If you’re starting a small business, liability protection will likely be a factor in your early decision-making.
The easiest way to get liability protection is to form a formal business entity like a limited liability company (LLC) or a corporation. However, sometimes this might not seem like the best option for every business owner.
Some small business owners look into getting a doing business as name (DBA) instead. Does a DBA provide personal asset protection the same way an LLC does? Let’s discuss all the relevant details.
Quick Tip: As you’ll see in this article, a DBA does not offer limited liability protection as the LLC does. The LLC is the most popular entity for small businesses and is easy to setup – by doing it yourself or hiring a formation service.
What Is a DBA?
Whenever a business wants to use a name that’s different from its official legal name, the business can register for a DBA. Short for “doing business as,” the DBA allows the business to operate under a pseudonym without changing its legal name.
This is particularly useful for owners of sole proprietorships or general partnerships, because without a DBA, these businesses share the same name as their owners ― for example, if your name is Scott Smith, your sole proprietorship’s name would also simply be Scott Smith. Because these informal business types are not considered to be separate legal entities from their owners, a DBA is necessary to refer to the business by any name other than the owner’s legal personal name.
However, you’ll also see LLCs and corporations acquire DBAs from time to time. For these entities, which already have their own distinct business names, the DBA serves as a way to create an alternate name that you can use in an official capacity.
A couple situations where you might see a formal business entity acquire a DBA is if a business wants to separate different segments of the company for accounting purposes, or if the business has several different product lines that it wants to keep separate for marketing reasons.
A DBA does not change the company’s status in any way, as it is not a distinct business type. All a DBA registration truly accomplishes is allowing the business to operate under multiple names in an official capacity.
What Is Liability Protection?
Liability protection is a much-appreciated perk of running a formal business entity, such as a corporation or an LLC. Without getting too technical, these business structures grant their owners what’s commonly referred to as a corporate veil, which protects the personal assets of the company’s owners in the event of a lawsuit or unpaid debt.
For example, let’s say a customer gets sick after buying a dozen cookies from a local bakery, which is registered as an LLC. With the corporate veil, the personal assets of the owner are protected ― if the settlement of the lawsuit exceeds what the LLC itself can pay, the owner does not have to make up the difference.
However, a DBA is not a formal business type, so it does not grant a corporate veil to a business that does not have one already. DBAs and liability protection do not go hand in hand.
Is Liability Protection Possible Without a Formal Business Structure?
It is not possible to receive comprehensive personal asset protection if you don’t create a formal business structure for your company. That said, you can reduce the impact of a lawsuit or settlement somewhat, by purchasing a general liability insurance policy for your business.
With this policy, your insurance will (usually) cover some of the settlement costs if your business is sued due to a common liability issue. Of course, you’ll still need to cover at least the standard deductible that accompanies your policy.
However, a good insurance policy won’t always protect you ― if the lawsuit is a result of your own negligence, you may find that the insurance company will be none too excited about the prospect of paying out damages.
How to Obtain a DBA
If you don’t need liability protection, and you also aren’t concerned with retaining exclusive rights to your business name, perhaps getting a DBA is the right choice for you.
If so, you’ll need to first figure out where to apply for one. In most states, you can acquire a DBA from the Secretary of State’s office, but in others you’ll need to get one from the Department of Revenue. Some other states only offer DBAs on the county level, and the state of Washington actually makes you get your DBA as part of the business licensing process.
There is also some state-to-state variation regarding the information you need to apply for a DBA, but in general you’ll need the following elements: your business name, your new assumed name, your company’s physical street address, the name and address of your registered agent, and the identities of your company’s owners.
In seven states (California, Florida, Georgia, Illinois, Minnesota, Nebraska, and Pennsylvania), you will also need to publish proof of your DBA after you acquire it.
If this sounds like more of a hassle than you’d like to handle, you can hire a professional business services provider to apply for your DBA on your behalf. There are quite a few companies offering this service, and they typically all have prices right around $100.
Conclusion
Doing business as (DBA) names are helpful for your business, but you shouldn’t overestimate what a DBA can do for you.
In reality, the DBA only gives you the right to use an alternate business name in an official capacity, and it does not provide you with any level of personal asset protection. The main benefits of a DBA for LLC owners are the advertising flexibility it provides, as well as the ability to use several different fictitious business names interchangeably.
If you are seeking liability protection, we suggest forming a limited liability company (LLC) or a corporation, as these business structures do protect the personal assets of their owners. You can always register it with your state or have a service like ZenBusiness/Incfile do it for you.