What is DBA?
A DBA allows sole proprietors to establish a distinct business identity. Sole proprietors who want to call their companies by a name other than their own need a DBA. This helps avoid confusion and can make opening a business bank account easier.
Setting Up a Sole Proprietorship
A sole proprietorship is legal once the sole owner starts a business to make a profit. Registers required include:
- Business license
- Permits and certifications
- Sales tax license (if selling taxable items)
- DBA registration (if using a name different from the owner’s)
Sole proprietors must register the DBA name with the state. Some may get an Employer Identification Number (EIN) to separate expenses and appear more professional. Fees for DBA registration range from $10 to $50.
Income from a sole proprietorship is considered the owner’s personal income. The owner reports income and expenses on their tax return and is liable for any debts. Filing a DBA does not offer legal protection or create a separate legal entity.
DBA vs Sole Proprietorship
Is a DBA the same as a sole proprietorship? The answer is no. A DBA allows a business to operate under a fictitious name, while a sole proprietorship is an unincorporated business owned by a single individual—there’s no legal distinction between the owner and the business.
Sole Proprietorship Advantages and Disadvantages
Sole proprietors must register the DBA name with their state’s secretary of state and obtain any necessary permits. A sole proprietorship is simple to set up and maintain, with the main advantage being ease of setup. However, the owner is personally liable for any business debts.
Business growth often leads to transforming a sole proprietorship into an LLC or a corporation for additional liability protection and a more formal business structure.
DBA stands for ‘doing business as’, referring to a trade name for commercial activities that is different from the business owner’s legal name. Partnerships can also use a DBA.
Sole Proprietorship Examples
- Home-based businesses
- Small businesses before they expand
- Individual contractors due to the lack of regulation
Conclusion
A sole proprietorship is owned and operated by one person, without forming a separate legal entity. A DBA allows the use of a business name without the need to create an LLC, but it retains the same risks associated with a sole proprietorship.