If you are considering starting a business in California, your first set of questions may involve the business formation process. LLC? S-Corp? Or the DBA? You have likely heard of a business operating as a “DBA,” which means a person is “doing business as” another. In California, this is also called a “fictitious business name”. A DBA allows the business owner to do business under a name other than that used to form the business. This is useful if you want to keep your personal name out of the business’s name, or you want a name that reflects multiple partners. A DBA is one of the simplest ways to get a business name, but not necessarily the best option for many entrepreneurs.
Before filing a DBA statement, you must search the California Secretary of State for similar names. You will also have to make sure the name is not misleading. Next you will contact the county clerk in the county where you will have your principal place of business for a DBA or fictitious business name statement form. Finally, you must file your statement in the county that is your principal place of business and publish the DBA statement in a California newspaper within 30 days of filing the DBA paperwork.
Benefits of a DBA
The benefits of a DBA include up front costs. Those who operate as a DBA also do not pay state taxes. Furthermore, the registration fees associated with a DBA are generally lower. For this reason, a sole business owner with no employees may choose to operate as a DBA to brand her name and promote herself without having to follow the requirements for other business entities.
DBA’s and Liability
A DBA is of limited use, however, when it comes to liability. In California, most businesses cannot operate simply as a “DBA”—they must choose a business entity and then file a DBA. Indeed, sole proprietors, limited liability companies (“LLCs”), partnerships, and corporations must file a DBA in California.
One reason to form a business as a separate legal entity, such as an LLC, is that it provides legal protection to the owner. An LLC is its own legal entity—unlike a DBA—and with this separation a business owner protects his or her personal assets. For example, if Jane Doe operates her consulting business as a DBA, she would register her name and follow the simple formalities for a DBA. If a disgruntled customer sued and won a court judgment, her personal assets such as her home and cars could be used to pay the judgment. However, if Jane Doe operates her business as an LLC, a disgruntled customer would sue the LLC and only assets of the business would be used to pay the judgment.
To discuss which business entity is right for your new venture, contact the experienced business attorneys at the Dennis Law Group today.