What Is A DBA? Do You Need One?
A DBA is a business and legal term which stands for, "Doing Business As." Knowing when to file for a DBA can be tricky. Here is a guide for knowing when and why you should open a DBA and when it's best to look into other options. The information provided here is for general information only and should not be used as legal advice.
What Is A DBA?
A DBA is a business and legal term which stands for, "Doing Business As," which is sometimes also called a "fictitious business name." You, or your company, can do business under a different name when you have a DBA. In most states, if you don't file for a DBA you can only do business under your own name or current business name.
When Do I Need One?
- You're a sole proprietor or in a general partnership and you want to do business under a name other than your legal birth name. Anytime you do business under a name which isn't your own you'll need to register for a fictitious name with your city, county or state (depending on your local laws). As a sole proprietor, your fictitious business name cannot include the words "corporation," "Inc," or "corp."
- You want to add a new business to an existing business. Sometimes you'll want to open up a new business with a new name as a segment of an existing one. For example, you may have an LLC or a corporation which sells lemonade and you want to start selling recipes as a separate business. This new separate recipe business will need a DBA if you'd like it to have a new name.
- You want to open up a business account. There are exceptions, but generally banks will require you to have a DBA if you're a sole proprietor and looking to open up a business account. Banks will also require a DBA for general partnerships.
- Your client requires it. Legitimate business clients will often require you to have a DBA if your business is not already registered as an LLC or corporation. Businesses want to do business with other legitimate businesses in order to avoid unnecessary risk. Doing business only with registered companies helps them filter out potentially illegitimate businesses.
- Your company wants to start a website. You will need to file for a DBA if you'll be doing business online under another name. Adding ".com," at the end of your business name is considered an alteration and a different name. As stated, if you're seeking to do business under a name other than your current business name you'll need to register for a fictitious name.
When Do I NOT Need One?
- You don't need to do business under a different name. If you don't mind doing business under your own name then you don't need to worry about registering for a fictitious business name.
- You have already registered your LLC, corporation, or other business entity. LLC's and corporations need to be registered in whatever state they're doing business in. The don't need to additionally register for a DBA.
- Your business account includes your last name. In some states, a bank will allow you to open up a business account for a sole proprietor or general partnership if you include your last name in the account name.
Why You Should File For a DBA.
Even if you don't "need" a DBA, there are plenty of reasons for why you should register for one anyway. Here are just a few.
It helps your business appear more professional.Having a company name that's something other than your personal name can give your business a more professional feel. This is important because professionalism also helps convey trustworthiness. Consider, for example, looking for someone to change the tires on your car. Would you choose between "Steve Smith" or "Speedy Tire Service?" Most would choose the latter.
Also, consider that when listing up your business somewhere people won't know what your business does unless it has a descriptive title. The title "Steve Smith," tells nothing about a tire changing service. If you were to see this name listed in the white pages, for example, you wouldn't know what type of business Steve runs, let alone his specialty. If you're having trouble coming up with the perfect business name, try a business name generator.
It helps clean up your banking and accounting.The easiest way to keep track of your businesses is to open up separate business account for each of them. Doing all your accounting in one bank account can be tricky. Doing it this way requires you to keep track of each individual transaction in your account. Instead, allow each account to keep track of the expense or revenue of each of your businesses.
If you're doing business as a sole proprietor, separating your business expenses from personal expenses helps protect you in case of a lawsuit. In this case, you can easily show your business records and protect your personal assets just in case your business fails or is forced to pay a fee. This also helps you protect your personal credit score in case slow times in your business prevent you from making on time payments to your creditors. It'll also make it much easier for you to get a business loan if they ever require to see your records.
Also, when you register for a DBA you automatically get what's called an EIN number. This is the business equivalent of a social security number. Banks will require you to have an EIN number when opening up your account. Why not make it easy on yourself and get your business an official name, have the documents to open up a business account, and get an EIN at the same time.
It makes tax season much easier.Filing for a DBA is one of the quickest and easiest ways to register your business. In relation to LLC or corporation filing, DBA paperwork is much simpler and requires much less understanding. It's also relatively cheaper.
When it comes to taxes, your business will have to provide a detailed record of all expenses and revenues when reporting your income. If you have your business and personal accounts meshed together then you'll have to go through the whole year of transactions at tax time in order to find out which are personal and which are business. Save yourself this massive headache and just do everything separately.
As previously stated, when you file for a DBA you also get an EIN (federal tax ID) number. You'll need an EIN when you do your taxes. Filing for a DBA makes the whole process of doing taxes easier by generating an EIN number for you and allowing you to have separate business accounts for accounting.
It could help keep you out of trouble with the law.Doing business under any name which isn't yours is illegal unless you have registered to be able to do so. Not registering can result in huge fines or worse. Don't take any unnecessary risks and file.
Owners of LLC's and corporations have special legal protections on their personal assets and don't need DBA's. But, if you decide to open up a separate segment of your LLC or corporation and you don't file for a DBA then you'll not have these special legal protections on the new business. In the unlikely case that your business is sued, without a DBA linking it to your LLC or corporation, your personal assets will be at risk.
When There Are Better Options.
Filing for a DBA is quick, easy, and cheaper than other ways of registering your business. But, sometimes there are better options depending on your situation. Here are a few.
You want to protect personal assets.LLC's and corporations provide special legal protections for your persona, non-business, assets. If you only want to risk a small percentage of your overall assets then you should contain your business within an LLC or corporation. In contrast, a simple DBA for your sole proprietorship or general partnership leaves your personal assets in risk in case of losses or fees incurred by your business.
Your business has a high chance of getting sued.Because LLC and corporate business structures protect your personal assets, you should consider using these when you're in a business that has a high chance of getting sued. This way, if your business gets sued and is forced to pay you're personal assets will not be affected.
You want to raise investment capital.It's easier to raise investment capital when you have the ability to generate "shares." Shares of your business can be bought, sold, and transferred with ease. If you're looking to sell a portion of your business in order to raise money you should consider incorporating rather than simply filing for a DBA.
When ownership gets complicated.Sometimes businesses have many owners. Public companies often have thousands, or more, separate owners. If your business has many owners, or if you plan on it having many owners someday, consider incorporating. Incorporating also makes it easier for you to pass on your business to your children or family in the case that you ever decide you don't want to, or can't, keep running it. Corporations can go on existing indefinitely and don't rely on any one individual being alive in order to keep existing.
Examples of Businesses That Would Do Well With a DBA
Here are a few examples of scenarios in which simply filing for a DBA would be a good option.
Graphic designers don't have to put up with much risk. The only risk they have to deal with is their client not being happy. But, in that case the customer would just reject the logo or image. There's low chances of getting sued or getting into a situation where you'd lose money.
There's little risk involved if you're in the business of mowing people's lawns. Unless you have an extremely dangerous lawn mower (why would you?), you'll be fine. If the customer isn't happy they'll probably just ask for a refund. But, if you're silly enough to damage property while mowing, be prepared to pay from your personal assets if needed.
Again, there's minimal risk involved here. It's unlikely you would generate a product which would cause harm or loss to anyone. If you're a freelance journalist and you want a quick and easy way to register your business, a DBA works just fine.
Examples of Businesses That Should Look Into Other Options
Preparing or cooking food for others is risky. Even if you do everything right, it's always possible that one of your clients gets sick from something you give them. In this case, you'd be better off incorporating or shielding yourself from potential lawsuits through an LLC.
Lawyers are likely to get sued. Often clients aren't happy with the way a lawyers deals with their situation. Even if you, as a lawyer, do everything you think is right, getting sued is still a possibility. If you're running your business as a sole proprietor and registered for a DBA, you'll have to pay out of pocket for any lawsuit expenses.
Doctors are constantly getting sued. If you run a practice, it's almost a guarantee that you will incur a lawsuit for "malpractice" someday. Mistakes happen. Sometimes people are misdiagnosed. Sometimes paperwork isn't properly kept track of. Any of these things could lead to an unfortunate outcome for your patient. Protect your assets by registering as an LLC or corporation.
Below are the 10 physician specialties most likely to get sued in the US according to the National Institute of Health. As you can see, the higher risk specialties are most likely to be sued.
|Specialty||Physician Years of Coverage||Number of Physicians|
|7||Obstetrics and gynecology||10,385||1,899|
How Can I Make Sure I'm Making the Right Decisions?
If your business is low risk you should be fine with a simple DBA. Filing for a fictitious business name is the quickest and cheapest way to get your business started. It's the quickest way to start getting paid for your products and services. But, if your situation is a bit more complex, you'd probably do good to register under a different method and structure.
We aren't lawyers and this isn't legal advice. Speak to a lawyer who specializes in business registration and structure if you need.
What the heck is a DBA? Do you need one? A DBA is a business and legal term which stands for, "Doing Business As," which is sometimes also called a "fictitious business name." You, or your company, can do business under a different name when you have a DBA. In most states, if you don't file for a DBA you can only do business under your own name or current business name.
Depending on whether you're doing business as a sole proprietor, an LLC, or corporation, you may need a DBA for different reasons. Not having the correctly filed documents can result in you not being able to accept or receive payment for your services or products. The quicker you get your application approved the quicker you can get out there and start earning money. On this page, you will find more detailed information on when, and when not to, file for a fictitious business name. Scroll below this video to read our full guide.
Elon Musk, for example, started a software company with his brother Kimbal in 1995 and called it Zip2. He would go on to sell this company for $320 million to Compaq, become CEO of Paypal and build Tesla from scratch. Today, Musk is one of the richest people on the planet. He wouldn't have been able to do so without first registering his business names.
Elon Musk, for example, started a software company with his brother Kimbal in 1995 and called it Zip2.
If Elon Musk, through one of his many companies, were to hire your company for some work, you'd need to register your business too. In fact, most major companies won't award you a work contract without a DBA. If you're a graphic designer, for example, and SpaceX wanted to hire you to create a logo for one of its rockets then you'd need to register with your city or state for a DBA.
If you have a current business and you're seeking to open another business under it, you'll need to file for a fictitious business name.
In 2011, CEO Reed Hastings decided to do this with Netflix. This new company would be focused solely on managing their DVD mailing segment of the business. It would be called, "Qwikster." Netflix had to register this as a subsidiary of their existing business. Netflix customers and investors would go on to create such an uproar over this new company that Hasting decided to drop the idea altogether. In fact, Mashable called Netflix's decision to start Qwister the worst product launch since New Coke.
In fact, Mashable called Netflix's decision to start Qwister the worst product launch since New Coke.
Sometimes, you'll want to file for a DBA to keep better track of things. For example, if you own rental properties in New York, you'll want to assign each property its own name to make it easier for clients to pay and easier to keep track of rent payments. Don't do this in just one bank account. You also want to avoid a big headache during tax season and decrease your chances of getting in trouble with the IRS. You'll have cleaner accounting and easier tracking of profit or loss.
You might also be considering starting a website for your company. For this, you need to file for a DBA since adding ".com," at the end of your business name counts as a different name.
In 1994, Jeff Bezos decided to risk it all and start an online book retailer called Amazon.com. At first, companies like Walmart ignored this new competitor. Amazon expanded beyond selling books and went on to help Jeff Bezos become the world's richest man. Walmart, which was founded in 1969 by Sam Walton, also had to register its new business when it finally decided to sell online. But, by the time Walmart decided to register Amazon had already taken a huge chunk out of their market share.
Amazon expanded beyond selling books and went on to help Jeff Bezos become the world's richest man.
Filing for a DBA is relatively quick, easy, and cheap. But, sometimes your business would do better being registered differently.
In 1975, Steve Jobs and Steve Wozniak teamed up to create what would go on to become the world's first trillion dollar company. They named their company "Apple." Two years later, after the success of the Apple 1 computer, they decided to incorporate. They did this because incorporating a company makes it easier to raise investment capital which they were going to need for future projects. Apple would later go on to go "public" in 1980 and become instantly successful.
It's easier to raise investment capital when you have the ability to generate "shares." Shares of your business can be bought, sold, and transferred with ease. If you're looking to sell a portion of your business in order to raise money you should consider incorporating rather than filing for a DBA. If you'd like your company to be listed on a stock exchange, like Apple, then you shouldn't file for a DBA.
If you're looking to sell a portion of your business in order to raise money you should consider incorporating rather than filing for a DBA.
If your company will be in "risky" situations where it's likely to be sued or incur unpredictable losses, it would be best registered as an LLC or corporation. This means that doctors, cooks, lawyers and other high risk professionals should not file for DBA's.
Knowing when to file for a DBA is not an easy task. Sometimes there are other options which may be better for your situation. We aren't lawyers, and this isn't legal advice, but for further tips and guidance on when, and when not to, file for a DBA which could save you time and money, refer to our step by step guide. To read it, scroll below this video.
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