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What is DBA? Everything You Need To Know

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What is DBA? Everything You Need To Know

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There are so many rules to understand when you’re starting your first business, and abbreviations that stand for highly technical terms . People have heard of LLC, Sole Proprietorship, S-Corp, C-Corp, Incorporated…the list goes on and on. Luckily, if you’re starting out, you don’t have to worry about much of those.

A term new business owners might come in contact is DBA. If they don’t know the meaning of DBA, you might get into some minor legal trouble. When you’re a business owner, no one is looking out for you, so you need to take it upon yourself to get educated. Kudos for being here and taking the first step.

Let’s take a deep dive into DBA’s so by the end of this article; we’ll cover every single detail about doing business as.

What is a DBA?

Rolling chairs around conference table

Budding business owners might want to know what the meaning of DBA is. It stands for “doing business as.” Sometimes we also see it called a fictitious name. The simple answer to “what is a DBA?” is, it’s a business name other than your own.

Owning a DBA means that a corporation can conduct business under a name other than its original name. This occurs a lot with blanket companies that hold a lot of other small companies underneath the blanket.

For example, if a man named John Smith wanted to open a home painting business and call it John’s Residential Painting, he would have to purchase a DBA with the name “John’s Residential Painting.” Now, he can legally call his business John’s Residential Painting.

There are many bonuses to doing business as a DBA, and we’ll get into some of them towards the end.

When is a DBA Necessary?

There are many occasions where a DBA isn’t necessary, but there are plenty when it’s required. Let’s take a look at situations that merit the use of a company DBA name.

Sole Proprietorships/Partners

handshake

The sole proprietor rule applies to the John Smith situation we talked about. If John does not register a DBA, he will have to call his business John Smith because he is a sole proprietor. The only way around this would be to purchase an LLC call it Johns Residential Painting LLC.

Any time that a business wants to operate under a name other than their own, they need to get a DBA. The same applies to a general partnership because they are primarily treated the same.

Keep in mind, you will most likely need a Notarized Affidavit of Identity form to accompany all Fictitious Business Name Statements. When using MATA, getting documentation notarized will not be a problem.

LLC, Inc, and Others

An LLC, which stands for Limited Liability Company, usually allows an incorporated business to avoid getting a DBA to conduct business under a name. When they register the LLC, they will have to pick a name for their business and add LLC to it.

For example, if John wanted to get an LLC for his painting business, he would have to call it Johns Residential Painting LLC. There is one situation where registered business owners would want to have a company DBA name even if they have an LLC.

For example, the company Darden Corporation owns restaurants like Olive Garden and Longhorn Steakhouse. Darden Corporation isn’t exactly the most exciting name for a restaurant, and it probably wouldn’t have many customers.

Instead, they use a DBA to name a new portion of their business from the original “blanket” name. Darden owns all the restaurants, but operating under different names underneath the primary company means that they can conduct business as Olive Garden or Longhorn Steakhouse.

DBA vs. LLC

Workers discussing plans at table

The primary choice that most new business owners will face is whether to remain a sole proprietor and use a DBA or to get an LLC. It’s important to understand the legal aspect of what these two actually mean.

When you create an LLC, you’re creating a separate entity away from yourself as an individual. You’re essentially creating a piece of property. Most people do this because it separates their personal assets and belongings from those of their business.

For example, let’s say a new business owner named Jim Jones wants to open a retail store as a sole proprietor. He goes and registers a DBA and calls his store “Shirts and More.” He then goes to the bank for a helpful $100,000 loan to start his store. One year later, he defaults on the loan, and the bank comes and takes his brand new corvette because everything is registered under the name Jim Jones.

If he had an LLC, the bank would only be able to take business assets from him, and they cannot tap into his personal belongings. This is a general explanation, so there is quite a bit more to it, but that’s the idea.

An LLC offers a business owner protection and insurance while a DBA only provides a different name. When you have an LLC, you’ll also be able to conduct all types of business under that name.

The costs of starting both of these will vary by state but naturally, registering a DBA will be slightly cheaper than an LLC. They have maintenance fees as well that will be ongoing for the life of the business, but they are minimal.

Positives of a DBA

Person wearing suit adjusting tie

New business owners should always have something to separate themselves from their business. There are many different advantages of having a DBA.

  • Banking – When you start a DBA, you’ll have to register your business as a sole proprietorship in the state you live in. When you do this, you’ll get a federal tax ID number which allows you to separate your personal and business funds in the bank. To make tracking experiences even easier, check out the Saffron card option to easily track expenditures from each DBA and share spending with investors.
  • Professionalism – Regardless of what type of business we’re talking about, owners want to look professional to clients and potential customers. Having a real business with a real name is a great way to stand out and show potential clients that you’re serious about what you do.
  • Inexpensive – Registering a DBA is one of those steps that you shouldn’t skip because it’s so affordable and easy. It might take you a whole five minutes to fill out the form and submit it, so it’s well worth it in the long run.

How to Start Doing Business as a DBA

Man writing plans

In most situations, new business owners will go to their department of state website and look for a DBA or fictitious name form. Registering a DBA is simple, and it only takes a few minutes. The fees will vary depending on what state you live in, but they are rarely more than $75. In some situations, you might have to go to a county office, but most you’ll be able to do everything right online.

Once you file everything, you’ll have to wait around a month to receive your approval paperwork in the mail. Once you’re approved, you can flip the light switches, turn the sign to open and get down to business. A DBA can mean higher flexibility and increased professionalism.

Still overwhelmed? Sign up to get on the Saffron VC waitlist here for streamlined, hassle-free startup development.

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