The use of one or more assumed names or “DBAs” is an important part of an overall asset protection plan. Why? Because asset protection is, at least in part, about the layering of incremental obstacles to a potential plaintiff. The more hurdles a plaintiff and his attorney have to get over in order to get to you and your assets, the better. The objective is to deter, discourage, and deplete a potential plaintiff’s resources. Although assumed name records are publicly available for inspection, sometimes online, this is an additional level of research that—believe or not—some plaintiffs will be too lazy to undertake.
Public Interest in Disclosure
What is the intent of the statute requiring the filing of a DBA? Both simple and practical: public disclosure of the true party in interest and the location at which that party may be served with process if suit is filed. The premise behind the law is that it is in the public interest to be able to ascertain whom to sue and where service of process may be physically achieved.
From a disclosure perspective, DBA filing requirements operate in favor of potential plaintiffs. There is, however, a sense in which they favor defendants. Suits are filed everyday against assumed-name defendants, particularly at the justice court level. Consider a hypothetical auto dealership, “Northside Chevrolet.” If a suit is filed against Northside Chevrolet, it is subject to immediate dismissal upon motion by Northside’s attorney. Why? Because Northside Chevrolet is probably not a legal entity. It is more likely an assumed name of a corporation or LLC that is doing business under the name Northside Chevrolet. The result is that the plaintiff must now go home, do research, and re-file the case (paying additional fees and costs in the process) against the true principal behind the DBA. The legal entity may not even have its business headquarters in that county, requiring a request for out-of-county service of process, another delay and expense. A certain percentage of plaintiffs will instead give up at this point.
An assumed name is merely a trade name and has no legal existence of its own. Steer Wealth Mgmt., LLC v. Denson, 537 S.W.3d 558 (Tex. App.—Houston [1st Dist.] 2017, no pet. h.).
Law Applicable to Assumed Names
There is no statutory limit on the number of DBAs an individual or company may have, either at the state or county level. A filing is good for 10 years and fees are nominal. There are 254 counties in Texas, many of which still accept assumed name filings, although some have ceased doing so. Go to the county clerk’s website in the county in which you propose to operate, file the necessary form, and pay the nominal filing fee (usually $15). A DBA may also be terminated or abandoned by filing a different form. For state-level filings, go to http://www.sos.state.tx.us/corp/forms/503_boc.pdf and complete Form 503 ($25 filing fee). This form requires an applicant to state the counties in which an assumed name will be used. If the entity will potentially use its assumed name in all counties in Texas, check the box for “All.”
Texas Business & Commerce Code, Title 5, Chapter 71—the “Assumed Business and Professional Name Act” — states that a “corporation, limited partnership, limited liability partnership, limited liability company, registered series of a limited liability company, or foreign filing entity must file a[n assumed name] certificate . . . if the registered series or entity: (1) regularly conducts business or renders professional services in this state under an assumed name; or (2) is required by law to use an assumed name in this state to conduct business or render professional services.” Definitions and requirements are as follows:
Section 71.002. Definitions
(2) “Assumed name” means:
(A) for an individual, if the enterprise proposes to operate under a name that does not include the surname of the individual;
(B) for a partnership, if the enterprise proposes to operate under a name that does not include the surname or other legal name of each joint venturer or general partner;
(C) for an individual or a partnership, if the enterprise proposes to operate under a name, including a surname, that suggests the existence of additional owners by including words such as “Company,” “& Company,” “& Son,” “& Sons,” “& Associates,” “Brothers,” and similar words, but not words that merely describe the business being conducted or the professional service being rendered;
(D) for a limited partnership, if the enterprise proposes to operate under a name other than the name stated in its certificate of formation;
(E) for a company, if the enterprise proposes to operate under a name used by the company;
(F) for a corporation, if the enterprise proposes to operate under a name other than the name stated in its certificate of formation or a comparable document;
(G) for a limited liability partnership, if the enterprise proposes to operate under a name other than the name stated in its application filed with the office of the secretary of state or a comparable document; and
(H) for a limited liability company, if the enterprise proposes to operate under a name other than the name stated in its certificate of formation or a comparable document including the name of any series of the limited liability company established by its company agreement.
The filer must include the physical address of its place of business. If the proposed county of business is different from the county where the enterprise is headquartered, then a DBA must be filed in both counties.
Suppose you have a Nevada LLC and want to operate under an assumed name in Dallas or Houston, may you file an assumed name certificate in either county (or both) and do so? Absolutely. The statute expressly includes both domestic and foreign entities within its scope.
State Versus County Filing of DBAs
Obtaining a DBA is a logical next step after forming an LLC. But where should the filing occur—at the county clerk’s office or with the secretary of state? Business & Commerce Code Section 71.103(a) was amended in 2019 to eliminate the county-level DBA filing requirement for registered entities (corporations, LLCs, limited partnerships, etc.) that file an assumed name certificate with the Secretary of State. The county-level filing requirement remains for non-registered entities such as general partnerships, joint ventures, and sole proprietors.
Accordingly, some counties have stopped accepting assumed name filings for LLCs and corporations. For example, the Dallas County Clerk posts this notice on their website
Due to recent legislative changes (House Bill 3609); Incorporated Assumed Name forms are no longer recorded locally with the County Clerk’s Office. They are filed with the office of the Secretary of State only. The changes made by HB 3609 became effective September 1, 2019, and apply to the following: assumed name certificates filed by corporations, limited partnerships, limited liability companies, limited liability partnerships and foreign filing entities. Unincorporated Assumed Name (DBA’s) certificates will continue to be filed with the County Clerk’s Office and are required for the following: sole proprietorships, sole practitioners, general partnerships, joint ventures, joint stock companies, domestic real estate investment trusts, estates, non-profits, and trusts.
The above statement is actually incorrect. To be clear, the new law did not say that county clerks could not accept assumed name filings for registered entities such as LLCs – only that county-level filing is no longer required, which is not the same thing. Certain counties still accept such filings and are likely to continue doing so because it generates revenue. So it may be strategically beneficial in a specific case to consider filing a county-level DBA, particularly since no statewide data base exists for these county assumed-name filings.
At the county level, the county clerk will want to determine if a proposed DBA is available. The customary standard is that your proposed name must not be the same as or deceptively similar to another entity’s filed assumed name within that county. At the state level, however, the DBA filing is purely a notice filing, meaning that it is not necessary to first ascertain if a certain name is available. Just create a name and file Form 503.
Texas has 254 counties as aforesaid. If you are obtaining a county-level assumed name for banking purposes and everyday usage, does it matter in which county you file? Surprisingly, not much. Even if you are doing business in Houston, a bank will usually accept a DBA from El Paso County for purposes of opening an account and ordering checks in the assumed name.
Trusts and DBAs
Interestingly, the statute does not mention trusts, which are a common asset protection device. Are these covered by the law? Must a trust file a DBA if the trust is doing business under anything other than its complete formal name? Our view is in the affirmative, even though trusts are technically not stand-alone legal entities, though they often act as such in the real world. Until a Texas case opines to the contrary, we will assume that a trust likely falls under the term “company,” at least for purposes of the assumed name statute; and “company” is defined as “a real estate investment trust, a joint-stock company, or any other business, professional, or other association or legal entity that is not incorporated, other than a partnership, limited partnership, limited liability company, limited liability partnership, or foreign filing entity.” But this is actually good news. If one has a land trust and is doing business with it then one probably and prudently should acquire a county-level assumed name and use it.
Joint Ventures and DBAs
A joint venture is usually a partnership that is created to achieve a single purpose, often involving a single property. Can a joint venture get a DBA? Yes, and it should if the JV will be actively engaged in business with third parties. The JV should also utilize the assume name certificate to open a bank account and have checks printed in the JV name. Because a joint venture
(if structured in the usual and correct way, as a general partnership of registered entities) is not itself a registered entity, a DBA would be available only at the county level.
A Series LLC Doing Business through One of Its Series
What about individual series of a series limited liability company? Series are, in many respects, sub-companies and are largely empowered to behave that way. Business Organizations Code Section 101.605 provides that an individual series has the power (1) to sue and be sued; (2) to contract; (3) to hold title to real and personal property; (4) grant liens and security interests in assets of the protected series or registered series; (5) be a promoter, organizer, partner, owner, member, associate, or manager of an organization; and (6) exercise any power or privilege as necessary or appropriate to the conduct, promotion, or attainment of the business, purposes, or activities of the series.
Adding the new category of registered series does not limit the powers that have been traditionally granted to series under the previous regime. As to assumed names, it expands them. While previously the Secretary of State rejected DBAs for series (because they are technically not separate legal entities), Business Organizations Code Section 5.051 now expressly provides that a “domestic entity, a protected series or registered series of a domestic limited liability company, or a foreign entity having authority to transact business in this state may transact business under an assumed name by filing an assumed name certificate in accordance with Chapter 71, Business & Commerce Code.” This is a welcome change since it is no longer necessary to go the county level in order to obtain an assumed name for a series.
So what should a series DBA look like? The new Business & Commerce Code Section 71.102 provides that an assumed name certificate must state the name of the series as stated in the company agreement (and, if applicable, the certificate of registered series) as well as the name of the LLC as stated in the company’s certificate of formation. So the proper formulation would be (for example) “ABC LLC—Series A, a series of ABC LLC, a Texas series limited liability company.”
Banks and Series DBAs
As to banking, the importance of having a DBA for Series A, Series B, Series C, and so forth is relevant if one chooses to open a bank account solely and specifically for the use of an individual series. A bank will require an assumed name certificate if “ABC LLC—Series A” wants to open an account in the name of (for example) “Ace Investments” and have checks printed that way. Having such a DBA also entitles the series to lawfully print business cards and stationery that read “Ace Investments” with no disclosure that the principal behind the scenes is in fact an individual series of a series LLC. This is elementary but useful in asset protection.
Title Companies and DBA Requirements
Title companies are also sensitive to DBA issues. Expect that if an LLC (whether traditional or series) has not filed a required assumed name certificate it will be asked to do so before closing on either the purchase or sale of real property.
As a practical matter, neither banks nor title companies appear to care whether one’s assumed name certificate is issued by the Secretary of State or by the local county clerk, just so long as a filed certificate exists.
Will one go to the penitentiary for failing to file an assumed name? No. Penalties for failing to fully comply with the Assumed Business and Professional Name Act are generally mild:
Section 71.201. Civil Action; Sanction
(a) A person’s failure to comply with this chapter does not impair the validity of any contract or act by the person or prevent the person from defending any action or proceeding in any court of this state, but the person may not maintain in a court of this state an action or proceeding arising out of a contract or act in which an assumed name was used until an original, new, or renewed certificate has been filed as required by this chapter.
(b) In an action or proceeding brought against a person who has not complied with this chapter, the court may award the plaintiff or other party bringing the action or proceeding expenses incurred, including attorney’s fees, in locating and effecting service of process on the defendant.
In a civil suit, then, a violator may need to immediately file an assumed name certificate in order to proceed with the prosecution or defense of a suit. It may also be ordered to pay the costs and fees associated with inconveniencing the other party. These are not heavy sanctions. Note that “failure to register an assumed name does not ‘impair the validity of any contract or act by the person.’ Accordingly, when evidence shows an entity is doing business under another name, it may be held liable under that name without regard to whether it filed an assumed name certificate.” Broemer v. Houston Lawyer Referral Serv. 407 S.W.3d 477, 482 (Tex.App.—Houston [14th Dist.] 2013, no pet.).
There is a criminal penalty for an intentional violation (whatever that may be):
Section 71.202. Criminal Penalty: General Violation
(a) A person commits an offense if the person:
(1) conducts business or renders a professional service in this state under an assumed name; and
(2) intentionally violates this chapter.
(b) An offense under this section is a Class A misdemeanor.
There is certainly not an abundance of prosecutions in this area. Why? As with most criminal offenses, the district attorney would have to prove criminal intent. It is far more likely that a person or company failing to fully comply inadvertently overlooked the details of the statute. Forged or fraudulent filings, however, are a more serious matter—a third-degree felony. Bus. & Com. Code Sec. 71.203.
Entitlement to Exclusive Use of an Assumed Name
The filing of an assumed name certificate does not assure exclusive use of a DBA and is not the equivalent of obtaining a trademark or copyright:
Section 71.157. Effect of Filing
This chapter does not give a registrant a right to use the assumed name in violation of the common or statutory law of unfair competition or unfair trade practices, common law copyright, or similar law. The filing of a certificate under this chapter does not in itself constitute actual use of the assumed name stated in the certificate for purposes of determining priority of rights.
Even if one obtains a DBA in the local county, there are still other Texas counties (not to mention the Secretary of State’s office) where someone else may lawfully file to use the same or a similar assumed name.
Having said that, an assumed name may, over time, acquire public recognition and acceptance in the area in which it is used, increasing one’s potential common law entitlement to exclusive use of that DBA. County clerks, to a certain extent, aid in this process by declining to issue identical assumed names to rival enterprises within their borders. A DBA is nonetheless no substitute for obtaining a proper trademark or copyright, which is a highly technical field. Consult an expert.
It should also be noted that an assumed name certificate for an LLC is not a business license, which is not required in Texas except for specific industries. Other states differ. Nevada, for instance, currently charges $200 annually for its business license, which is required of all registered entities.
LLC Bank Accounts and DBAs
Forming an LLC and then failing to get a DBA and do business under it reflects an incomplete process from an asset protection perspective. It is the better practice to get the required DBA and
one or more optional DBAs. Afterward, as many activities as possible should be conducted under a DBA name. There is simply no good reason to make it easy for a potential plaintiff to know the identity or location of the true party in interest behind an entity or a transaction.
Use of DBAs with a Two-Company Structure
Our recommended asset protection structure involves two LLCs—a management company (traditional LLC) and a holding company for hard assets (a series LLC). Both should obtain and utilize assumed names in day-to-day business. This is particularly important for the management company in its dealing with residential tenants. The Property Code states:
Sec. 92.201. DISCLOSURE OF OWNERSHIP AND MANAGEMENT. (a) A landlord shall disclose to a tenant . . . the name and either a street or post office box address of the holder of record title, according to the deed records in the county clerk’s office, of the dwelling rented by the tenant. . . . (f) For the purposes of this section, an owner or property manager may disclose either an actual name or names or an assumed name if an assumed name certificate has been recorded with the county clerk.
Accordingly, the preferred practice from an asset protection point of view is to keep the proper name of the management company as private as possible and whenever possible use that company’s assumed name on leases, checks, and other dealings with tenants and the public.
The choice of name for an LLC is far less important than the DBA. Most clients unnecessarily spend considerable time and energy choosing an LLC name that unwisely includes or reveals their personal names or other sensitive information. Something generic for the LLC is always better, accompanied by a catchy assumed name.
Information in this article is provided for general educational purposes only and is not offered as legal advice upon which anyone may rely. The law changes. Legal counsel relating to your individual needs and circumstances is advisable before taking any action that has legal consequences. Consult your tax advisor as well. This firm does not represent you unless and until it is retained and expressly retained in writing to do so.
Copyright © 2021 by David J. Willis. All rights reserved worldwide. David J. Willis is board certified in both residential and commercial real estate law by the Texas Board of Legal Specialization. More information is available at his website, www.LoneStarLandLaw.com.