Understanding the distinction between a corporation and "Doing Business As" designation is crucial for a business owner in making a proper determination on how to initially structure a company. Fundamental differences between the two structures include contrary treatment of company liabilities, impact to the life of the business upon changes in ownership, and variations in paperwork and filing fees associated with incorporation or registration.
Corporation and DBA
A corporation is an independent business entity, while a fictitious business name, or "Doing Business As" name, is merely an alias. Both sole proprietors and incorporated businesses may use a DBA. Sole proprietors may use a DBA when they want to do business under a different name than their own. Similarly, registered businesses may use a DBA when they do not want to start a new business, but instead simply want to do business under a different name than the one registered. Businesses and sole proprietors with a DBA continue to use the original legal name for tax documents and licenses.
Instead of simply using a DBA for a sole proprietorship, establishing a corporation provides the owners with limited liability. The owner of a sole proprietorship is personally responsible for the debts and obligations of the business, even if a DBA is registered. Conversely, a corporation exists separate from the owners of the business, which allows the corporation to take on debt and enter into contracts without personally affecting the owners. Similarly, the owners of the corporation are not generally responsible for unlawful acts of employees, while the owner of a sole proprietorship may be liable.
Another benefit of registering a corporation, as opposed to merely registering a DBA, is that a corporation has perpetual existence. With perpetual existence, the corporation continues to exist even if the ownership changes. With a sole proprietor using a DBA, the business is tied to the owner, meaning that the sole proprietorship will end when the owner can no longer run it.
Registering a corporation may be a more burdensome and expensive process than registering a DBA. In most states, a new corporation must file articles of incorporation with the state business registrar, a process that typically requires a significant filing fee in addition to the cost of preparing the paperwork. Many states also require corporations to draft bylaws, which set the internal rules and regulations for running the business. On the other hand, filing a DBA may be completed by filling out a simple registration form and paying a small fee. DBA registration may be completed at the state business registrar's office, or at the local county level. A few states do not require any filing for DBA registration.