If you’re a sole proprietor who wants to legally do business without the massive cost of registering a corporate entity, you should consider using a fictitious business name or DBA (doing business as). You can do many of the same things as a regular business, such as advertise and accept payments but you need to understand what you can do.
Why and How of DBA
If you’re planning to operate a chain of businesses, or create a series of web sites they will use, a DBA will save you a lot of money. It allows a legal entity, individual, or company, to operate multiple businesses without having to go through the arduous process of creating a full-fledged legal entity. In some cases you’ll need a part of your name, and a description of the product or service you’re going to provide, such as J. Doe Marketing Research. If there is more than one person involved, you need to file an assumed name that’s different from your legal name, such as J. Doe Group.
DBA gives business owners a more professional appearance, and if you have a home-based business, it’s a great convenience. The process to register DBA businesses is different in each state but the price is less than $100, and in most states less than $50. In some cases, you’ll just need to register with the county clerk’s office or register with your state. As a DBA, you can open a business checking account, have a business listing, or even have employees. In that case, your DBA will need a federal employer identification number. Depending on how it’s done and its location, DBAs may need to file state as well as federal taxes every year.
The benefits of having a DBA far outweigh the costs, and that’s why a lot of larger companies use these fictitious names when expanding their businesses to another state or even another country. Even though you can do a lot with your DBA, there is very little legal protection to the business owner. It’s a name-only entity that is nothing more than a brand name. It’s transparent so ownership can be traced. Branding can also be an issue, especially if your name is not descriptive enough, and you may wind up having to constantly explain who you are and what you do.
Filing incorporation papers is an involved and expensive process. If your business is one of low liability and legal risk, it makes more sense to delay corporate filing until a later stage. As your business matures, the legal and tax realities of your situation may force you to make that move. If you’re in the business of finance, or law, or any other profession where you are responsible for providing a product or service that could lead to legal liability, a DBA without a legal entity to back it up doesn’t make sense. The best thing to do is to check with your attorney, as well as local and state governments, to see what your options are.