I hear all the time from clients who want to open a business that they took the first step and filed a DBA. I commend them for the initiative to make something happen but I cringe inside because they have not really done too much to make their dreams into a reality the legal way. A DBA is simply a legal mechanism for the county to identify people who are operating a business under a certain name. It allows you to open a bank account and to use a name to conduct business for the public but it does not really provide you with anything more than that. You are not provided with any legal protection. The filing remains with the county clerk and is not processed by the State and does not give you an advantage on your taxes. Most importantly it provides you with absolutely no legal protection in the case of lawsuit or claim.
Well doesn’t that all just sound like bad news. In my opinion, a DBA is mostly bad news. It does have some redeeming qualities however; a very few but they are there. First, it provides you with a mechanism to start conducting business. To get your name out there and to start building a client base for your widget business. That is always an excellent thing. It also allows you to open a bank account and keep your business money separate and apart from your personal money which is also a very good thing to be in the habit of doing. It is almost like a bicycle with training wheels. It is the thing you start with as you learn the ropes of owning a business. You are able to test out whether you enjoy the work of the business and if it will have any success in market, a beta test if you will. If you are using it for more than approximately 6 months to a year and with a business that is more than a hobby and is growing, it is time to move to the big leagues and file for LLC or Corporate status. It should not be your forever entity type and most certainly should not be what you keep if you have a product or service available to the general public.
The bad news with a DBA is that they provide no legal protection. They are as the name suggests one thing doing business as a another. In most cases it is John Doe, dba Doe’s Widgets. That is fine to link you to your company but at some point you want to have your company shield you from legal liability, the public’s prying eyes and provide some tax relief. A simple DBA provides none of those things. It is unnecessary for any sort of legal protection except for the ability to bank under the assumed name and publicize the business that way. You could just as easily run the business without one.
So who needs legal protection anyway, isn’t simpler always better? Well not really. The goal is to make it through your entire life and never step foot in a courtroom. You follow the law, are kind to your neighbors, have no marital disputes and make no waves. Those things will likely keep you personally out of trouble. When you own a business, you cannot control when a person may sue you for things that you have no control over. They slip and fall in your parking lot, they misuse your product and injure themselves, they did not like how you delivered your service, they are angry wand want to get revenge. The thing and so many more can expose you to liability. If you are protected as an LLC or Corporation, you have actively taken steps to protect yourself and your personal assets from people wanting to take action against the business. There are of course other factors that go into this liability and should be thoroughly discussed with an attorney, but it is a good first step to understand you need as much protection as possible. More is better in this case.
You should seek legal counsel and discuss the pro and cons of each entity type, what your goals are for the future of your company and to make sure you are not going to have a problem in the future because you did not set things up from the beginning properly. Feel free to contact the office to schedule your business basics check up and we can get you on the road to business health today.
