What is a DBA and what is it used for?

In the context of business administration, DBA stands for “Doing Business As,” which translates into English as “doing business as” it is a term for companies that want to use a different name than the one under which they are legally registered. With this, we have already answered the part of a DBA, and now we will move on to the amount it is used for.

An example of the usefulness of the DBA is that when you have a sole proprietorship, your legal name is your name. But then you want your business to have its separate name, and that is where we find the DBA practical.

 Importance of DBA

The DBA serves a crucial legal purpose. Before the DBA came into use, sole proprietors changed their names if they got into legal or contractual trouble.

Today, however, thanks to the DBA, the company is obliged to register its name so that the public knows who is behind a business and, if necessary, knows who to sue. This avoids situations where the customer is frustrated because they have suffered injustice from the company and cannot obtain legal redress.

Cases in which you need to register a DBA name

There are several reasons you may need to register a DBA name, some of which are legal. Here are some of them.

Case 1: when you are the sole owner

Let’s illustrate this with an example: let’s say that Pedro Perez one day wins the lottery and decides to quit his job of years to invest his new capital in a perfume manufacturing company, but as a sole proprietor, then the name of the company is Pedro Perez. He does not find this striking enough to make the business successful, so he needs a DB to be able to use the name “Fragancias Pedro.”

This is a simple example among many others that we could cite and makes it easier to understand the need for the DBA.

Case 2: When You Need a Business Bank Account

As business owners know, money is essential to every aspect of a business. It’s challenging to keep a complete financial record, and balancing business and personal money can be too tricky, like a waking nightmare. This leads entrepreneurs to have a bank account made exclusively for everything related to their business.

But for sole proprietorships and other family businesses, banks require the industry to have a DBA; in exchange for this, a bank account can be opened in the company’s name, and payments can be received and issued from it.

A DBA is not required to apply for a commercial loan, but you must take into account that the lender will want to review your bank statements, and that is where the issue of having a commercial bank account for your business requires a DBA comes in again.

 Case 3: when you want to comply with all aspects of the law

For this point, we will return to the example of Pedro Perez and his company registered with the DBA “Fragancias Pedro.”

If Pedro needs to hire an accountant for the management of the company’s finances, by logic, this tells us that he will have to draft an employment contract. Still, the deal will be invalid if the agreement uses the name “Fragancias Pedro” without this name being registered as a DBA. In addition, this will cause legal problems for Pedro.

It would help if you had a fully registered DBA before starting any business with a name other than your own as a sole proprietor. Even the simple sale of inventory before you have a registered DBA can get you into legal trouble.

Case 4: Operating multiple businesses without multiple LLCxs

We have previously discussed the DBA for the case of sole proprietorships, but Corps and LLCs can also use this title.

Let’s illustrate this point with another example: let’s say that the LLC “Grandes Autos LLC”, one day decides that it no longer only wants to manufacture cars, but also motorboats; it would be costly and time consuming to start a new subsidiary or LLC with another name such as “Last Generation Speedboats LLC”, but using only the name “Grandes Autos LLC” could be detrimental to the motorboat business. In this case the solution is to register the name “Lanchas Veloces de Última Generación” with a DBA.

Types of companies that can obtain a DBA name

 Sole Proprietorship

    In the United States, in most states, the law requires that unless a DBA is requested, businesses under this modality can only operate under the owner’s name.

Corps(Corporations/Corporaciones) and LLCs – Limited Liability Company/Sociedad de Responsabilidad Limitada

Once your business is structured as a Corp or LLC, the business name is registered, and you do not need a DBA. But, you must obtain a DBA if you plan to do business under a different name than the one registered on your LLC or Corp paperwork.

So whether you have a Corp or LLC, it can be used in conjunction with a DBA. Without a DBA, these two types of companies can only do business with the name they have on their formation documents.

In addition, both legal formations can file multiple DBAs to expand or diversify the business.

Difference between LLC and DBA

The LLC is a type of business structure, whereas the DBA is a process by which a company can be registered to do business under a name other than that of the owner.

Which brings us to the question is the DBA a legal entity?

While sole proprietorships, corps, and LLCs are legal entities, each with its rights and obligations, DBAs are not legal entities.

How to register a DBA name?

The laws vary with each legislation, and each state has different legislation in the United States. The rules and procedures differ from one state to another and can also go even between cities. For this reason, you must research the exact process to follow in your state or county.

Generally, you can find information on registering a DBA on your state’s secretary of state website.

Nowadays, thanks to platforms such as LegalZoom, there are easier ways to apply for a DBA on your own.

How much does it cost to register a DBA?

Fees vary by state and county. If you look on your state’s secretary of state website, you can find this information.

Is an EIN or ITIN required to apply for a DBA?

The answer is: not necessary.

An EIN, or in some cases an ITIN, is a tax identification number used for tax purposes only. It is a unique nine-digit number, similar to a social security number, but made exclusively for your business. On the other hand, the DBA is your company’s nickname, and it is not necessary to have an EIN or an ITIN to register your DBA.

Not only that, but not all businesses need an EIN or ITIN. This will depend on the structure of your business and the type of taxes you pay. Sole proprietorships and single-owner LLCs that have no employees and pay no excise taxes are not required to have an IRS number.

Dangers of a DBA

Registering a business under “Doing Business As” is a good practice and is sometimes legally required, but it has its risks, and you need to be aware of them before going through the process.

The DBA is meant to protect customers, not business owners. It does not provide liability protection for businesses. On the contrary, liability may be the most significant risk when holding this title.

The DBA lets the public know who is behind a business, which allows them to know who to sue. Remember that lawsuits are not always for actual transgressions or dishonest acts; sometimes, they are for frivolous reasons and still prove damaging to businesses.

Worst of all, a lawsuit under your DBA name puts your business assets and your support and finances at risk, unlike an LLC.