The Advantages and Disadvantages of DBAs (Doing Business As)
DBA is an abbreviation for “doing business as.” A firm or individual uses this name when it is operating under a different name than that which it was legally registered. Depending on where you decide to do business, you are required to register your DBA with either your state government or county clerk’s office. DBAs are also known as “trade names,” “assumed names,” or “fictitious names.”
Choosing a fictitious business name
A business owner might want to use a DBA or a fictitious business name if they find themselves in two main situations:
- Corporation or LLC: you are allowed to register a fictitious business name or DBA if you’ve already established a business structure and incorporated, but still want to adopt a different name other than the one you’ve used.
- Sole Proprietor or partnership: this second case is a situation where you are a co-founder of a partnership or sole proprietor, and you wish to do business with a name different from your legal government name. This will give your business a unique marketing identity that’s different from your personal name, but in the eyes of laws, it won’t be the same as a corporate structure.
Do I need a DBA if I have an LLC?
Most people will tell you “No” unless you are looking to operate a business with a different name from that of the LLC. You’ll notice right away that a lot of those people who use DBAs are people who operate as sole proprietors. For example, Jack Daniels has been operational as a sole proprietor graphic designer, but then, on a whim, he decides to operate as: “Jack Daniels Designs.” This is a perfect example of a DBA that’s an extension of the natural person who’s the sole proprietor. But, if they have decided to operate as a corporation or an LLC, the firm will be handled as a separate legal entity, different from the individual or people who own it.
Advantages of using a DBA
Using a DBA name for a business is the best decision an owner can make. It actually allows the proprietor to use a more ‘official’ name, appropriate for a business website or business card. Your identity doesn’t have to be entangled with your business. You can give it a separate and unique identity. This is not the only advantage that you get to enjoy as you’ll learn that there are a few more, such as:
- Increased flexibility
With the help of a DBA, you can expand into new markets because the business’s legal name is already in use there. For your information, a legal business name’s proprietary use is often state-specific. Therefore, if you go ahead and register a business in a state different from that which you created your business, you might not be able to use the existing business. State laws require a business to operate within its boundaries with different names to avoid public confusion. So the solution is always to register your business with a fictitious business name before starting operations.
- Enhanced value
A DBA can also help your entity develop brand awareness, and this is yet another advantage of using it. So instead of operating the traditional way where business owners develop products under business names such as “Jean Park’s Ice Cream joint,” you can use a catchy DBA such as “Cold Cones.”
Disadvantages of using a DBA
Te one primary disadvantage experienced by all the business entities using DBAs has to be the hassle of maintaining the registration. Typically, these registrations are supposed to be renewed every couple of years and in some states, you are compelled by law to make the registration in every county that you plan to do business in. In addition, DBAs are nothing more than aliases that can’t be used by business owners to execute legal documents. Other cons include:
Lack of legal protections is yet another con of using a DBA. You, of course, get to enjoy legal protections and limited liability as a corporate structure or LLC but a DBA doesn’t offer these things. You’ll only have a name on a business card and that’s just about it. No ‘corporate shield’ to protect you from your business liabilities, or tax benefits available from setting up a legal entity.
The bottom line
If you are operating as a sole proprietor, you are better off working with an LLC instead of a DBA name. A DBA will not offer you the benefits other corporate structures offer business owners. However, if you already have an LLC, you can use a DBA to expand your services, or change the name of your business without losing its existing identity.