DBA and Business Structures
The likelihood for a DBA to have two owners depends on the business structure. In a sole proprietorship or partnership, the DBA represents the individual owner(s), allowing both owners to be associated with the DBA. However, for a corporation, LLC, or any other statutory entity, the DBA is tied to the legal entity itself, separate from individual owners.
A DBA allows businesses to use different names without creating separate legal entities. If structured as an LLC or corporation, the DBA can have multiple owners. But if owned by two individuals not part of an LLC or corporation, it must be a partnership. DBAs can be used for branding and market targeting.
Benefits and Risks of Joint Ownership
Having two owners under one DBA can bring complementary skills, increased financial resources, shared decision-making, and a broader network, which can enhance the overall success and growth potential of the business. However, risks include potential conflicts in decision-making, differences in business vision or direction, disagreements on financial matters, and challenges in communication and coordination.
Legal Considerations and Documents
In the United States, the rules, requirements, forms, and fees for filing a DBA tend to differ in each state and county. The U.S. SBA provides a chart that states DBA filings state-by-state. In some states, sole proprietors and partnerships file in one office while corporations, LLCs, and statutory entities file in another.
The two most common documents required to open a DBA checking account are a DBA certificate, verifying the business is operating under a fictitious name, and photo identification of the person connected to the DBA’s registration.
Insurance and Tax Implications
A DBA account can be insured under the joint account category if it meets the requirements of a joint account. Insurance coverage for each joint account owner is calculated based on the co-owner’s interest.
For a sole proprietor using a DBA, the business is a disregarded entity by the IRS. Whatever income the DBA makes will pass through to the tax forms filed for the owner. A DBA should not be confused with a trademark.
Sole Proprietorship vs. Partnership
A sole proprietorship is owned by a single individual and cannot have two owners. On the other hand, partnerships are the simplest structure for two or more people to own a business together, with owners responsible for all aspects of the business and sharing the profits.
If you register a DBA without first forming some type of legal entity, your state will automatically recognize your business as a sole proprietorship. You should consider your potential personal liability for the business along with the number of owners when choosing the appropriate structure.
Differences Between Business Structures
Key Takeaways:
- A sole proprietorship is a business owned by only one person. Advantages include complete control for the owner and simplicity in formation.
- A limited liability company (LLC) is a business entity type that can have more than one owner, referred to as members, which can include individuals, corporations, and other entities.
- Partnerships have two or more owners who share responsibility and profits, and legally, the owners ARE the business.
The main difference between sole proprietorships and partnerships is the number of owners and the level of personal liability. In a sole proprietorship, the owner is personally liable for all debts and obligations of the business. In a partnership, liability is shared among the partners.