What is DBA: Everything You Need to Know
What is DBA?
If you’ve ever asked yourself, “what is DBA,” you should know that DBA is nothing more than an abbreviation for “doing business as.” It’s an umbrella term in the business world that describes the practice of one business entity, whether it be a corporation or a single person, doing business under another name.
Why Would You Need a DBA?
It’s necessary to register a DBA if a business operates under a name -- any name -- that is different from its legal name. On the state level, a DBA is sometimes required as a bare minimum for some businesses to operate, thanks to the protections and consumer benefits available to those who file one.
You can consider a company “doing business as” whenever the name they operate under differs, even by a single character, from its legal, registered name. That means that, if John Doe owned a business called “Doe’s Hardware,” but wanted to conduct a transaction as “Doe’s Hardware Store,” they would need to file, and be approved for, a DBA.
Business owners who are starting a sole proprietorship or a partnership in the business community have the option of choosing a business name or DBA for their business. These DBAs, sometimes known as fictitious names, are needed in any scenarios where a company wants to operate under any name other than their registered one. Any business or entity who engages in this practice is required to register with their respective county, city, or state legislators.
To avoid loopholes and confusion, no DBAs or fictitious business names are allowed to have the words “corporation,” “incorporation (or incorporated, or corp),” or “Inc.” in them. The only exception are corporations that are registered with the Secretary of State, though these are uncommon.
How to File a DBA
The procedure for filing a DBA or fictitious name varies from state to state. In most instances, all one has to do to file is go to their local county offices, and pay a small registration fee to the county clerk.
In some states, however, business owners must also place their DBA or fictitious name in an advertisement inside one or more local or state newspapers. Some states require these ads to run for a set amount of time, often a month or two.
The cost of filing a DBA or fictitious name notice can cost as little as $10, or upwards of $100, depending on the circumstances.
Newspapers and county clerks aren’t the only organizations that may require collaboration with a newly-minted business owner, either. Banks may require these fictitious name certificates to open a business account with them. If this is the case, the bank will be transparent about it, and it should be easy finding a bank for the needs of any DBA with the proper amount of research.
Corporations don’t usually have to file fictitious business certificates on the state level unless the corporations are themselves doing business under assumed names other than their registered ones. The incorporation documents have the same impact for corporate businesses and citizens as fictitious name filings do for smaller business types, such as sole proprietorships and partnerships.
DBAs also refer to a business’s given trade name, and may come into play when a company does business overseas, among many other situations. Corporations and citizens alike file DBAs for this reason -- they are the only legal means by which an entity can conduct business under a name other than their own.
Unlike a sole proprietorship, a DBA is distinct from a business owner’s name, and is legally different from the names of any partners or shareholders, too.
Businesses typically have to be mindful of situations where a DBA would be appropriate or legally required for certain transactions. If a situation arises where a DBA would best serve the business entity, they would have to file a motion for one.
When a business forms, the legal name is automatically set to the name of the person or entity that formed, operates, or otherwise owns the business. That is with the sole exception of situations where the business is renamed, registered, or filed as a DBA.
Consider an example -- if John Doe were to form an automotive repair business, the business would automatically operate under the name of the person(s) or entity(s) that own the business, in this case, John Doe. If he wanted to file for a DBA to register their business as “Doe’s Automotive,” he would, once approved, no longer be required by law to operate his business under his legal name. It could operate as its own entity.
Filing a DBA is simple in most states for both citizens and business entities. Some states do require additional filing than others, and some filings only require a county-level authorization. Once the process is complete and a business has been approved for their DBA, they can legally operate under their fictitious names.
Reasons to Get a DBA
There are many reasons to get a DBA, including name recognition and liability protection. Name recognition is particularly important for businesses of today to focus on in order to succeed, so the naming (and renaming) of a business must be taken very seriously, and decisions about a business name should only be made at the highest, uppermost executive levels.
Brand recognition, or name acknowledgement, occurs when a business name is used uniformly for all transactions, whether it be a marketing endeavor, or a debt collection endeavor.
Sole proprietorships are different -- the name of the owner is intrinsically and necessarily linked to the name of the business. In the eyes of the law, the two are one in the same. In an example, if John Doe were to give up his automotive business to start a financial consulting business, the name of his business would, again, be John Doe. The business name is the same as the partner (owner) name.
If John Doe wanted to operate his business under the name “Doe’s Financial,” he would again be required to file a DBA or fictitious name certificate for his business in order to do so. Once approved, John’s consulting business would no longer be tied to his own name.
Sometimes, to protect both parties, a business may require their clients have a DBA in order to work together. They may not award contracts or positions within their infrastructure to individuals or entities who don’t have, at the very least, a DBA name.
Consider freelance graphic designers or editors, who usually pitch and make bids to corporations in an attempt to win contracts. This is a standard practice across many industries. The company seeking freelancers may look with favor upon those bidders who have DBAs, or they may disqualify those freelancers bidding without one entirely.
This situation does arise, as does the need for a business to incorporate or form an LLC in order to contract with certain entities. It’s likely, for example, that the defense industry requires all participants to operate with a certain level of corporatism before becoming eligible for any contracts, given the importance of the work at hand.
A business may be entering a new area or geographical territory not reflected by their current operating name. A corporation or LLC may expand to new areas not represented by their current name should they choose to. They may expand by relocation, retargeting their marketing efforts, or restructuring their businesses entirely.
A more descriptive name, or one that more accurately represents the scope and function of a given business, may be appropriate. Websites may also carry different names than their actual business names for numerous reasons, and often require proprietors to operate with a DBA of some kind, unless otherwise stipulated.
Consider another example. If you owned a business and were in the marketplace selling women’s clothing, but also produced a line of clothing for children and teens, you may want to form a distinction between the two companies by filing a DBA. Teens would be apprehensive to shop at the same stores as their parents, so it would be beneficial and fiscally logical to use a DBA to legally use separate websites, storefronts, names, etc. in business transactions related to your various clothing lines.
Requirements for a DBA
While filing requirements do differ from state to state, it’s common for businesses to have to file their DBA statements before using their DBA in any operating capacity. In other words, approval is needed before a DBA is usable and legal, not just a filing.
In some cases, a DBA and all relevant articles must be filed within a month or two of an entity’s first transaction. This is in addition to the requirement some states have that require businesses to publish their DBA documents in a local newspaper in tandem with their filings.
Restrictions on DBA Names
There are rules and distinctions to be mindful of in the naming of a business which intends to operate under a DBA. If a sole proprietorship or general partnership files, they are barred from using certain terms and keywords, many of which are reserved for use by fully incorporated business entities.
A good rule of thumb is that a DBA cannot contain nomenclature that implies it is anything other than a DBA. For example, if John Doe operates a sole proprietorship, and names his business “Alphabet Electricians,” he cannot call his business “Alphabet Electricians, Inc.” without actually incorporating his business. This is to avoid confusion and to protect all involved parties.
Similarly, DBA names may not contain “LLC.,” “Corporation,” “Corps,” or any variation therein.
Advantages of a DBA
When a business is first starting up, it would be wise for them to keep costs low, and to keep their business processes simple, and scaled to the size and age of the business. Filing a DBA helps in this manner -- they can help mitigate the costs of incorporating a separate business entity each time a business owner wants to expand or restructure the scope of their business.
By filing a DBA, one would not have the exact ongoing record keeping responsibilities and other duties associated with maintaining a corporation or LLC, particularly where finance and budgets are concerned.
In order for a business to operate under a fictitious name, they must first register that name with the clerk of their respective county or state of operation, or with the agency or party responsible for keeping track of, and monitoring, businesses in the state of the business entity’s formation.
State laws uniformly require a DBA name to be unique from other DBAs currently in operation, or otherwise registered. This is a fraud mitigation measure, as many entities have sought to deceive the public (or other businesses) by forming DBAs that helped them appear to be legitimate companies.
Any company that chooses to operate a business using an assumed, fictitious name, or an alias of any kind, must register the name they intent to use with each state it intends to do business in. This requires preparation and care, as DBA filings do not cross state lines. They are state-level entities that are approved to operate within the bounds of the state they were formed in, unless registered in additional states manually.
If a business chooses to operate in multiple states, it would not be sufficient for them to register a DBA in only one state. They would have to file for a DBA in each state they intended to include in their business efforts.
If a registration is denied or otherwise allowed to lapse, a business may lose its right to legally operate under that name in one or more states.
Thankfully, the registration process, though different depending on the state, is usually quite straightforward and simple. States want businesses to form and for their local economies to be stimulated, so they streamline the process as much as they can.
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