What is a DBA & what does it mean for your business?

You've decided to start a new business. You have a great idea, put together a talented team and now need to pick a name. Although a seemingly simple task, there are legal implications and terms you should be familiar with before settling on a name for your business.

There are several options for naming your business:

1. Operate under a “legal name”
2. Use the name of the business owner
3. Register a DBA (“doing business as”)

Every business will have a “legal name.” Depending on the structure of the business, this may be the name of the owner(s) or the name that appears on the business formation documents. However, a business may also choose to operate under a DBA.

A DBA (which stands for “doing business as”) is when a person or corporation decides to do business under a name different than its legal name. For example, if your company needs a name that’s easier to market than its formal name or you do not want to do business under your personal name, selecting a DBA is the way to go. Depending on your state, a DBA can also be referred to as an “assumed name”, “trade name” or “fictitious business name.”

So how does a DBA apply to your business? This article will give you an understanding of how a DBA works and situations when you may need to register one.

What are the benefits of registering a DBA name?

Registering a DBA is an easy, low-cost way to start using a business name formally without incorporating it or forming a limited liability company (LLC). In addition, if you haven’t yet formed a separate business entity, registering a DBA may make it easier to open a business bank account under some banks’ policies.

As a business owner, you may find that coming up with a catchy name and registering a DBA can help you market the business more effectively than using the legal name. Your business’s name can play a big role in its success, as it helps customers understand what you sell and what makes your brand unique. Imagine how many more people would line up to eat at Jane Doe’s Delicious Donuts as opposed to Jane Doe Enterprise LLC.

A DBA also gives businesses the flexibility to add additional brand names. If your business is growing and you want to add new product lines without having to establish a subsidiary corporation, a DBA for each brand is a handy way to do that. Also, if you do expand outside of your state and discover that your brand name in that state will infringe on another business’s brand, you can set up a DBA in that state under a different brand name.

Does my business need a DBA?

Each state has different policies on DBAs. To find out if you’re required to register a DBA, check with your state’s business registration office. If you need to register one, find out if you must also register it in the county and city where your business is located or operating. Some states may fine you or place other restrictions on your operations — such as blocking you from enforcing contracts you’ve signed — if you don’t register your DBA.

What type of businesses need a DBA?

When you first registered your business as a legal entity, one of your primary considerations was which business structure was right for you. Maybe you chose to set up your company as a sole proprietorship, partnership or LLC. If you now want to use a more engaging, customer-friendly business name that differs from your company’s legal name, you may want to consider registering a DBA for protection of your brand in the local area. Be sure to avoid adding the terms “Inc.,” “LLC” and “Corp” in the fictitious name — unless your business actually has formed the type of entity you are mentioning. Otherwise, the name could be viewed as misleading and/or in violation of state and/or local law.

The legal structure you chose may affect whether you need a DBA. Here are key considerations for some common legal structures:

Sole proprietorships and general partnerships

If you want to run a sole proprietorship or general partnership under a fictitious name, most states require you to register a DBA. Keep in mind, the default entity classification rules for federal tax purposes apply to certain business entities if the owner has not filed an election for the business’s federal tax classification. So, even if you didn’t take any formal steps to declare your business as a sole proprietorship or general partnership, you will still have to follow the rules governing the federal tax treatment of the entity.

Franchises

Many franchisees set up an LLC or a corporation to purchase a franchise. Filing a DBA allows them to operate legally in their local area under the name of the parent company. For instance, if you bought an Anytime Fitness franchise through your business Fitness Enterprises LLC, you would register a DBA to tell your state that you are officially doing business as Anytime Fitness in a specific city.

Corporations, LLCs and LLPs

In forming a corporation, LLC or LLP, you registered your business name with your state. However, if you elect to do business under a different name than the one you registered — or branch out into a new line of business under a different brand name— you have the option to file a DBA.

You can only receive the highest level of legal protection for your brand name through a federally registered trademark (if you engage in interstate commerce) or with your state (if you only operate within the state). However, if you’re not ready for that costly step, a DBA can protect your name from local copycats hoping to cash in on your success through a practice called “passing off,” according to attorney Andrew Sherman, a corporate partner at Brown Rudnick based in Washington, D.C., and author of Harvesting Intangible Assets. “Passing off” describes a situation in which imitators use the same name as yours, to try to make customers believe they are actually doing business with you. It lets them take unfair advantage of the reputation you’ve built without doing the hard work you did to earn trust in your community.

As an example, if you registered the name “Jim’s Suits” in your state, a DBA could potentially stop someone else from opening a store under that name in your city. The DBA may bring you what are called “common law rights” in your local market, Sherman says. That means if you ever find yourself having to go to court, a DBA could help your case.

However, the DBA’s protection in the local community would not likely extend to the whole state or beyond that. So, two Frank's Pizzas at opposite ends of the state are not the issue, but two Frank's Pizzas in the same town might be. “It is a soft exclusivity compared to the benefits of a federally registered trademark, which is hardcore,” says Sherman.

How is a DBA different from an LLC?

A DBA brands a company and, unlike an LLC, it doesn’t establish your business as a legal entity. Forming an LLC generally will shield your personal assets (in excess of any funds invested in your LLC) if the company is sued. A DBA is a nickname or alias used to brand and market your business.

Before filing a registration, check your state’s database to see if the name you want is available. To avoid confusion, most states don’t let two businesses register the same DBA — though if your business has several owners, such as members of LLCs, they can own the same DBA. A sole proprietorship by its name has one owner, so this principle won’t apply in that case. If you form an LLC and expand outside of your state, you can register the same DBA there if it’s not taken, or customize it a bit with a new DBA — for instance, by changing Jim’s Suits to Jim’s Suits of California.

Filing a DBA application is easy and generally costs less than forming an LLC. A DBA application can often be filed within minutes for less than $100. Forming an LLC, on the other hand, may be more expensive if you need to hire an attorney to help you.

How to file a DBA application

The process varies depending on where you’re located, but generally, you’ll need to notify the state’s business registration office and supply basic information about the business along with a certificate of good standing from the state. Some states require notarized documents as backup. Others will allow you to register the business online and submit digital documents. The information you supply about your business will be in public records.

Fees vary but will likely be less than $100. Some states allow you to pay online. In others, you may have to send a money order or cashier’s check by mail.

What to consider after getting a DBA

Once you’ve obtained your DBA, it is important to maintain it properly. 

Here’s how:

• Understand the rules. If you file a DBA application, make sure you update your payroll, sales tax and other types of registrations accordingly. The information you supply should be consistent across these records.
• Keep your records up to date. Regulations vary, but you may need to renew your DBA every three to 10 years, depending on your state. In some states, such as New York, they don’t expire.
• File a DBA in every state where you do business. A DBA in one state does not protect you in any other states.

Though the protections it offers are limited, filing a DBA application is one of the first steps toward safeguarding your business’s brand identity. Do it sooner rather than later to protect your brand and its reputation you’ve built in your local market.