One of the most popular questions I receive concerns DBAs. Unfortunately, there seems to be a lot of confusion about this subject. Many small business owners believe a DBA is actually a separate business entity. It is not!
What is a DBA Name?
A DBA is merely an application made to the state in which you request permission to utilize a different name than the name your business legally registered for and obtained. Think of a DBA certificate as a permission slip granted by the state for to you call your business (or a line of your existing business) a different name.
A DBA is not a separate business entity. And more importantly, it does not offer the small business owner any liability protection whatsoever!
A DBA really is the acronym for “doing business as” and it represents a fictitious name certificate for you (if you are a sole proprietorship) or your business entity.
Why File for a DBA?
There are many reasons why a business owner may choose to file for a DBA or fictitious name certificate after they have started a business. Many times, they simply don’t like the original name chosen or it doesn’t align with the brand image for marketing purposes.
Many business owners also believe if they add multiple businesses to their original business, that they should file a DBA certificate for each new business. While this may be necessary and desirable, it’s very important to understand that there is no legal separation of liability between each of these businesses with separate DBA certificates! Should something go wrong with one of the operations marketing under a DBA and held under a single business entity, all lines of business may be in jeopardy!
This is an important point, so let’s walk through an example:
Jonathan starts a restaurant called Jonathan’s Barbecue, Inc. We’ll keep it simple and assume that he doesn’t own the building or property. Instead, he is simply renting space. After operating for several years, many of his customers suggest he begin to do catering. He hires a marketing company who designs a new logo for his catering business. Jonathan is up and running, however the name differs from his restaurant Jonathan’s Barbecue, Inc. Jonathan chooses to file for a DBA for the new line of business “Jonathan’s Catering.”
In this case, if at some point in the future a terrible accident occurs while delivering the catering services under the Jonathan’s Catering line of business, all of the assets owned by Jonathan’s Barbecue, Inc., as well as its income, would be in jeopardy. The reason for this is the DBA “Jonathan’s Catering” is merely another asset owned by Jonathan’s Barbecue, Inc.
If Jonathan wanted to separate the liabilities (the risks) in the two lines of business (his Barbecue, Inc. restaurant and catering), he should consider forming another business entity for the catering business.
For more information about DBAs, how to set up your business, or how to set up DBAs for multiple business entities, try our Business Entity Optimizer e-course!
Holly also founded ExitPromise.com and to date has answered more than 2,000 questions asked by business owners about starting, growing and selling a business.