An individual may operate an unincorporated business as a sole proprietor either under her own name or an assumed trade name, which is called a DBA or "doing business as" name. Business partnerships and corporations may also choose to conduct business under a fictitious DBA name to distinguish their business from others or build the basis for a better marketing platform.
An individual who conducts an unincorporated business is a sole proprietor. If a sole proprietor wishes to operate a business under any name other than his own legal name, he may adopt a DBA name. Most states require a DBA to be registered with a state or county agency. The DBA allows the individual to develop a business name and brand not based on his own name; however, the DBA is not a separate entity. It is merely the alter ego, or alias, for the individual sole proprietor.
Read More: An LLC Vs. Sole Proprietorship
A DBA doesn't protect the individual sole proprietor from liability. The sole proprietor remains the legally responsible party for all actions of the business, from purchase contracts and employee tax withholding obligations to liability for faulty products sold by the business. The DBA is just a name the individual uses to market his business. A sole proprietorship may obtain an Employer Identification Number, or EIN, which identifies the business for tax and employment document filing purposes. This EIN does not change the fact that the unincorporated individual sole proprietor is not a separate entity from his DBA.
An individual who forms a single-member limited liability company, or LLC, and does not elect to be taxed as a corporation is also considered a sole proprietorship for tax purposes. A sole proprietor LLC may be considered a separate entity from the individual, providing the owner with some measure of protection from liability. However, some courts don't consider the single-member LLC as an entity separate from its sole proprietor owner and hold that owner liable for claims and lawsuits against the business. An individual who owns a single-member LLC may do business in the legal name of the LLC, or have the LLC register its own DBA for branding purposes.
A legal requirement to conduct business in each state is that every business must operate under a name not currently in use by, or confusingly similar to, another business operating in the state. This prevents public confusion over who is legally responsible for business activity. If any individual, partnership or corporation seeks to do business in a new state and discovers its name is similar to another business already operating in that state, the individual, partnership or corporation may register a different DBA name to conduct its business in that state to avoid confusing consumers or infringing on an existing business's trademark.
- Internal Revenue Service: Sole Proprietorships
- Entrepreneur: The Basics of Sole Proprietorships
- Small Business Administration: Register Your Fictitious or "Doing Business As" Name
- Small Business Administration: How to Name a Business
- Walker Corporation Law Group Ask the Attorney: Single Member LLCs
- Internal Revenue Service: Do You Need a New EIN?
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