This post is based on a question that I answered on Avvo. The question illustrates a common misunderstanding concerning DBAs. (DBA is an abbreviation for “doing business as” – i.e., a fictitious business name.) The questioner did not realize that a DBA is not a legal entity!
Q. Can someone sue a DBA for breach of contract by the parent corporation?
Why a DBA is not a Legal Entity
- The questioner owned a corporation that apparently was created for investment purposes.
- That corporation also owned a restaurant, which it operated under a fictitious business name.
- A plaintiff brought suit, naming as defendant the corporation doing business under the name of the restaurant.
The question referred to “the parent corporation” of the DBA. This is incorrect, because a DBA is not a legal entity. A DBA is merely a name under which an existing individual or a legal entity does business.
Separate Entities (and Insurance) for Separate Businesses
As I noted in my answer, this situation illustrates why separate businesses – even if they have a common owner – should be operated under separate legal entities (corporations or LLCs). That way, the legal or financial obligations of one entity will not affect the other entities. In an extreme case, one entity can go out of business, but the others will survive.
In addition, each entity should have appropriate insurance coverage. This means commercial general liability coverage, plus whatever a qualified insurance broker recommends based on the type of business and its likely obligations and risks.
In summary, a DBA is not a legal entity. It merely is an alternative way to to refer to an existing individual or entity.
Check out all posts about DBAs.
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.