Fact checked for accuracy by Billie Anne Grigg, a bookkeeper and Mastery Level Certified Profit First Professional.
As an entrepreneur, if you’re looking to start a new business or even get your paperwork for the one you already have, you might be wondering what a DBA is and how it works. It’s essential to understand what it is and how it can help decide whether this type of entity will work best for your needs.
What Is a DBA?
A DBA, which stands for “doing business as,” is a simple type of filing that allows you to register your business with the state and start using a different name than your legal name. It can be helpful if you want to use a certain kind of branding or don’t like the way your legal name sounds.
For example, maybe you’re named Jane Doe and decide to call yourself Easy Event Planning on all of your paperwork and records. Or perhaps John Doe wants to go by a different name instead and becomes Simple Storage Solutions. A couple of examples like this show how beneficial it could be for an entrepreneur to establish a DBA.
Does Your Business Need a DBA?
Even though establishing a DBA has some benefits, it’s not the right step for all businesses. It works best for small companies just starting or closely related to their owners. It’s also a popular option for larger companies opening new divisions of their corporations or LLCs.
For example, if you work at a large corporation and make products under your legal name while your business is called “Big Corporation,” you probably don’t need an additional DBA.
Additionally, it’s essential to know that a DBA isn’t a legal entity. For example, it doesn’t make you or your business officially protected from lawsuits or bankruptcy.
So if the company is large with many employees and a lot of debt, it’s still possible to lose everything with a DBA alone. This is why it’s also not suitable for people who are afraid they might be sued in the future.
In short, establish a DBA if you’re starting with a small business as an individual without any partners and no plans to expand beyond your capacity. In other words, use this filing only when you’re looking at it as more of an initial step rather than part of a long-term plan.
Therefore, if you’re starting or your business falls into one of these categories, a DBA might be the right thing for you. If not, it’s still possible to use your legal name on all paperwork and have fun with branding while staying safe from lawsuits.
Advantages and Disadvantages of Using a DBA
There are many advantages to using a DBA. Firstly, it’s not as expensive as forming an S corporation or similar type of business entity. Filing for a DBA is much cheaper than incorporating and establishing yourself as an LLC. However, a DBA doesn’t offer any sort of legal protection.
Additionally, suppose your company comes under scrutiny from anyone in the state where it’s registered. In that case, they might go after you if it’s just a DBA and not an actual business entity.
A couple of other scenarios where establishing a DBA is the right move include using your legal name for another reason, such as being an attorney or real estate agent.
Another instance would be starting a side business that won’t make you any money, but will provide you with some tax benefits. And if your business doesn’t have employees or gets sued very often, this step could also make sense for you.
Advantages and Disadvantages of Using a DBA as Sole Proprietorship
There are also advantages and disadvantages of using a DBA for a sole proprietorship. A few examples include:
- Having your business name on your bank account.
- Being able to send invoices without disclosing any personal information.
- Branding for marketing materials.
However, you also won’t have the same legal protections an LLC would provide. You can still get sued or go bankrupt, but there won’t be any laws that help protect you in these situations. Additionally, creditors might come after you if they find even the slightest reason to do so.
Therefore, you must keep all company paperwork separate from anything else with your personal information on it. Be with your records and what’s in your company’s name if you want to keep them separate.
Advantages and Disadvantages of Using a DBA as an LLC
Unlike a sole proprietorship, LLCs offer more advantages than disadvantages when using a DBA.
The biggest two are that your business name can protect you from any liability or debt claims coming after you and that you’ll have the same legal protections all LLCs do against creditors, lawsuits, etc.
Oddly enough, most people don’t know about this part of filing for an LLC—they only talk about taxes—but there are many other benefits as well.
In addition, adding a DBA to an LLC isn’t difficult at all since the paperwork is pretty straightforward. However, you will need to make sure you file the additional paperwork with your state’s Secretary of State or its equivalent office if you want it to be official.
As long as you get started on this step, though, it shouldn’t take too much time since LLCs are simple entities that don’t involve tons of different legal requirements like S corporations or C corporations do.
You can read more on this topic in our entire DBA vs. LLC article.
Advantages and Disadvantages of Using a DBA as a Partnership
The good news is that most of the time, you won’t have to pay anything at all to set up a DBA with your partnership.
It’s also not hard to do since it only involves filing paperwork with your state’s Secretary of State or its equivalent office. This step can be done for free in most situations, but depending on your situation, there might be additional fees involved.
However, there are disadvantages, including having no legal protections against creditors, lawsuits, etc. Additionally, you’ll need to file all taxes jointly rather than separately, like C corporations would allow you to do.
Therefore, you’ll have more bookkeeping requirements and will have to deal with being taxed as a regular income taxpayer instead of through an entity that could allow you to pay the lower corporate tax rates.
Advantages and Disadvantages of Using a DBA as a Corporation
There are a lot of pros to incorporating, including having the legal protections you get from an LLC and being able to send invoices without disclosing personal information.
In addition, all the paperwork is done for you online at sites like LegalZoom or with your lawyer, so it’s not something you’ll have to worry about doing on your own.
Most people don’t realize this, but filing as a corporation will give you more protection than any other type of business entity would—especially S or C corporations that require a lot of additional paperwork and filings.
If your corporation has several divisions that all need their own branding, adding a DBA or multiple DBAs to your business can be a big advantage.
How to Get a DBA
Getting a DBA is one of the simplest things you’ll ever do, but there are some rules that you need to follow.
For example, your business name must be unique and different from any other company in your state. It also needs to indicate what type of entity you have with your current business.
Additionally, you will need to check with your state to ensure the name isn’t already taken or reserved by another business like an LLC or corporation.
You can do this by either visiting your Secretary of State office to search for free yourself if your state allows it, through websites like LegalZoom, or through lawyers who should know which steps to take to make sure your business name is permitted.
After you’ve reserved your business name, you’ll need to get the additional paperwork filed with the state that includes a DBA filing statement or sometimes referred to as an assumed name certificate or fictitious business name.
Frequently Asked Questions
Is a DBA a Legal Entity?
No, a DBA is not the same thing as having a legal entity for your business. It’s simply a filing that allows you to use a different name than your legal name when operating your business.
It includes using the DBAs in advertising and marketing materials, but it doesn’t allow you to do things like file taxes or be sued under the DBAs.
How Much Does It Cost to Get a DBA?
In most cases, it’s free to get a DBA from your state, although you might have to pay a small fee in some states. In addition, if you hire an online service or lawyer to file the paperwork for you, they’ll probably charge a fee too.
However, this is usually minimal and much cheaper than filing as a corporation or other type of legal entity, which could require additional fees and filings each year.
How Long Does a DBA Last?
The good news is that most states will only require you to renew your DBA every four years. So when you file, make sure to note when the renewal needs to be filed to not miss any deadlines.
How Do Taxes Work with a DBA?
A DBA won’t impact your tax status. Your entity structure determines how you file taxes for your business.
In addition, when filing your personal 1040 tax return each year, you’ll have to report how much money your DBA made and paid in relevant taxes for the year. This is true if you don’t make any money or even lose money for a particular year.
Filed under: Advice Columns