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November 14, 2018

How to Determine if Your Business Needs a DBA

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FF

Fora Financial

Staff

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Why? Local, state, and federal government organizations need to know who is operating a business in case consumers file complaints or legal issues arise. With a registered DBA, both consumers and the government can discover who’s operating the business in question. DBAs may also be referred to as assumed business names, fictitious names, or trade names. Let’s review what could happen if you don’t file a DBA, who needs to file a DBA, and the benefits and drawbacks.

What Happens If You Don’t File a DBA?

First, it’s important to understand what could happen if you’re required to apply for a DBA but fail to do so. Quite simply, you could face serious legal repercussions. Courts in many states can issue fines and force you to shut your business down via an injunction. In some states, such as Missouri, failing to file a DBA is a misdemeanor and local prosecutors could file charges. Further, any contracts signed under your unregistered fictitious name may be unenforceable in court. For example, if you sent an invoice under an unregistered fictitious name, your customer could have it voided in court. Keep these risks in mind if you believe you need to file a DBA. Not sure if you need to do so? We’ll go over some general considerations in the next section.

How to Determine When You’ll Need to File a DBA

Not every business needs to apply for a DBA; a few states, such as Alabama and Delaware, don’t require you to file a DBA at the state level when operating under a fictitious name. However, local authorities may still require you to do so. Next, if you’re operating a business under your full legal name, you may not need a DBA. Let’s say John Smith wants to start his own restaurant, “John Smith’s Pub.” In many locales, it’s fine to use your legal name along with a description of your business type without filing a DBA. In some states, you’ll need to file a DBA if you don’t include your full name. In other states, your last name is enough. If you only use your first name, (example: “John’s Pub”), you’ll likely have to register a DBA. On the other hand, if your business doesn’t include your legal name, you’ll usually have to file a DBA. Further, you may have to file a DBA even if you’re using your name. For example, if you want to set up a consulting agency called “the Smith Group,” you’ll likely have to register for a DBA. This is because this name refers to a group of people, rather than a sole proprietor.

Limited Liability Companies and DBAs

Generally, you won’t need to file a DBA if you’ve already registered a business name for a limited liability company (LLC) or corporation. These entities are separate legal entities and can conduct business under their own name. However, if your LLC is going to conduct business under a different name than its registered business name, you may need to file a DBA. So, if you incorporate Clean and Green Lawn Care but also want to operate under Clean and Green Residential Cleaning, you’ll often need to file a DBA for the latter.

Why You Might Want to File a DBA Even if Not Required

Even if you don’t have to file a DBA, it may be beneficial to do so. A DBA creates some separation between yourself and your business. For example, you may be able to open a business bank account under your fictitious name. This way, you can more easily separate your personal and business finances.

Other Benefits of Filing a DBA Include:

  • Receive an Employer Identification Number (EIN)
  • Operate under multiple brands without having to create new companies
  • Low registration and organizational costs
Now, let’s explore some of the limitations of filing a DBA.

The Limitations of DBAs

While DBAs provide many benefits, keep in mind that your fictitious name doesn’t constitute a separate legal entity, like an LLC. If you’re operating a sole proprietorship, you’ll still be liable for any debts. Likewise, an LLC will be liable for any debts accrued under one of their fictitious names. In addition, it’s important to note that a DBA simply lets the community know who owns your business. Registering a DBA won’t provide trademark protection and multiple businesses can typically operate under the same DBA within the same state, thus limiting your ability to protect your fictitious name. If you want to trademark or copyright any of your intellectual assets, you’ll have to do so separately.

Filing a DBA

Unfortunately, local and state DBA regulations vary widely. It’s advisable to contact your local county clerk and check local government websites. Generally, it’s not hard to find information regarding the registration process. Also, make sure you contact the relevant authorities in any locale your business will be operating in. DBAs provide only limited geographical coverage.

Conclusion: Make Sure You Know if You Need to File a DBA

Remember, if you fail to file a DBA, you’re exposing yourself to considerable risk. It’s best to err on the side of caution and check with local and state authorities, especially if you’re not using your legal name or registered business name to conduct business. Further, even if you’re not required to register a DBA, it’s often beneficial to do so.