DBAs for Unincorporated Businesses
A Doing Business As name, also called a “DBA” name, is a type of alias that allows business owners to conduct business under a name different from their legally registered name. When an owner files for a DBA with local officials, they are essentially asking for permission to do business under—or Do Business As—a different name.
DBA names (sometimes called Fictitious Business Names or Assumed Business Names) are not always required by-law. Yet, many professionals consider them a necessity for some types of businesses, namely businesses that are unincorporated. While DBAs are utilized by both incorporated and unincorporated businesses, they’re more commonly associated with unincorporated operations. Why so?
Naming of Incorporated and Unincorporated Businesses
Many believe that when a business is initially registered with state officials, the owner has the option to choose a business name. Perhaps surprisingly, this is only true for incorporated businesses. When an owner—or group of owners—registers an incorporated business, they specify their chosen business name on their state-filed incorporation documents.
On the other hand, when an owner registers an unincorporated business (such as a sole proprietorship or general partnership), they aren’t given the opportunity to choose a business name. Instead, the name of the business defaults to the full legal name of the owner.
For example, if Andrew Smith decided to open a hobby-shop, the name of the shop would literally be “Andrew Smith”. This is problematic for a number of reasons. To change the name to something more appropriate and customer-friendly, the owner would have to file for a DBA with the state’s Secretary of State, requesting a more suitable name like “Hobbies on Main”.
Once granted, he could then conduct business under that DBA. But until the DBA is obtained, all business matters—including signage and promotional material—must be done under the business name “Andrew Smith” (It’s worth noting that the name of the business technically remains “Andrew Smith” even after the DBA is obtained; however, the legally-granted alias allows the owner to lawfully operate under the alternate name).
The Benefits of DBA Names
No business—regardless of its corporate-status—is legally required to file for a DBA name. However, there are some major up-sides to obtaining a separate business name, especially for owners of unincorporated businesses.
DBAs are the Easiest way to Register a Business Name
Earlier, we discussed what is perhaps the single most important advantage of DBA names for unincorporated businesses: a DBA name allows owners to separate their business name from their personal name. Isn’t there another way for owners to choose a more suitable name for their unincorporated business without filing for a DBA? In-fact there is: they could incorporate the business. Incorporation is, however, a major decision that shouldn’t be predicated solely on changing the business’s name. DBA’s are a way to choose a business name without having to establish a formal legal entity (ie. incorporate the operation), making the DBA-route quicker, simpler, and far more cost-effective. In other words, DBAs allow unincorporated business (those that wish to remain unincorporated) to operate under a more suitable name.
Banks May Require a DBA to Open a Business Bank Account
Many banks won’t allow owners to open a business bank account unless a DBA is first obtained. This is problematic, as the majority of professionals strongly recommend business owners—regardless of the size of their operation—maintain a distinct business bank account to separate their personal and business dealings. Not only does a business bank account keep personal and business matters separate, it helps with bookkeeping and boosts a business’s credibility. However, banks often request a copy of your DBA filings before they’ll open an account on behalf of your business.
To Remain In-Compliance
For owners of small or local one-man operations, it’s tempting to simply operate under a different business name without filing for a DBA. However, this is in-fact illegal. Per numerous consumer-protection regulations, any owner that conducts their unincorporated business under a name separate from their full legal name puts themselves and their business at-risk. Fortunately, filing for a DBA is relatively quick and inexpensive, often taking 2-6 weeks and costing less than $200.
The Bottom Line
Though unincorporated businesses aren’t legally required to file for a DBA name, most experts consider it best-practice. When an unincorporated business first registers with the state, the business name will default to the full legal name of the owner. The only way to change this is to incorporate the business (which can be costly or generally unsuitable for an owner) or to file for a DBA name.
Once the state approves the DBA request, owners have the full legal right to conduct business under the new name. On a practical note, owners aren’t permitted to choose a DBA that ends in “Inc.” or “LLC” as these are reserved for incorporated businesses. Likewise, the DBA isn’t inherently protected, meaning that it should be trademarked soon-after it’s obtained to avoid other business owners from using the name.