Should I designate my business to be a DBA?
This is a question that comes up frequently in many small businesses, especially those just starting out. Some small businesses may have thought they were exempt from the need to designate their business as being a DBA before, but now that they are considering becoming more established and actually selling products or services to others, it makes sense for them to actually do so.
The short answer is “yes.” The long answer is “yes, but only if you know that you’re required to.”
In the simplest terms, a DBA (Doing Business As) name is one that is not identical to the name of the owner of the business. For instance, if John Smith owns and operates ABC Plumbing Company, he may decide to do business under various names for certain activities. He might do this in order to comply with state laws that prohibit professionals from doing business under their own names, such as doctors and lawyers. This is a requirement that must be followed in some states, so it is important for a professional to check the regulations in force where he or she operates. Sometimes, a DBA name is used for the purposes of marketing or advertising.
Another instance where a DBA name might be used is when someone who owns an existing business decides to open up another outlet under a different name. In this case, the DBA name is used in addition to the main or primary name of the business.
Sometimes, someone might decide to sell a business but continue to work for that business as a contractor. In this situation, he or she will open up another company under a separate DBA name. The same is true when one company buys out another and continues to run it as its own subsidiary.
The Code of Federal Regulations actually does not define what a DBA does exactly. However, it does state that a DBA name should not be identical to the name of the individual that is doing business as that official. It also states that the primary business of the owner should be held by a separate entity. This type of law is meant to ensure that the reputation and good standing of the professional is not besmirched by using his or her own name for an unrelated business or activity.
Twenty-six states require that a DBA is established by the professionals who are working within those states. In some states, a business may not operate under its own name at all, but only with the use of an assumed name.
Some individuals and businesses do not like the idea of a business having to obtain a DBA name, because it can make them seem dishonest if they choose to do so. However, it is important for everyone running a business to make sure that they comply with all of their state’s laws and regulations. A professional should check with all of the agencies that oversee businesses in his or her state to make sure that he or she complies with them.
A business owner who decides to use a DBA name for his or her organization needs to pick a name that is not likely to confuse the public. Although it does not have to be the same as the business’s official title, it should be similar. It must be clear from any official documentation and from any advertisements that the two entities are indeed different and distinct.
The DBA name is only one part of the legal documentation that must be established for your business. You will also need to establish a separate bank account, the Articles of Incorporation, Memorandum and Articles of Organization, and any other necessary documentation to make sure that you can comply with the law and operate within your state’s regulations.
There is no shame in obtaining a DBA name for your business, but it does require that you be aware of your state’s laws and regulations. If you operate within your state, you will want to make sure that the businesses that are using names similar to yours are also complying with all of the applicable limitations and restrictions.
Reasons why I Should designate my business to be a DBA
- The first thing to consider is that a DBA also acts as a failsafe. If you do not want your personal name associated with your business due to the risk of identity theft, or because you simply want to start a new business under your own title and not jeopardize your name, the DBA will provide that anonymity.
- Second, and perhaps most importantly, is that it will help attract potential investors who might be interested in financing you for starting or growing an entirely new business.
- It will prevent any future problems from arising between business partners.
- If you own a sole proprietorship, and you want to separate your business from your private life, then a DBA can do just that. It allows you to use one or multiple titles for your business. You can, for example, decide to name your DBA as ABC Home Services and register it as an LLC (Limited Liability Company).
- If you already have a business that you are starting or expanding, a DBA will protect your business’s name and reputation while also allowing you to start separate businesses without jeopardizing the public respect of your existing business.
- An additional benefit of using a DBA is that most states will allow you to operate with only one or two business names (DBA’s) for all of your different services and products, as opposed to having multiple legal business entities tied together by different names.
- Lastly, each DBA will also have a separate bank account. As discussed previously, a DBA does not have to have the same name as the parent business, but it may be beneficial for the benefit of your business’s financial health to have all of your different funds grouped together in one place.
Conclusion
So if you are looking for ways to increase revenue and build trust with clients and investors while protecting your personal identity, you should consider using a DBA.