What is a DBA?
If you’ve ever seen “DBA” next to a business name on a business card or website, you may wonder what exactly those three letters actually mean. DBA stands for “Doing Business As”, which is typically used to list a company’s business name and show who is actually behind the business. If John Doe starts a landscaping business and wants to call it “Doe Landscaping”, he has to register the name with the state government where he resides. This may seem unnecessary and a waste of time for business owners, but a DBA actually serves a very important legal purpose. Before this denomination was widely used, many sole proprietors or companies would simply change their name if they got into any legal or contractual trouble. This led to customers becoming increasingly frustrated when they were mistreated by businesses with no way to know who they could seek legal reparations from. This is where the DBA came in. This title forces businesses to register their names and allows the public to know exactly who is behind a business (and who they can sue if necessary). If you are still confused as to what a DBA actually is, you can read a detailed definition from Entrepreneur.com.
When Do You Need To Register a DBA?
There are a number of reasons why you would want to (or in some cases legally have to) register a DBA with your state:
When You are a Sole Proprietor
Let’s say Jane Smith has just gotten out of a job she really doesn’t like. After years of following her passion for sewing and making clothes, she decides to turn her passion into a career. If Jane Smith starts making and selling her own style of clothing, she will eventually need to create her brand to get her work recognized throughout the community. Jane decides to take the leap and create her own clothing company. Like any savvy business owner, Jane knows that a key to a good brand is a good name. After some deliberation, Jane decides she wants to name her business “Stylin’ by Smith”. However, in order to legally do business under that name, she must register a DBA in her state. Otherwise, her business will have to be referred to as just her name, and “Jane Smith” just doesn’t have the same ring to it. If you are looking to start your own business and want to do business with a catchy name, you will likely have to file a DBA with your local government.
When You Need a Business Bank Account
As many business owners are all too aware, money is integral in all aspects of a business. Trying to keep track of finances can be hard enough, but trying to balance your business funds with your personal funds can be a real nightmare. This leads many business owners to open a bank account to use for any funds related to their business. However, most banks require sole proprietors or other family-owned business to register a DBA in order to open a bank account and receive payments in the businesses name.
When You Want to Be Legally Compliant
There are a number of legal reasons why a small business owner would need to register a DBA. Going back to the “Smith’s Styles” example, if Jane wanted to hire an accountant to handle her finances, she would need to write up an employment contract. However, if in the contract she used the name “Smith’s Styles” without a DBA registered, the contract would be null and void. This would, of course, open Jane up to a lot of legal trouble. Keep in mind that it is imperative that you get a DBA fully registered before doing any business under a different name than your own name. Even selling inventory before the title is fully registered could lead to legal issues down the road.
When You Want to Operate Multiple Business Without Making Multiple LLCs
We have previously been discussing a DBA in terms of sole proprietorships, but corporations and or LLCs can also utilize this denomination (you can read our blog for a refresher on the difference between LLCs and Corporations). Let’s say the “American Cookie Cakes Corporation” decides to diversify and begins running a website selling chocolate covered fruits called “Fine Fruits and Chocolate”. It would be rather expensive and time-consuming to create a subsidiary or other LLC, but it may also hurt the company’s branding to sell chocolate fruits under a name that mainly refers to Cookie Cakes. The solution would be for American Cookie Cakes Corporation to file a DBA for “Fine Fruits and Chocolate”.
How to Register a DBA?
Like many other legal processes, each state can have different rules and procedures regarding filing for a DBA. It is important that you research the process in your state or county, in order to understand what you would need to do. You can typically find information on filing this title on your state’s Secretary of State website. To get a general idea of what filing the title entails, in this article, you can learn how you would file a DBA in California.
The Dangers of a DBA
While registering a business as “Doing Business As” is very often a good practice (and sometimes legally required) for small businesses to have, it is imperative that small business owners know exactly what they are getting into when starting the process. The biggest thing to remember is that a DBA at its core is designed to protect customers, not business owners. A DBA DOES NOT provide any liability protection to businesses. In fact, liability is often the greatest danger to businesses that comes with this title. A DBA lets the public know exactly who is behind a business, which also gives them an idea of who to sue. While in a perfect world lawsuits would be reserved for actual transgressions or acts of dishonesty, some lawsuits can be frivolous and harmful to businesses. To make matters worse, a lawsuit under your DBA name does not only involve the assets of your business. Unlike an LLC, a sole proprietor sued under a DBA name could find their personal assets and finances at risk as well.
We hope that this article has given you a better grasp on what “Doing Business As” is and why you might need this title. Be sure to visit the rest of our website for more tips on Marketing, Finances, and Management.