Wednesday, November 25

Does my business have to use the same name as my LLC?

It is possible for an LLC to use a different name under which it can operate through what’s called a DBA (doing business as) name. In some states this is called a Trade Name, Fictitious Business Name or Assumed Name but ultimately the principle is the same: it is the chosen operating name of the business.  

What is a DBA?

Anytime you or your company wishes to operate under a name that is not your legal or business name, you can register with the government in your respective jurisdiction to operate under what’s called a Doing Business As (DBA) name. This DBA name is considered an “extension” of you of your business and as such you are still considered to be a single entity in many respects. For companies, registering a DBA can provide a far more “consumer friendly” name under which they operate while still retaining the tax and liability protection offered by a formally registered entity. For budding entrepreneurs, registering a DBA can be an easy and inexpensive channel through which they are able to begin their business operations without having to formally register as an entity – which can be far more complex and have much higher long-term financial responsibilities. 

What will registering as a DBA allow you to do?

Although the process to register a DBA varies per state, the following are the general benefits offered by registering a DBA;

The ability to operate as a business without registering as a formal legal entity

As we mentioned earlier, registering a DBA means that, as a sole proprietor or start-up company, you are able to enjoy some of the benefits of operating as a formal company without having to go through the administrative process and incur the costs of registering as a formal business entity. It is an inexpensive and easy way to get your small business off the ground. When an LLC or any other entity registers a DBA, this can allow the company the freedom and flexibility to test out the feasibility of new products or services with their consumers, without having it negatively impact their existing brand value and currency. 

The power to open an official business bank account.

Once you have registered your DBA, you are able to open an official bank account under your chosen name. This can be exceptionally helpful for start-up companies in separating personal and company finances. For businesses, it will allow certain areas of the business to remain separate and provide formal and legally recognised structure within their financial reporting.  

Opportunity to register a separate tax ID number

DBA’s also allow for companies to register their own tax number with the IRS and this, together with the official company bank account, allows small and start-up companies to more effectively manage the financial and tax elements of the company.  

Applying for credit

Registered DBA’s are allowed to apply for credit with vendors and various financial institutions. Your credit rating will still be linked to your personal rate or that of your company and you are still held liable in either your personal capacity or as the LLC for debts incurred when operating as a DBA. 

Employing staff

A DBA is legally allowed to employ staff. Although it is necessary to register for an Employer Identification number, and the DBA will be required to pay various employment taxes and meet various employer regulations, it can be helpful in facilitating the growth of a small company to provide room for expansion. 

What are the limits of a DBA? 

It is important to note that a DBA does not provide personal liability protection and as an individual you can be held fully liable for any and all legal liability claims and debts. If an LLC registers the DBA, then the LLC itself and not it’s members can be held legally liable for any debts incurred. 

It is also important to note that a DBA can only physically operate in its registered jurisdiction, and nowhere else. In New Mexico, Kansas and South Carolina it is not possible to register a DBA. 

In conclusion

A DBA is not considered a substitute for registering as a legal entity, but it is an excellent way for existing companies to operate under a more consumer friendly name than their registered entity name or to have the freedom to test the viability of a new product or service while still maintaining their original brand value. It is also a safe, albeit limited, way in which new businesses can register and begin setting up their various operations.