registration is good for a specified period, which depends on your state. Many states reportedly require you to renew your DBA after five years, or else the name expires.
Make Your DBA a Good One
Since this process can get quite tedious, it’s best to make it worth your while. So, when kicking around DBA names, choose strategically because the right name can have a significant impact on your future. You could even say that a primary reason this process exists is that such powerful tools for success should not be available for free. This is your opportunity to acquire a significant competitive advantage. Please do yourself a huge favor and take it seriously.