When opening a business, most owners are excited to get the business off the ground and running. However, as most have become aware, how the company is setup legally will be important in protecting the business owners. With this being said, many have considered using a fictitious name or DBA (doing business as) to start a business. Some consider using a fictitious name or DBA as a fast and cheap approach to get the business going with a more formal setup of the company occurring later. The thought process behind using a fictitious name or DBA over a formally structured company is simple but also quite dangerous.
A fictitious name or DBA does create a name for which your business can use to start but it provides no legal protection for the owners like a corporation or limited liability company (LLC). Therefore, without a corporation or LLC, a fictitious name or DBA leaves the business owner(s) subject to unlimited personal liability that could put into jeopardy everything the business owner(s) personally owns. A corporation or LLC provides the necessary limited liability protection a business owner or owners should possess. As stated, it is limited liability. The reason for being a limited liability and not zero liability is the business owner(s) will likely have invested time and money into the business. This investment into the business is what is at risk when the corporation or LLC is created but nothing further if the corporation is properly structured.
Another risk with a fictitious name or DBA is the name itself is not legally protected. A fictitious name or DBA gives the user the permission to use the name so long a corporation or LLC has not been established with the same name. Additionally, if a trademark is created with the name, it will usually negate the use of the fictitious name or DBA by the business. With the lack of control by the business owner(s) afforded by to the use of the fictitious name or DBA itself, it is usually not the best course of action when starting the business.
Keep in mind, using a fictitious name or DBA is one usually for marketing purposes such as coming out with a separate line of products where the company does not want the products/services associated with products/services the company currently offers to the public. Regarding the number fictitious names or DBA’s a company may obtain, a business may obtain a limitless number of fictitious names or DBA’s. However, a business owner needs to be sure the fictitious names or DBA’s are not currently used by corporations, LLC’s, or have been trademarked.
Not sure how to setup your business concept? Give us a call. We will be glad to look at your idea and see how it is best structured to suit your needs.