Advantages & Disadvantages of Filing for a Fictitious Business Name

By Terry Masters

The name you use to conduct business can greatly affect the success of your endeavor. While you're required by state laws to use your business' legal name, you're also allowed to register a business alias -- called a fictitious business name -- to help establish awareness in the marketplace, distinguish a brand or for any other reason. The pros and cons of registering a fictitious business name depend on your circumstances and the legal structure of your venture.

Privacy Protection

Registering a fictitious business name, also known as a trade name, assumed name or "doing business as" (DBA), has particular value for sole proprietors and partnerships. State laws designate the names of the business owners of these types of ventures as the legal name of the business. If you don't want your individual name plastered across marketing materials, a DBA can provide a measure of privacy. The use of a DBA limits the use of your real name as part of daily business transactions.

Increased Flexibility

DBAs allow businesses to expand into new markets where the legal name of the business is already in use. Proprietary use of a legal business name is state-specific. If you register to transact business in a different state from the one in which you formed your business, your existing business name may not be available for use. State laws require businesses that want to operate within the state's boundaries to do so under a distinguishable name that won't cause public confusion with a business already authorized within the state. Registering a fictitious business name under which your business will operate solves this problem.

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Enhanced Value

One of the main advantages of using a DBA is in helping your business develop brand awareness. Instead of developing your products under a business name, such as "John Smith's Ice Cream Shop," you can brand your retail shops under a catchy DBA, such as "Cold Cones." It's easier to establish a value for the brand if it's distinguishable from the name of the company, and the DBA makes it much easier to sell the retail stores without losing the rights to the name of your business. Additionally, you can establish valuable state or federal trademark rights in a DBA that brands a finite component of your business.

Maintenance Hassles and Confusion

The primary disadvantages for any business in using a DBA involves the hassle of maintaining the registration and the confusion the use of the name causes when you're engaged in certain types of business transactions. Fictitious business name registrations must typically be renewed every few years, and some states require you to register the name in every county where you'll be doing business. Also, DBAs are aliases that can't be used to execute legal documents, which can sometimes cause confusion when you're trying to close a deal.

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How Important Is a DBA?

References

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