To establish a new business, you’ll need to make some critical legal considerations. If you aren’t a lawyer, many of the legal phrases used may be alien to you. You might get tangled up in acronyms, have to file a DBA, or have to choose between an LLC or a sole proprietorship.
While simply registering your DBA does not provide legal protection for your firm, it may be required depending on where you operate. We will look at what a DBA is, when you might need one, and why it’s a good idea for any company.
What does DBA mean?
DBA is an acronym for “doing business as.” It signifies the assumed trade name of your business. Filing for a DBA permits you to do business with a name that is not necessarily yours.
The DBA is not the same as the business owners name or the name you registered in the business. When you start a company, its legal name automatically changes to that of the owner, except if your business was registered as a specific legal entity, or you rename and register your business with a different name.
What businesses require a DBA?
DBAs are not required in every business. Their necessity is determined by a combination of the legal entity of the business, the needs of the region it is operating in, and the preference of the business owner(s).
Partnerships and Sole Proprietorships
General partnerships and sole proprietorships have to file a DBA before they start operating their business. The DBA allows them to operate under a name other than their own or to operate under the complete legal name of their business partner. This is possible because they are unincorporated and do not have to file formation papers for the entity or choose a business name with the state. However, they still need to get the necessary paperwork filed.
Without a DBA, the business and the owner are seen as the same entity, with the same name.
Franchises are not required to file a DBA. However, it is typical for them to do so due to the fact that they want to establish an identity as a local company. Let’s say you buy a KFC franchise in your neighborhood and you want recognition from potential customers in the vicinity. Because franchises are typically established corporations or LLCs, you may create your franchise under “Kays Business LLC.” However, you would need to change your DBA to “KFC” to inform your state that you will be “doing business as” the franchise you bought.
Other legal entities
Corporations (including C and S Corporations), Limited Liability Companies (LLCs), and Limited Partnerships do not need to file “doing business as” names unless the state, city, or county they operate in demands it.
Unlike general partnerships and sole proprietorships, these business entities and their names have previously been registered with the state. However, any company founded under one of these companies has the option of registering a DBA name. This allows them to trade with a name other than what is shown on their incorporation papers.
The main reason for a corporation to register a DBA name is to have a different name for a particular area of business. They shouldn’t start a new business only to trade for a new company branch under a different name. For instance, let’s say a company named Karen’s Cosmetics Inc. could choose to call its new skincare line “Karen’s Skincare Solutions.” This saves a growing company both money and time by avoiding the costs and effort involved in forming a new LLC or corporation.
Also, remember that if you register your DBA before forming a legal company, your state will treat the company as a sole proprietorship by default.
How to file a DBA name
DBA procedures differ between states, countries, and business structures. However, registering a DBA often involves paperwork and processing fees ranging from $10 to $100. You can document your paperwork with your county clerk’s office or the state government.
You may also be required to run a trade name ad in a local newspaper for a specified period in some areas. This satisfies the “public notice” requirement in some regions by providing official notification of your business name to the local community.
One logistical snag to be aware of is that your DBA name cannot conclude in “Inc,” “LLC,” or “Corp.” Doing this creates the idea that your company is a corporation when it isn’t. Aside from that, there are no limitations on what you can use as a DBA name. However, it’s preferable to conduct a business name lookup to ensure that your DBA name isn’t already in use.
Points to note for a successful filing
To run your business under a trade name, you should:
- Complete and file the necessary DBA paperwork
- Pay a filing fee, after which you will be issued a DBA certificate
Depending on your state, you can file with a municipal or county clerk’s office, a state agency, or both. So, double-check all local governing agencies for DBA filings in the states where you will be doing your business. Also, ensure that your business or entity type meets all of the DBA filing requirements.
In many states, general partnerships and sole proprietors file in an office different from corporations, LLCs, and other statutory bodies. It’s also possible that the forms will differ. You can then use your DBA name after completing the filing and acquiring a trade name certificate.
- You will need to show that your corporation is in good standing. This is done by presenting a Certificate of Good Standing from the Secretary of State
- You must not use a corporate name if you’re not a corporation
- Use accepted payment methods (ex. Credit/Debit Cards, Check, or Money Order)
- Depending on your region, you might have to make a newspaper announcement for a specific period
Advantages of Filing a DBA
Aside from not wanting to operate in the name your business is officially registered in, there are other compelling reasons to register a DBA name.
1. Eases business banking
Splitting your personal and business funds will
- help secure your personal assets should you encounter a lawsuit
- make you appear more professional to your clients
- ease bookkeeping
- maintain your personal credit score.
Note: If you run a general partnership or a sole proprietorship, you will not have a(n) Employment Identification Number (EIN) unless your business has already been registered with the state.
2. Expansion possibilities
Using a DBA allows you to run many businesses under one ownership without having to create a new business entity for each expansion.
3. Easily register your business name
Registering a DBA allows for general partnerships or sole proprietorships to register their business name and identify as separate companies. Plus, it’s reasonably priced.
How long does it last?
After you have registered your DBA, you’ll want to keep track of when it expires. The renewal of your DBA is compulsory in most states, although the time to renew varies. For example, if your business was registered in California, it is required that you renew your DBA every five years, but it can be used for up to ten years in Texas. There is no need to renew it in states like New York because there is no expiry date.
In most states, a DBA registration is valid for five years before it needs to be extended or renewed.
What happens if you don’t want to renew your DBA?
To avoid any legal concerns, you should revoke your DBA registration if you don’t want to make use of it.
Steps to canceling a DBA:
- Reach out to the local or state office where your DBA was first registered
- Some states charge a filing fee for the cancellation process. So, pay your filing fees and submit the necessary paperwork
- These processes will be repeated in each jurisdiction where you registered your DBA.
- If it is almost expiring, let it expire without renewing it
A business owner may seek to close a DBA for various reasons. They could be thinking about retirement, have sold the company to someone who wants to start over with a new name, or now identify as a different form of business entity. Regardless of the cause, terminating a DBA usually entails contacting the agency that originally registered it. You will also have to provide documents and, in some cases, pay a processing fee.
Filling a DBA name is far from difficult. All you need to do is adhere to your state or county’s regulations. Your best bet is to complete this process before you start conducting business under your desired DBA name.