DBA

When you are starting a business, you may not want your company's legal name as the brand name. You may prefer something more enticing. Something more brand-able.

That's where DBAs comes in. It is the easiest way for a business to legally register a trade name.

Sole proprietors love DBA. Not just sole proprietors, DBAs are used a lot by LLCs and corporations as well.

Let's see what a DBA really means and when you should use it.

Definition

What is a DBA?

DBA, Doing Business As is a new name that is registered by a business when it wishes to operate under a name other than its legal name.

Legal names are usually not customer friendly. Not really ‘marketable’. DBA offers an alternative where businesses can very easily register brand names.

For example, "123 SpaceCool Tech LLC" is the legal name of an LLC. It can register a DBA "SpaceKiddos" if they want to launch a new brand, instead of changing their legal name.

If you want to modify your legal name to be more customer-friendly, it is a long process.

Think of DBA as the legal nickname for your company.

It is not separate from your company. Just a new name.

That's why registering a DBA doesn't give you any additional protection. If someone sues your DBA, they're essentially suing your company. There is no difference between the business and a DBA from a legal point of view.

In different states, DBA is referred to by different names — trade name, fictitious name, or assumed name.

Alright. Let's now look at when to use a DBA.

When should you use a DBA?

When you're a sole proprietor

When you are a sole proprietor, you may not want to use your personal name for your business. You’d want something more attractive.

For example, 'John Smith Gardening' may not be a great name for a gardening supplies store. Instead, you could register a DBA as 'Soil Love'.

When you're an LLC

If an LLC has multiple product lines or services, it may need to have multiple brands. In that case, it is unwise to create a new LLC for each of the new brand if there is no structural difference in the company operating it. It will be expensive also.

Instead, the LLC can register a DBA for each of its brands. So, from the customer's point of view, you have different brands, but legally they are all under the same LLC.

For example, an LLC 'Soil Love Agriculture LLC' can register DBAs of 'Pickles Love' and 'Salads Love', instead of forming multiple new LLCs.

What if you start using a new name without registering?

That's not allowed. It is mandatory to register as a DBA when you are operating under a new name.

Don't worry, it's not that hard to register. It's usually just a form at your local county clerk's office.

And after you register your DBA, you can use it on your website, visiting cards and every other place where you're promoting your business.

It is your operating name now.

When it comes to a couple of places, you need your legal name:

Legal documents like contracts

For this, you'll need both your DBA and the legal name. These legal documents cannot be upheld in the court, if you're using only the DBA.

Tax documents

For filing tax returns and other IRS-related forms, you'll need your legal name. IRS doesn't really care about your DBA when it comes to taxes.

Origins of DBA

DBA was originally introduced to protect consumers by revealing who the real owner of a business is. This is so that dishonest businesses don't operate under a false name and trick customers.

As an extension of this, even now, some states require businesses to put out a newspaper ad announcing their DBA. It helps the community know who the real owner is.

And if a consumer wants to know who is behind a DBA, they can find that out from the secretary of state.

Advantages

What's so special about a DBA?

Ability to not use personal name

Sole proprietors and partnerships love DBA because they can brand their business under a name that doesn't contain their surnames. It gives them more privacy. For example, if you have a plumbing business, you don't have to run business under the name "John Smith" . You can brand your business as "Plumbo Tech" by registering a DBA.

Accept payments

In general, businesses can accept payments only under their legal name. But if you register a DBA, you can accept payments under the DBA as well. For example, if someone sends you a cheque under your registered DBA, you can cash it.

Open business bank accounts

Sole proprietors and partnerships can open business bank accounts with a DBA and EIN( Employer Identification Number). Many banks use DBA registration form as a proof for approving business bank accounts.

Disadvantages

When is DBA not right for me?

No liability protection

Having a DBA does not give you any additional legal protection. It doesn't change your business structure. For example, if you're a sole proprietor with a DBA, you still don't have liability protection.

No name protection

Registering a name as a DBA doesn't give you the protection like a trademark does. In fact, multiple businesses can go by the same DBA in one state. If you wish to fully protect your name, you should consider forming an LLC or a corporation, along with trademarking your business name.

Taxes

What are my tax obligations?

Having a DBA doesn't change your tax obligations. You pay taxes according to your business entity.

Meaning: You'll pay taxes like an LLC if you're an LLC. You'll pay like a corporation if you're a corporation.

Even if your business has multiple DBAs and bank accounts, you don't pay taxes separately for each of it.

In general, these are the taxes paid by different entities:

LLC

LLC pays income tax at the entity level only if it is elected as a corporation.
If LLC is not elected as a corporation, the members pay income tax at their individual level.
If LLC has employees, it pays social security tax, medicare taxes and unemployment insurance.

Corporation

C-Corp pays income tax at the entity level.
C-Corp pays social security tax, medicare taxes, unemployment insurance and state franchise taxes.
Shareholders of the C-corp pays income tax on the salary and/or dividends they receive.

S-Corp

S-corp doesn't pay any income tax.
S-Corp pays social security tax, medicare taxes, unemployment insurance and state franchise taxes.
Shareholders of the S-corp pays income tax at their individual level.

Tax rates

Below are some of the common tax rates applicable to the entities behind a DBA.

Some of these numbers will vary depending on your exact business situation.

Take this only as an approximate figure.

32-37%

Top 3 personal income tax rates

21%

Federal corporate income tax rate

23.8%

Individual income tax on shareholder's dividends

6.2%

Employer portion for social security tax

1.45%

Employer portion for medicare tax

Total FUTA tax including state credit

0-13.3%

State corporate income tax

How to register a DBA?

A DBA is registered with the local or state government or both. It depends on where you are located.

For example, California and Texas require you to register a DBA on each county where you're doing business. In Maryland and Colorado, you register with the state agency. For Virginia, it is both.

But it's not that hard nor expensive to register.

In general, these are the steps:

01Check with the secretary of state or county clerk's office whether the name is available.
02Follow each state's naming requirements.
03Register the DBA by filing an online application.
04Pay a filing fees ranging from $0 to $100.
05Publish an ad on the local newspaper informing public about the new name depending on the state.

Note

Not all states allow filing DBA application online. Some require you to mail notarised documents. And, not all allow you to pay by debit or credit. You may need to send money order or cashier's check. Check it with your state department

It is important to emphasise that DBA does not protect the business name.

If you're looking to create a new brand that needs legal protection, you should consider forming an LLC or a corporation, along with trademarking your business name.

But during the initial days of any business, it is wise not to spend too much on trademarks.

That's when you can use a DBA to test, build and expand your business quickly.