Difference Between an Individual and a DBA

By Cindy DeRuyter, J.D.

Difference Between an Individual and a DBA

By Cindy DeRuyter, J.D.

When starting a new business, an entrepreneur must decide whether to incorporate, create a partnership, register as a limited liability company (LLC), or establish a sole proprietorship.

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When a business owner chooses to establish a sole proprietorship, they can only operate under their legal name. To use a different name for the business, they can create and register a "doing business as" (DBA) name in the counties or states where the business offers products or services.

Choosing Between Individual Legal Names and DBA Names

A sole proprietorship is a form of business registration that allows an individual business owner to form and operate a business without all of the legal formalities LLCs and corporations require. Sole proprietorships are relatively easy and inexpensive to establish. However, sole proprietors may only operate their businesses under their legal names. Sometimes business owners want to use different names for their ventures.

For example, let's assume that Jane Doe wants to branch out on her own and start her own consulting business after working in Corporate America for years. If she establishes a sole proprietorship, she may only hold her business out as "Jane Doe." If she decides to add the word "consulting" for marketing purposes and to help her customers find and identify her, she may need to establish a DBA (also called a fictional business name or assumed business name in some states).

If Jane follows her state or county's requirements to establish a DBA to hold herself out as "Jane Doe Consulting," she has not created a new business entity. Instead, she has simply created an alias for her sole proprietorship.

Choosing a Name for a New Business

When a business owner establishes a sole proprietorship but wants to create and use a DBA, the first step is to make sure that the desired business name is not already in use. If it is available, the business owner must also ensure that their desired name is not so similar to another name in use that it could be confusing.

In some cases, businesses operating across state lines (or across county lines in states that require DBAs to register in each county) may find that their desired DBA name is available in one jurisdiction but not another. The good news is that one sole proprietorship can have multiple DBA names, so the owner can simply alter the name as needed in various jurisdictions.

No Protection Against Legal Liability

Creating a DBA does not protect the sole proprietorship or the individual behind it from legal liability. Sole proprietorships do not provide any liability protection for the owner's personal assets, either. In the event someone files a lawsuit against a business established as a sole proprietorship, courts may hold the owner personally liable and their personal assets may be at risk. This is true regardless of whether the business was using a DBA. Business owners looking to limit their liability may wish to consider using an LLC or a corporation instead of a sole proprietorship.

Finally, entrepreneurs should consider the potential tax impact of their business entity decision. Different forms of business entities can impact the owner's taxes in different ways. Before deciding to use a sole proprietorship with a DBA, an LLC, or a corporation, it is important to fully understand the implications of that decision.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.