How a DBA Can Tank Your Small Business Success

Running a small business with a DBA (Doing Business As) is a fast, cheap way to maintain a professional appearance in the world, but it doesn’t provide legal protection. If you haven’t formed a legal entity such as an LLC, a C-Corp, or an S-Corp, you don’t have the legal protection you need. Without legal protection, you could end up losing your personal assets if you get sued.

If you’re operating a small business with a DBA and you don’t have the protection of a legal entity, here’s what you need to know:

A DBA doesn’t provide legal protection

With a DBA, you’re not much better off than operating as a sole proprietor with no business name. IncFile explains the lack of protection afforded by a DBA: “You don’t have the ‘corporate shield’ to protect your personal assets from your business liabilities, and you do not have the various tax benefits that are available from setting up a legal business entity.”

If you get into debt and your creditors decide to sue you, there’s nothing in place to protect your personal assets. The judgment might force you to give up your house, your car, and other assets you own like stocks, bonds, and even precious metals.

Your DBA business name isn’t legally yours

You’ve probably spent some time coming up with a good name for your business. Using a DBA doesn’t give you legal rights to your business name. Your perfect business name could be taken away at any moment if another business registers a legal entity with the same name.

For example, say you have a DBA and have been doing business under the name “Granny Smith’s Apples” for ten years. If another apple company registers an LLC with the name “Granny Smith’s Apples,” they will have the legal right to use that business name and you won’t. You’ll lose the right to do business as “Granny Smith’s Apples,” all because you never registered as a legal entity. In this scenario, you would need to change your business name.

The biggest issue with having to change your business name will arise if you’ve already established your brand with customers and fans on social media. You’ll have to create a new brand identity, train people to remember your new name, and then you’ll need to create all new marketing materials. If someone files a trademark on your DBA name, you can no longer use the name in your website’s domain name and you’ll need to get another domain.

Changing domain names will wipe out all of your SEO efforts and it may take months for customers to find you again. You can only maintain your SEO efforts when you have control of the old domain and can create permanent 301 redirects. If you lose the domain name to a trademark dispute you can’t create redirects. You’ll also lose access to email accounts connected to the domain name and you may not be allowed to notify your customers before the domain is taken away.

Losing a domain name has serious consequences for your marketing efforts. Your entire email marketing campaign will be disrupted. You’ll also have to change your registered email address with any accounts you’ve created online. Some services send a confirmation email to your former email address before they’ll make the switch. If you don’t get all of this in order before the courts freeze your domain name, you’ll lose more than your domain.

To avoid these problems, register your business as an official entity as soon as possible.

Still, want to use a DBA? Here’s how

You can use a DBA and be protected by creating an official, legal entity first. Once you form a legal entity, you will be protected even while using a DBA. Registered corporations commonly use DBAs for all sorts of reasons. The most common reason for obtaining a DBA is to expand services outside the business name. For instance, if your business name is “Bob’s Dog Toys” and you decide to expand your inventory to include cat toys, you can register a DBA for “Bob’s Cat Toys.” You could even get a DBA for “Bob’s Pet Toys” and go generic.

A DBA can be useful for businesses and sole proprietors. However, if you want legal protection, a DBA should never be your sole form of business registration.

Featured image source: Freepik