When launching a new business, entrepreneurs often wrestle with how best to structure their startup – with S-Corp, C-Corp, and LLC representing some of the more common options.
There is another, simpler approach known as “doing business as.”
Usually abbreviated as “DBA,” this loose structure allows you to operate your business under a name that is separate from any legal name you might be using for tax filing purposes.
What are the advantages of using a fictitious name for your business? Why might this approach be a good idea for your startup?
In most cases, the decision to use a DBA moniker ultimately comes down to personal preference. Depending on local filing requirements or the nature of your business, there may be compelling reasons why your organization might want to apply for a DBA designation that differs from your official name.
The most common example is when you are running a sole proprietorship or general partnership. In the absence of a DBA, your business would operate under your first and last name (or the collective names of every person in the partnership).
For instance, if the name on your birth certificate is listed as John Smith, the name of your unincorporated proprietorship would also be “John Smith.” That’s because you and your company are considered the same entity – at least in the eyes of government and tax officials.
By applying for a DBA license, however, you can create a name that more accurately reflects what your business does – whether it’s selling flowers, serving ice cream, or cleaning chimneys. However, there are other cases in which “doing business as” can be beneficial. Below are some common DBA examples.
Many banks require official documentation before they will let you open a business account with their branch. This application process often requires submitting employer identification numbers (EINs) and other tax documents – all of which are easier to obtain if you’ve already gone through the DBA registration process.
Similar restrictions might apply when trying to work with other businesses. They may want to know that your company is on solid ground with all its paperwork in order. Having an official DBA can help you form trusted relationships with your vendors and customers.
An already incorporated business might apply for a DBA in order to launch product lines that don’t necessarily fit with their existing brand.
For example, a store that sells hardware might want to branch into consumer electronics. Rather than form a separate entity and go through the incorporation process, it might rebrand its new chain of stores with “electronics” in its name.
Many organizations do this. There might be several subsidiaries, each with a separate name, but they’re all under the same umbrella (and incorporation structure).
Many franchise operations rely heavily on DBAs. If you were to open a Starbucks location in your town, for example, you wouldn’t be able to incorporate your coffee shop as Starbucks Corporation. That name is already taken. Instead, you’d register as “Example Business, LLC” for tax purposes – and use “Starbucks” as your DBA name.
You don’t necessarily need a DBA for your website, but it’s a good idea for any company whose “incorporated” name is different from its domain name.
For example, Gmail.com is part of the Google.com ecosystem, but because the names differ, this may be a good instance to go through the DBA registration process. That way, both properties could remain separate in your users’ eyes – while still falling under the same articles of incorporation.
Like most business filings, DBA designations are administered at the local or state level. Acquiring a DBA is often simply a matter of filling out an application and paying a nominal fee that can range anywhere from a few dollars to several hundred dollars.
Once you have the DBA designation, you will need to register your DBA. Be aware that every jurisdiction follows slightly different rules, which means that the DBA registration process isn’t always so straightforward.
For example, several states require that DBA applicants publicly announce their new business names in local newspapers. California, Florida, Georgia, Illinois, Minnesota, Nebraska, and Pennsylvania all fall in this category.1
Some states require that you reapply for DBA status every year, while others follow renewal schedules that range from two to 10 years (with five being the average).
A handful of states don’t require any paperwork. In effect, you can pick whatever DBA name you want – provided that no other businesses in the city, county, or state are also using the same name (within the same industry). Some of the states that fall into this category include Alabama, Arizona, Florida, Nebraska, and Ohio.1
Fortunately, online portals such as DBAFilingOnline.com can help direct you to the most appropriate administrators in your home state. Keep in mind that many counties also have DBA requirements on top of whatever their host states might require. Be sure to check in with local officials and tax offices to make sure your paperwork is up to date.
Once your DBA registration is complete, you’ll officially be ready to open for business. Clover can help you accept payments and manage your business. To learn more about our PCI-compliant payment solutions and business management tools, schedule a free consultation with our merchant services team today.
This information is provided for informational purposes only and should not be construed as legal, financial, or tax advice. Readers should contact their attorneys, financial advisors, or tax professionals to obtain advice with respect to any particular matter.
1 “Doing Business Under a Fictitious Name,” Harbor Compliance
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