As a business owner, choosing the right company name is one of the most important items on your to-do list when you launch a new business. It’s right up there with opening a business bank account, setting up a company website, and establishing business credit.
When you use a company name that doesn’t match the legal name on your tax returns, you’re using what’s known as an assumed business name or DBA. Read on to learn more about how assumed business names work, the purposes they serve, and why you may need to give your state a heads up if you use one.
What is a Fictitious Business Name?
A fictitious business name (FBN) is any name your business uses to operate other than your legal name. In some states, you must file for an assumed name certificate if your company does business under anything other than its legal name (or owner’s name(s) in the case of a sole proprietorship or partnership). Law offices and construction/remodeling companies often use legal names (i.e. Johnson & Sons, Waller and Waller Associates).
What is a DBA?
Depending on your state, an assumed name certificate may also be referred to as a DBA (doing business as) registration or a fictitious name filing. While the terms all sound different, they describe the same process.
Does your business use a name that doesn’t match the one you use when you file your tax returns? If so, you might need to file for an assumed business name certificate.
The application process for an assumed business name certificate varies from state to state. Some states allow you to file online. In other states, filing for an assumed name certificate is as simple as visiting your county clerk’s office, filling out a registration form, and paying a fee. (Call or research in advance in case the clerk’s office has any special requirements, like paying with a money order or cashier’s check.) Other states may require you to place an ad in your local newspaper to disclose your DBA name to the public.
Wondering if your state requires you to file for an assumed name certificate? Contact your Secretary of State’s office. You can learn if DBA registration is necessary in your state and, if it is, which department you need to reach out to in order to get your fictitious name certificate.
Why Do Businesses Use An ABN or DBA?
A small business might choose to use a fictitious name for several reasons. Below are a few common ways an assumed business name could benefit your business.
- A fictitious name filing could help you comply with state law if you use something other than your legal name when you engage in business.
- Sole proprietors and partnerships may opt to use an assumed business name if they don’t want to use their personal names (or some variation thereof) when dealing with the public.
- If your legal business name is long, tough to pronounce, or difficult to use from an advertisement perspective, a fictitious business name might be a good solution.
- Businesses that sell multiple products or services, especially to different customer bases, might want to operate under more than one business name.
- A fictitious business name could help your company rebrand or try to reach a new audience.
- If your company already uses a DBA, a bank might require proof that you registered the assumed business name to open an account or accept payments under that name.
You’re also probably wondering if your ABN or DBA can be used to build business credit and obtain business credit cards. The short answer is yes. Many states allow businesses that have a registration of a fictitious name to apply under that name for business credit. However, it’s important to check with your state department to figure out what that process would look like for you and your business.
Can an LLC Have a Fictitious Name?
Fictitious business names aren’t limited to sole proprietorships and partnerships. A limited liability company (LLC) or corporation may use a DBA as well, as long as it follows the rules.
Tip: Using a DBA might affect your business credit. You should keep a close eye on your business credit reports and scores often, especially if you make a switch and start using a new fictitious name.
How Long Is a Fictitious Business Name Valid?
If your state requires you to file for an assumed business name certificate, it may not last forever. Your registration is probably only good for a certain period of time.
Exactly how long your fictitious name registration lasts depends on the state where your business is located. Five years or less is a common timeframe. Re-registration requirements and filing fees for fictitious name renewals vary by state as well.
If your state requires you to re-register, don’t wait until the last minute to fill out a new assumed name form and pay the filing fee. It’s best to start the renewal process before your current fictitious name filing expires.
Is An ABN or DBA Necessary For Liability Protection?
An assumed business name could potentially solve certain problems for your business. Yet there are limitations you should understand.
- An assumed business name typically won’t protect you from personal liability if someone decides to sue your business. If you want to shield your personal assets, you should consider forming an official business entity like a corporation or LLC. (Talk to your attorney for advice.)
- A DBA won’t directly impact how you pay taxes to the IRS or your state. Are you looking for the best way to set up your business from a tax perspective? Do you want to avoid the dreaded self employment tax? In either case, you should consider options like LLC vs. corporation or C Corp vs S Corp. (Talk to your tax professional for advice.)
- A fictitious name filing won’t protect the name of your brand. Unlike an official legal name filing, an assumed business name probably won’t stop a competitor in your state from using a name that’s close to yours. In many states, multiple companies may be allowed to file for similar or even identical fictitious names. If you want to protect your business’ name from competition in your state, a new business registration may be in order. Take it a step further and consider filing for state and federal trademarks if you want to protect your brand name at a higher level.
Final Word: Fictitious/Assumed Business Name
If your business is going to use any name other than its legal one, it’s critical to find out whether state law requires you to complete a fictitious name filing. Skipping this step could result in serious consequences, like civil or criminal fines and personal liability for business contracts. Remember that Nav provides resources to ensure your business has all the necessary information. We’ll help you register your business with the Department of State, check your business credit scores, and even find your best small business loan options.
Not sure whether you should file for an assumed business name or register for a new, separate business entity with your state? Talk to a trustworthy business attorney for legal advice on your personal situation.
This article was originally written on January 29, 2020 and updated on July 18, 2022.