A client of mine owned a company that was involved in a lawsuit, and he was not worried about personal liability because the company was a DBA (“doing business as”). He, personally, had applied for and obtained the DBA, so he was mistaken. He, personally, was liable for any claim or judgment against his company. The act of applying for a DBA does not create a separate legal entity that insulates a person from personal liability. A DBA is not a separate legal entity; rather, it is essentially a separate or additional name for whatever person or entity obtains the DBA.
This article discusses in more depth a DBA’s basic function and how a DBA, alone, provides no protection from lawsuits or personal liability. It then discusses how to file for a DBA in Utah, a relatively simple process.
A DBA, Alone, Provides No Protection from Personal Liability
Just because a person forms a DBA does not mean that person has any asset protection or insulation from personal liability. This is because obtaining a DBA is just a method for an individual or business entity to reserve and use a business name in Utah. A business name alone does not provide legal protection. So, for example, if an individual personally applies for and obtains a DBA, that person is doing business under that name as a sole proprietor, and the person is personally responsible for any legal claims against the DBA. On the other hand, if a person forms a limited liability company, a corporation, or another legal entity that is separate from the person, and if the person properly respects the corporate structure, that person is legally insulated from personal liability when doing business. And a person acting on behalf of a legal entity (e.g. an LLC) can apply for and obtain a DBA, and when doing business as the DBA, the person—acting through the legal entity—is also protected from personal liability.
Let me give a simple example. Acting in his personal capacity, Ben Builder applies for and obtains a DBA of “Ben Builder’s Construction.” If Ben Builder’s Construction builds a residence in Utah and then gets sued by the buyer for a construction defect, Ben Builder is personally liable if he loses the lawsuit. This is because Ben Builder’s Construction is a DBA of Ben Builder in his personal capacity. On the other hand, if Ben Builder forms Ben Builder’s Construction, LLC, a limited liability company, and then Ben Builder’s Construction, LLC applies for and obtains a DBA of “Ben Builder’s Construction,” Ben Builder is not liable for business done under Ben Builder’s Construction, which is a DBA of Ben Builder’s Construction LLC. The LLC, not Ben Builder personally, is liable.
Different Types of Entities Can Use a DBA
As stated above, different people and entities can use DBAs, including sole proprietors. A sole proprietor is one individual doing business alone, which may be the most common form of business. Somebody simply starts doing business without forming a limited liability company (LLC), corporation, or other business entity. Rather than representing to the world that the work is done in an individual’s name, a sole proprietor can obtain a DBA. This public business name helps the sole proprietor appear more business-like and professional. However, obtaining the DBA does nothing to insulate the sole proprietor from personal liability.
A general partnership can also obtain a DBA. A general partnership consists of two or more people who agree to contribute money, labor, and skills to a business endeavor. Each partner in a partnership shares the risks and benefits of the business. They each share in profits and they each share in losses and liabilities. And just like a sole proprietor, each partner in a partnership is personally responsible for the debts and obligations of the partnership—including any DBA designation under which the partnership does business.
To have asset protection and insulation from personal liability, a DBA must be used in conjunction with an entity that provides legal protection, such as a limited liability company (LLC) or a corporation. Such entities can also obtain a DBA, which becomes a second name by which the company is known to the world.
Applying for and Obtaining a DBA is Quite Simple
An entity or individual can apply for a DBA with the state of Utah online, in person, by mail, or by fax. Obviously, the online process is the quickest. The fee is $22 (as of the date of this article), and if you take the online route, you can finish the application in a matter of minutes, and sometimes the application is approved in a matter of hours. Visit the website for Utah’s Division of Corporations and Commercial Code for more information and instructions. If you want to save some time, or if the process intimidates you, an attorney can do the work for you.
We Can Answer Questions Regarding DBAs, Business Structure, and Busines Liabilities
If you have any questions about applying for or registering a DBA, questions about business structure for your company, or questions about your business liabilities, we can help. I offer a free consultation. My direct dial is 801-365-1021, and you can e-mail me at [email protected].