Do you want to apply for a DBA and you are wondering if it is worth doing in USA? If YES, here are the pros and cons of filing DBAs in the United States.
Table of Content
- What is a DBA?
- Benefits of Having a DBA
- 1. Easy Legal Compliance
- 2. Increased Flexibility
- 3. Capture a Different Market under a New Domain Name
- 4. To Stake a Claim on Your Business Name
- Disadvantages of Filing DBAs
- 1. County Level vs. State Level
- 2. Fewer Tax Benefits
- 3. Fewer Liability Protections
- 4. Maintenance
- How to File for a DBA
What is a DBA?
A “doing business name” or “DBA” is an assumed name that a company uses, which varies from its legal name. Governed by state laws, some states will not allow two businesses to use the same DBA. This is why LLCs need to submit a DBA application. Although most businesses register a single DBA, there are instances where multiple DBAs may be the most beneficial option.
Benefits of Having a DBA
There are several reasons why a company may have a DBA different from their legal name. If a large company chooses to start offering a new type of service that is completely different from their widely known practices or products, they may want to create a whole new identity for that new line of business.
Note that choosing multiple DBA names can help avoid customer confusion while introducing a new product or line of business, regardless of any preconceptions people have based on your other existing lines of business. Also, businesses may decide to re-brand while continuing to offer the same services they did in the past.
In this case, they may change the DBA of their company, but keep their legal name (i.e., the operational and administrative side of the business) the same. This will prevent the hassle of having to close the books on the old business and completely start over from scratch by forming a new S Corporation or LLC.
Advantages of Filing DBAs in the United States
Filing a DBA sounds like a lot of unbelievable paperwork, yet there are actually benefits and some of them are:
1. Easy Legal Compliance
Note that a DBA is not required in every state—but most states do require it. You don’t 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.
Nonetheless, the process is as simple as contacting your local clerk’s office or the recorder’s office for a DBA certificate. Note that DBA filing requirements and fees vary by state, but the process of registering a DBA is simple and straightforward. You may also have the option to file online.
2. Increased Flexibility
If, for instance, you choose to expand your business into other areas, a DBA can facilitate that expansion, whether it involves expanding geographically or opening a new line of business. If your business were to expand into a region 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. Indeed there are plenty of companies who operate a variety of brands with a DBA, while the parent company oversees them all.
3. Capture a Different Market under a New Domain Name
Online sales can be big for any business. Instead of trying to make one website be everything to everyone, you can segment your online market by filing DBAs for different subsets of products or services. This way, you can create separate websites specifically targeting customers with different needs.
4. To Stake a Claim on Your Business Name
When you file a DBA, you’re also telling the name you’ve chosen to the world by putting it on the public record. In some states, a DBA filing doesn’t prevent another business from registering the same name, but it’s worth checking if that’s the case in your state. It could save a lot of problems later.
Disadvantages of Filing DBAs
There are a few key reasons why operating your business with a DBA can be risky:
1. County Level vs. State Level
DBA names can be registered at the state or county level, depending on where your business is located; some states do not require any registration of DBA names at all. Have it in mind that using a DBA name is often limited to the local county where your business is located; it doesn’t mean your business name is protected everywhere.
A DBA name simply instigates that you’re able to do business in that county, but anyone else who wanted to incorporate a business under that name could potentially register that business name and use it. A DBA by itself does not offer you much protection outside your local area.
2. Fewer Tax Benefits
You should note that a DBA does not actually create a business; it just creates an operable name. You cannot even use terms like “LLC” or “Corporation” in your DBA—so your personal liability is still at stake. A DBA offers none of the tax strategy afforded by other business types. So to efficiently understand the ins and outs of this point, it’s best to consult a professional tax advisor.
3. Fewer Liability Protections
A DBA is all about running and managing your business under an alias. It does not separate you from your business—or protect you from lawsuits. Howbeit, other business structures like an LLC (limited liability Company) provide you with much more protection and security.
Irrespective of the type of business you own, you will want to make sure your personal assets are separated from your business. If they’re not, then clients and customers can sue and end up taking your personal liquidity and even property. A DBA will not offer personal asset protection the way a separate LLC can.
Note that some states will require you to register your DBA name in every county in which you’ll be doing business. This is a time-consuming process, even if your state has an online business portal. Since you will also have to renew your DBA every few years, be prepared to frequently repeat the process of registering your DBA in every county you serve.
How to File for a DBA
Once the members of an LLC or Corporation agree on a name and conduct a name search, registration is the next step. Note that the main purpose of registration is to inform the local government and public as to what entity owns the company associated with that name. This also helps to ensure that all operations of that business name can be traced back to the rightful owners. Note that if you use a DBA without registering it, this could lead to penalties at both the local and state-level.
Nonetheless, in the United States, registering a DBA name with the state is typically straightforward. To complete this process, you will need to complete a form and pay the filing fee. Although there is technically no DBA name limit, each name generally needs to be filed separately.