Pros & Cons to Filing a DBA

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With a DBA, you can create a new assumed name for your business, without going to the hassle of forming a new business entity. However, as with any aspect of the business world, there are both positives and negative aspects to DBAs. In this guide, we’ll walk through all the relevant details, so you can decide for yourself if the DBA is right for you.

Should you register a DBA? Or is forming an LLC a better option?

Advantages of a DBA

The first advantage of getting a DBA is that you can get a business bank account under that name. If you operate your business as a sole proprietorship or general partnership, banks will actually require you to have a DBA in order to get a business account.

For example: A bank won’t give a business account to Joe Stevens to use as a sole proprietor at his coffee stand ― instead, he would only be able to apply for personal accounts. But if Joe Stevens has a DBA, the bank will issue an account for “Joe’s Java.”

Secondly, a DBA also adds some privacy to an informal business entity. Because a DBA allows you to operate under a different name, you don’t have to use your own personal name publicly nearly as often. Continuing our coffee stand example, with his DBA, Joe can publish “Joe’s Java” on his website, his signage, and his business cards instead of “Joe Stevens.” If you’re hesitant to put your real name out there, a DBA can give you a little more anonymity.

Similarly, a DBA helps a sole proprietorship or general partnership sound more like an official business, and this new name actually instills some confidence in your customers as well. Consumers are usually more willing to write a check to Joe’s Java than to an individual Joe Stevens (especially if it’s a large check). The DBA doesn’t change the company’s legal status, but it does change how the business is perceived.

Finally, a DBA offers unique branding opportunities to formal business entities. An LLC or a corporation already has a business name that’s different from its owner’s name, but a DBA does let these businesses use additional names — as many as it wants, in fact. For example, let’s say a corporation is growing rapidly, and it wants to introduce new product lines without the hassle of establishing a subsidiary corporation. A DBA can help the business accomplish just that.

Along these same lines, an LLC or corporation can use DBAs for accounting purposes. If there are several different aspects of the business that the company would like to keep separated in order to make accounting easier, they can get a DBA for each branch of the business. That way, they can organize their accounting under several different official names, creating an easy distinction between segments of the business.

Disadvantages of a DBA

There are plenty of benefits to filing a DBA, but there are also several drawbacks. We’ll discuss them here so you have a full understanding of the DBA before you register one.

First and foremost, getting a DBA does not establish personal asset protection for your business, because your entity status does not change. This means that if your sole proprietorship or general partnership is sued, your creditors can pursue your personal assets and your business assets. On the other hand, if you form an LLC or corporation, these business structures limit your personal liability, and creditors will only be able to come after the assets owned by your company.

Another crucial point to make is that ― unlike forming an LLC or corporation ― registering your DBA does not protect your name for exclusive use. While you do have to avoid registering a name that’s already in use when acquiring your DBA, it doesn’t work the other way around.

This means that if you register a DBA, there’s nothing stopping other businesses from using your new assumed name as their own. In fact, if you have a DBA filed with the state and someone decides to form a formal business entity under that name, you’ll actually have to choose another name, because the business formation process would reserve the name for that other company.

We discussed how an LLC can use DBA names to separate segments of the company for accounting purposes, but the issue with this is that DBAs do not shield the different branches from each other’s liability. Therefore, if there’s a lawsuit filed against one small portion of your business, the liability is shared across the board ― there is no liability shield provided for each branch of your company.

If you do want each segment of your company to be isolated from the liabilities of the other segments, you should form a series LLC, or perhaps a corporation with subsidiaries. With these options, a lawsuit against one branch of your business will not affect the others.

Finally, in most states, you have to file a renewal of your DBA on occasion. This process isn’t particularly difficult, but it’s worth noting that there are some maintenance requirements involved with a DBA ― we find that some entrepreneurs think you only have to file for a DBA once, and that’s it.

In most cases, your renewal is due every year, but there are a few states where the renewal comes every five to ten years instead. You should consult your Secretary of State to learn more about DBA renewals in your location.

Conclusion

There are some advantages to doing business as (DBA) names, but at the end of the day, the negatives far outweigh the positives, in our opinion.

The fact that DBAs don’t provide any exclusivity for your name is a massive drawback, as is the lack of personal asset protection for sole proprietors and general partners.

If you want an assumed name for your business, we think forming an LLC is a far superior option. Doing so is much easier than getting a DBA and much more affordable – especially if you use an LLC formation website.

Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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Written by Team ZenBusiness

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