Our goal at Lending Valley is to provide all small business owners access to the best loans possible for their business. You can rest assured we will get you the best rates in the market!
The abbreviation DBA stands for ‘doing business as’, which could also be referred to as an assumed name. This is the name a company uses for their operations when its name is different from the legal name. That company operating under a DBA can then operate as an entirely separate business with all the trappings of a company.
There are various reasons why companies and individuals may need a DBA. The first is for individuals who would like to start a company without having to use their own name. Many individuals who would like to have a startup may prefer not to use their own names for their business. For example, an individual, Tom, running a design studio may prefer to operate as Premier Designs rather than their own name. To be able to do so, Tom would have to acquire a DBA for himself. Besides, some companies, clients and suppliers insist on working with other companies and not individuals. Therefore, individuals are forced to acquire a DBA just to be able to get contracts and jobs.
For an individual running a startup, having a DBA also allows them to create a business bank account. Since the company operating as DBA is legally considered a company, it can acquire a business checking account. Such a bank account has various benefits, with the most important one having to do with taxes. A separate business bank account from a personal account helps to separate business transactions from the personal ones. Come time to file business taxes, finances are separate and easy to distinguish without causing any confusion. Furthermore, it is important for an entrepreneur to maintain their business records and it helps when those are in a separate account.
Apart from an individual’s needs, even an already registered company may still need a DBA. Such a company may wish to create additional companies without having to register each one separately as a legal entity. A business may want to have additional companies either to open new branches or to diversify into a different space. Regardless of the reason, creating a completely new company costs more than a DBA. Thus, the same result is achieved at a minimal cost.
The main advantage for companies to acquire a DBA is that it saves on the costs associated with starting a complete business. The US Small Business Administration estimates that a startup requires about $3,000 to launch. Some of the requirements for starting a business such as an LLC include articles of organization and registration fees with the Secretary of State. The former can cost even thousands of dollars while the latter between $40 to $500. However, getting a DBA costs less than $100, which is much cheaper. Considering that a company user DBA still has all the rights of a registered company, this is perhaps the most affordable way to create a company.
Other advantages have to do with compliance and getting a business bank account, which has already been discussed. But using a DBA is not without some drawbacks. Because a DBA is not actually a corporation or company, there are no tax benefits to be gained from it. An LLC owner, for example, does not file for corporate tax returns in addition to their own individual tax returns. All they have to do is report their share of profits and losses on the LLC. This avoids double taxation and saves money. On the other hand, an individual running a company as a DBA any money made by the business is passed on to the individual and taxed.
Any person or company interested in getting a DBA should be aware of these drawbacks in addition to the advantages before they decide to get one.
The specific process to acquire a DBA will vary by the state you are living in. Nevertheless, there are some similarities in all cases. First is to determine if you can even use the DBA you have in mind. The authorities will perform a check to see if the name is already in use by another as this would infringe on trademark laws. This part of the process is usually done by the office of the Secretary of State, but sometimes it might either be handled by another state agency or even the county office.
There are also some requirements for the DBA title where some require the individual’s full name or a part of their name accompanied by a short description of their services. All this is done at a cost, of course, but this will often be $100 or less. Remember to be patient through this process as it might take a few weeks to get the approval.
Some states will also require that you advertise the approved DBA name in the local newspaper. Accordingly, it’s best to confirm with the local business regulatory authority for the specific process within your state.
