Most individuals, when starting a business begin as a sole proprietor without formal incorporation of the business. Typically, the business owner will decide on a name for the business. Hence, we have Mr. John Doe doing business as The Widget Company. The business owner will probably file his or her business name under fictitious names with the state so no one else can use the same business name. In this case, The Widget Company is considered a DBA (doing business as). There are distinct advantages to forming a DBA.
Lower Start Up Costs
Corporations and LLCs usually involve the services of a lawyer to set up the business. In addition accountants are required to prepare and submit taxes. Both of these services can be costly. A DBA does not require the use of a lawyer to start the business, nor an accountant to maintain the books and submit the business tax returns.
There is no separate business tax filing. Instead the business owner files business income through the personal tax form 1040 using schedule C. In addition the DBA pays taxes on the business income along with the personal income.
While all business owners need to comply with the paperwork required by their state, there are a lot fewer forms to file than a corporation of LLC.
The business owner, as a DBA, has complete control over the business. There is no board of directors to answer too and no committees to make decisions on behalf of the business. Whether the business fails or succeeds is completely dependent on the individual business owner.
With a DBA, the business owner is the only individual to reap the rewards. If a DBA is successful there are no dividends to pay to stockholders or other corporate officers. The business owner earns 100% of the income.
Keeping the Secrets
The DBA business owner does not have to share trade secrets with anyone. This means there is less likelihood that the business secrets will be stolen to begin a competing business.
The owner of a DBA is typically at the frontline of the business regularly interacting with the customers. As a result the business owner does not have to rely on any other employees to keep up the “good name” of the business.
A DBA allows for easy handling of business funds. The owner can set up a simple DBA bank account, and will a simple accounting software program maintain all the books.
A DBA encourages an individual to go into business for him/herself with little start up effort In addition a successful DBA can lead to a growing business, forcing the business owner to hire employees. Hence a DBA promotes employment opportunities