Answer: It makes a d/b/a official and allows an unincorporated entity to sue in its own name.
Let’s assume John wants to sell books about trains. There are several steps John can take to create a business through which he can sell books, with increasing levels of legal protections and benefits. John can simply start buying an inventory of books, using the cash in his pocket, and pocket the proceeds of any sales. If someone enters into a contract with John to buy 1,000 books, receives 500 of them and does not pay anything, John can sue them in his own name.
If John has not incorporated his business, in an effort to start building a brand has begun using a trade name like, Raleigh’s Reading Railroad, he has started to do business under an assumed name. If John enters into a contract as Raleigh’s Reading Railroad with that same bum book buyer, it’s going to be very difficult for John to recover on his breach of contract claim if he hasn’t filed a certificate of assumed name.
A Certificate of Assumed Name Is Required When Doing Business under a Fictitious Name
A certificate of assumed name is a document which formalizes an unofficial doing-business-as (“d/b/a”) trade name. In North Carolina, it’s filed with the register of deeds in the county where the person or entity does business and announces to the world the person behind the d/b/a. The North Carolina Assumed Business Name Act (Sections 66-71.1-71.15 of the North Carolina General Statutes) requires:
Before any person engages in business in this State under an assumed business name, the person must file an assumed business name certificate in the office of the register of deeds of the county in which the person is or will be engaged in business. If the person is or will be engaged in business in multiple counties, filing is required in only one of those counties.
Without a Certificate of Assumed Name, Unincorporated Entities Cannot Sue
Why should John file? Previously, courts have held that failure to file a certificate means that an unincorporated association (the trade name you are “doing business as”) cannot bring a lawsuit against some other person or entity. See N.C.G.S. § 1-69.1(a)(3). Once John files a certificate, it will remain effective until withdrawn or until state law is changed. Due to a recent change in state law, certificates filed before July 1, 2017, will expire on July 1, 2022. There is a single $26 filing fee, which is quite a bit cheaper than incorporating an LLC in North Carolina and paying annual fees. Those additional fees associated with forming a LLC may be well worth it, because an LLC provides a business owner with protection for their personal assets. That is, if an LLC fails, generally the only thing at stake are the assets held by the LLC. If a sole proprietorship doing business under an assumed name fails, the person behind the business may lose most of what they own personally.
There is a strong public policy reason behind requiring d/b/as to file a certificate of assume name: People should be able to find out who they are conducting business with or being sued by. Although it is not very difficult or expensive to set up an anonymously-owned LLC, trying to do business under an assumed name anonymously has some major drawbacks; namely, the unincorporated entity cannot recover in a lawsuit.
Looking to File a Certificate of Assumed Name?
Are you thinking about doing business under an assumed name? Before filling out and submitting the certificate, you should search with the Register of Deeds (Wake: http://services.wakegov.com/assumednames/NameSearch.aspx) and the N.C. Secretary of State (http://www.sosnc.gov/search/index/corp) to determine whether the proposed business name has already been filed. As of the date of this article’s publication, the form on the Wake County Register of Deeds’ website did not comply with the new July 1, 2017, requirements – the office still had the old form posted. The certificate, downloadable below, provides space for all of the additional information required by the recent change to state law.
Still looking for more information?
If you have additional questions, an attorney who has the opportunity to review all of the associated documentation with your case will be able to give you clearer answers tailored to your specific situation. Email the author, a Raleigh Business Law attorney, at Will@BlacktonLaw.com.