A DBA (doing-business-as) name is something many people use for their side hustles and part-time gigs. Simply referring to your enterprise by your first and last name isn’t very exciting or memorable, so entrepreneurs choose an assumed name to help with branding.
What confuses many entrepreneurs is the difference between an assumed name/DBA and a business entity in Texas, such as a limited liability company (LLC). While an LLC is an actual business structure, with all the various legal protections and obligations, an assumed name, is not a legal business structure. An individual who conducts business under an assumed name is a sole proprietorship. The sole proprietor owns the business assets individually, and assumes all liability of the business. It is arguably the least restrictive method of conducting business. However, the nonbusiness assets of the sole proprietor and the type of business being conducted are just a few factors that should be considered to see if another type of business structure should be considered.
What You Need to do to Register an Assumed Name in Texas
Sole proprietors file their assumed name in the county clerk’s office of the county where the business is located, while entities (like corporations and LLCs) file at the state level in the office of the secretary of state. The assumed name certificate must be filed in the appropriate government office with the necessary filing fee, and allows you to use an assumed name for no more than 10 years; after 10 years, the assumed name can be re-registered.
Why Form a Legal Entity?
There are numerous types of business structures available for Texas entrepreneurs, but certain entities like corporations and LLCs provide owners a great amount of protection over their personal assets and property. In case of a judgment or lawsuit against the entity, the owners’ personal money and non-exempt assets will not be seized to satisfy the ruling.
How to Get the Most Out of Your Business Entity
- The first step to forming a Texas entity is filing the Certificate of Formation with the Secretary of State’s office. At the same time, you need to select your registered agent. Registered agents are authorized to receive official mail and process of service (for lawsuits) if you aren’t available.
- Certain situations also require an Employer Identification Number (EIN) from the IRS. The most common situation that mandates EINs is when employers make hires.
- It’s not required in Texas, but we strongly recommend creating an operating agreement. This document sets out important obligations for each shareholder and/or member, allocates income distributions, and lays out the dispute resolution process, among other things.
- Another important step in starting an entity is opening its own bank account. You can typically use the company’s EIN in this situation. As long as your entity is active, though, make a conscientious effort not to commingle your personal and business assets. This means depositing company income into the company’s account and not using the entity’s assets for personal purposes.
Contact Us For More Information on Forming a Business Organization the Right Way
A quality Texas business attorney helps business owners start companies with the right legal framework. An assumed name or DBA might be best for your business, but forming a formal business entity with the Secretary of State has plenty of benefits that may be too good to overlook. The team at Albright & Lumpkin has offices in Houston and League City and is excited to serve the community. For any questions, reach out to us today!
Albright & Lumpkin, PC
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