What’s a DBA and When Do You Need One?
Ever give out a fake phone number or name at a bar or on a dating app? As individuals, we have no obligation to tell others our personal identifying information. We have a right to privacy. However, once we get into business, the public has a legal right to know who’s operating the business. We can choose an alias for the biz, but people need be able to find the name of the owner associated with that alias. That’s where the DBA comes in.
DBA refers to “doing business as” and means basically just that. It is your business’s assumed, trade, or fictitious name. Your DBA is essentially different from your name as a business owner or your business’s legal, registered name. Filing a DBA allows you to conduct business under a name other than your own or the name that you have registered.
You can start a business without forming a business entity. If you do not form a formal entity, you either have a sole proprietorship or a general partnership (for more info on biz entities, check out this blog). I call these two entities the default entities. If you have a default entity that operates under a business name that does not fully inform the public who the operator of that business is, you must register a DBA. In most cities, we call the registration a Fictitious Business License.
Now that you’re acquainted with what a DBA actually is, you may be wondering if you need one at all. Great question! Not every business does. It truly depends on each individual legal entity and the business owner’s preference. Keep in mind, that each State has its own DBA requirements with which biz owner need comply.
For example, if Aubrey Graham (aka “Drake”) wants to start an auto repair shop, he may choose to be a sole proprietor operating under the name Aubrey Graham Auto Repair. This informs the public that Aubrey Graham is the operator of the business. If I, Braden Drake, simply wanted to operate as Drake Consulting, that would require a DBA because the business name does not include my first name. Therefore, the public cannot determine the true owner/operator.
The rules are similar for businesses that are not default entities except that we look to the entity name on your articles of incorporation and how it compares to your chosen name that you use for operating/marketing, rather than the owner’s name. For example, I Braden Drake, formed an LLC registered as Braden Drake LLC with the state of California. I operate Creativepreneur Consulting as a DBA under my LLC. Had I registered as Creativepreneur Consulting LLC, I would not need a DBA, meaning that I wouldn’t need to file a fictitious business license. Note that this rule is the primary rules, but DBA rules do differ by city, so check your cities’ specifics.
You may be asking why I created more work for myself. Well, I also work with the digital nomad community. I have considered creating a second website called Digital Nomad Consulting. I will be providing the exact same services and essentially the same info I do here, but with tweaks to fit with that audience. Rather than form a whole new business, this website would be a second DBA under Braden Drake LLC.
To recap the DBA requirements, if you’re a sole proprietorship or general partnership, you’ll need to file a DBA if you want your company to operate under a name that’s not your full, legal name. That’s because sole props and GPs are usually unincorporated, and they don’t need to file entity formation papers with a business entity name to the state. If you have an LLC, S corp, or C corp, you need only get a DBA (in most counties) if you’re operating under a name that doesn’t match up with the name on your articles.
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Your brand name will be the public’s first impression. Think of it as that first handshake. So if your customers didn’t know what kind of services or good are being offered at your business – why would they come in? Therefore, your business’s name should reflect the market you’re in. I, for one, would be more incentivized to visit a Drake’s Auto Repair Shop rather than an Aubrey Graham’s Auto Shop.
banking & taxes
Using a DBA for a second stream of income makes business banking much easier. Let’s say that you are an interior designer with income from your services. You decide to also start a coaching business where you help newbie designers. You may choose to build out a separate line of social channels and a website for coaching. Rather than forming a second business, you could just register a DBA for your coaching business. So now you have Meryl Streep Design LLC and Meryl’s Design Coaching. If the design coaching business is a DBA under the LLC, the income can go into the same bank account, and all of the income and expenses will be put into the same tax return forms. In short, it makes the back end stuff much simpler.
DBAs are pretty common when someone starts a business and that business starts to spread into new offerings or different niche markets. Often times, the DBA is just the legal requirement necessary when someone makes a marketing decision to operate under a particular name.
WHEN NOT TO FILE A DBA
I talk to a lot of potential clients who have multiple business ideas. It’s pretty natural for entrepreneurs, especially us Enneagram 7s. The legal question is whether it makes more sense to get a DBA or form a whole new business. The answer depends, of course, on many factors. There are tax consequences on top of the basics business and marketing factors. However, the biggest reason not to use a DBA is liability concerns.
When you form an LLC, you are separating that business from you, the individual, human business owner, in order to protect yourself from liability. If you have two businesses separated into two LLCs they are protected from disputes arising under the other business. If both businesses are in one LLC, harm to one can sink the other. This is why real estate investors will always structure each property into its own LLC. It’s not uncommon for one investor with 20 properties to have 20 LLCs. Sure, it’s complicated, but it’s worth the protection. If one property becomes subject to litigation, then the other 19 are not at risk of having liens placed against them to satisfy the lawsuit on the one property.
Using a DBA can be ideal when you have two business names that are essentially one business. If the businesses provide separate services, or if you have one goods based business and one service based business, it might be ideal to separate them.
Choosing a DBA is different in three types of circumstances.
(1) When you have a sole prop or a general partnership you either do or do not need a DBA depending on your chosen business name. It’s a yes/no circumstance.
(2) Once you have an LLC, it’s more of a business decision. What do you want your registered name be in comparison to your operating name?
(3) As your business/businesses start to expand, it’s a business decision as to whether you want to have multiple DBAs under one entity or form separate entities. That decision should be made only after considering both the marketing and liability concerns.
Have any questions? Drop them below. I like to hop into my blogs every few months to give updates. I’m sure you may have some questions or concerns that I may not have thought of to addressed.