New business statistics from the United States Census Bureau show that in August 2021 alone, more than 427,842 new business applications were filed in the US. Many startups enter into business with a limited budget and have to cut costs as often as possible. In order to do so, entrepreneurs can save on legal fees by forming a DBA.
Most states require businesses to register a DBA, and luckily the registration and filing process is simple across all 50 states. For entrepreneurs looking for more information about the filing processing in their specific state, The Really Useful Information Company (TRUiC) is able to offer more information. Before forming a business, entrepreneurs should know how DBAs are able to cut costs on legal fees and what their additional benefits are.
What is a DBA?
The definition of a DBA is “doing business as. A DBA is a business form often used by sole proprietors who would like to use a business name different from their individual name. The process of filing for a DBA allows the startup process of the business to be simple and reduces costs. This benefit is extremely attractive for startups. Most states in the US require some form of filing when businesses obtain a DBA. But, there are 14 states which do not have any state-level filing requirements at all. For business owners who file in these states, especially startups with a limited budget, this benefit will prove to be extremely beneficial. The states which do not require state-level filing are:
- New Mexico
DBAs also prevent the need for record-keeping requirements, which LLCs and corporations require for formalities and maintenance. But, DBA owners do have the option of converting their business into an LLC or corporation once the business is established and is producing profits. Cofounders of partnerships also choose to use this business form. It offers the business a marketing identity separate from the owners’ names.
Corporations and LLCs are also able to use this business form. If the corporation or LLC, which is already incorporated, would like to use a different business name, they would be able to register a fictitious business name. Corporations and LLCs may choose to do this if they operate in multiple states and want to use those states as part of their business name. In most states, using a DBA allows the business owner to use a fictitious name. But by using this business form, business owners need to keep in mind that it is not the same as a corporate structure legally. DBAs do not offer the limited liability or legal protections which LLCs and other types of business structures offer businesses.
Benefits to obtaining a DBA
A DBA allows established businesses to expand their business into other areas. The expansion may be regarding geographical expansion or expanding into a new line of business. For example, if the business is named “Clothing Incorporated LLC”, obtaining a DBA will allow the owner to open several other branches, all under a different name.
Obtaining a DBA allows the owner, whether they are involved in a sole proprietorship or partnership, to protect their privacy. When business owners advertise their business with their name attached, individuals and businesses will tend to directly contact the owner trying to sell something that their business needs. Obtaining a DBA would prevent this.
Obtaining DBAs allow business owners to brand in different target markets. Businesses which have different lines of business are able to use DBAs to create multiple brand names to target their specific markets. For example, a business owner who has a clothing store named “Joe’s Clothing” would likely prefer to have a different name for their new furniture business.
4. Legal compliance
Although DBAs are not required in every state, many states do require them. If a business operates under a fictitious name without having set up a DBA, they could face a lawsuit that would incriminate them for fraud.
Some banks may require sole proprietors and general partnerships to obtain a DBA. By doing this, they would be able to open a business account.
Sole proprietors and general partnerships will gain more credibility with a business name that isn’t in the name of the owner or owners. By invoicing, accepting payment, and marketing under the DBAs name, the business will build credibility.
7. Domain name availability
In certain situations, the business name will not be available as a domain name. To avoid this, business owners are able to file a DBA that matches their domain name.
Acquiring a DBA may prove to be beneficial for businesses, especially startups, which seek costly legal fees. But before selecting to use this business form, business owners need to factor in what type of business they own and what the long-term goals are. By doing this, they will be able to choose a business structure best suited to them and, hopefully, cut costs.