What is a DBA? The Pros and Cons of Filing “Doing Business As”
DBA is defined “doing business as,” and it is something you might consider for your business if you prefer not to use your legal or real name or registered business name. Most states require you to register a DBA.
The Pros and Cons of DBAs
Easy Legal Compliance
Fewer Tax Benefits
Fewer Liability Protections
No Exclusive Rights to the Business Name
Example of a DBA is when a sole proprietor wants to run a business under a different name—either to protect their privacy or to obtain a better business name. Or, an LLC or Inc. want to do several businesses with different names but allow one company to own many businesses.
A DBA is essentially an a.k.a. (better known as). For example, if you’re a sole proprietor working as an accountant, and don’t think that doing business as “John Doe” will give you a marketing edge, you can set up a DBA to operate as “Doe & Sons Accounting Firm.” Similarly, if your legal name is John Black, you will probably get more customers operating your business as “Bob the Plumber”—as opposed to using your legal name.
These business-like names sound better than the legal names of these sole proprietorships. In most states, you cannot just call your business whatever you want without filing the right paperwork for a DBA. A DBA will also allow you to open a business checking account and list your business on helpful technical directories like google, yelp, yellow pages etc.
You will need to indicate the name of your DBA on your tax return, though the way you will pay personal and business taxes depends on the legal structure of your business—whether it’s an LLC, Sole Proprietorship, Partnership, or Corporation. Any of these different business entity types could operate a business or several lines of business with a DBA.
Most states require DBA to file as business in the state registration. It is important to understand that a DBA is not an LLC (Limited liability company). It does not separate you and your personal assets from your business—it just allows you to legally operate under a different name. Therefore, the smart step to make would be to cover your DBA under your business insurance. DBA may offer you privacy or greater marketing power, it does not offer you much in the way of legal protection.
The Pros and Cons of DBAs
Pros of a DBA
1. Increased Flexibility
If you already own a business and want to expand your business into other areas, a DBA can facilitate that expansion, whether it involves expanding geologically or opening a new line of business. For example, if you own a company called “Technology Incorporated LLC,” obtaining a DBA can allow you to open several technical stores, each under a different name.
If your business were to expand into another city or state, where someone else already has registered your business name, a DBA can allow you to register a different name in that area and operate under that alias. If you want to enter a totally new line of business, a DBA can also facilitate that as well. There are plenty of companies who operate a variety of brands with a DBA, while the parent company oversees them all.
2. Privacy Protection
If you are operating your business as a private individual—either as a sole proprietor or as part of a partnership—then a DBA can protect your privacy. You would not want everyone call you directly for a product or service unless you are such a real estate agent or motivational speaker.
3. Targeted Branding
Another benefit of DBAs is the potential for branding in different target markets. If your company has different lines of business, you can use DBAs to create different brand names that target specific clients. For example, if you sell hair and makeup online, you can create different websites and brand names for your hair and makeup.
If you are operating as a sole proprietor or partnership, your own name(s) will not have much marketing power beyond the people you know—unless you are famous. A DBA allows you to set up a business name that will carry more appeal for potential clients. It will make it easier to brand and market your business with a logo that goes with the business name.
4. Easy Legal Compliance
Remember it is safe to register your DBA in the state by which you are operating. You do not want to get caught operating under a fictitious name without actually setting up a DBA. You never know when one botched transaction or irate customer could turn into a lawsuit that incriminates you for fraud.
Cons of a DBA
No Exclusive Rights to the Business Name
A DBA should not be confused with a trademark. While a trademark grants you the exclusive right to use a particular name for your business, a DBA simply allows you to operate under that name. A DBA may cost less than $100; a trademark cost $800.
Is a DBA Right for My Business?
Whether or not a DBA is right for your business depends on a variety of factors, including the type of business you own and what goals you have for your business. For example, if you are a handyman who is content to roll around town with your name painted on the side of your white van, you may not need a DBA. But again, if you have a trendy logo and a catchy business name, you will get a lot more positive attention as you roll around town.
If you operate several types of businesses which could create some confusion for potential customers and cause you to lose out on sales, you may want to set up a DBA to segment your operations and strengthen your branding.
What is the Difference Between a DBA and LLC?
Remember, your DBA allows you to do business as a fictious operations, therefore, you are not protected from lawsuits. You should consider insuring your DBA as an added insurer under your legal business name.
DBAs, LLCs, and Tax Strategy
When it comes to taxes, an LLC with a single owner is considered a disregarded entity. Any income your LLC makes will go straight to your individual tax return because the LLC is subject to pass-through taxation. If you are a sole proprietor using a DBA, your business is also considered a disregarded entity by the IRS. Whatever income your DBA makes will pass through to the tax forms you file for yourself.
To leverage some business-related tax strategies, you are better off looking into forming a partnership or a corporation. Select types of business structures like an S corporation might yield the perfect balance between tax strategy and liability protection for small businesses owners. However, since organizing a corporation comes with a certain set of requirements, you might want to carefully weigh what type of business entity is best for your business. There are several choices, each with their own pros and cons: sole proprietorship, limited partnership, limited liability company, and a Corporation, for example.
For more information or assistance with a starting a business call LIV Consultants at 8007056840.