Obviously, every business needs to have a name. But choosing a business name can be confusing because you have the option of using different names in different contexts. Let’s go through the best practices for picking out your business name, as well as how you can protect it.
Legal name: This is the official name of the person or entity that owns the business. It is the name you must always use when you sign legal documents (for example, contracts), file tax returns, sign leases, apply for bank loans or file lawsuits.
Trade name: This is the name you use to identify your business to the public, in advertising, on business cards, in websites, in marketing literature and so on. Your legal name and your trade name can be, but don’t have to be, the same.
Choosing a Legal Name
The legal name you choose will depend in part on what legal form you chose for your business:
If, you’re running a one-person business as a sole proprietor—that is, you have not formed a business entity such as a corporation or limited liability company—your legal name will be simply your personal name.
Example: Justin Smith forms his one-person business as a sole proprietorship. Therefore, his business’s legal name is “Justin Smith.” This is the name he’ll use to sign contracts, file tax returns and so on.
Things become slightly more complicated if you form a general partnership—a business co-owned by two or more people. In this case, you can use either the last names of all the partners or a name you create as your legal name. If you want to use something other than your last names, you must draft and sign a written partnership agreement that includes your partnership’s legal name. In addition, you must register your partnership’s legal name, as described in “Registering a Fictitious Business Name” below.
Corporations and Limited Liability Companies
If you create a corporation or limited liability company (LLC), you must choose its legal name. Like racehorses, corporations and LLCs must have unique names. Once you decide upon a name, you must get permission to use it by registering the name with the appropriate agency in your state, usually the secretary of state’s office.
Registering a Corporate Name
To register a corporate name, you must follow these three steps:
Select a permissible name
Most states require you to include a word or its abbreviation that indicates corporate status, such as “Corporation,” “Incorporated,” “Company,” or “Limited” (or “Corp.,” “Inc.,” Co.,” or “Ltd.”). Several states also require that the name be in English or Roman characters.
Clear your name
Next, you must make sure that your corporate name is distinguishable from any corporate name already registered in your state of incorporation. Your state won’t register a corporate name that too closely mimics a name already on file. The secretary of state or other corporate filing agency will do a search for you prior to authorizing the use of your name. You can check on the availability of names by using the secretary of state’s website or calling its office.
Reserve your corporate name
A corporation can usually reserve a name before incorporating if the name qualifies for registration otherwise. This freezes out other would-be registrants from claiming the same name or a similar one during the period of reservation, usually 120 days. Most states permit you to extend the reservation for one or more additional 120-day periods for a fee. The reservation process involves sending an application for reservation to the secretary of state, or the designated office.
Links to Secretary of State offices in all 50 states can be found athttp://www.statelocalgov.net/50states-secretary-state.cfm
Registering a Limited Liability Company Name
Registering a name for an LLC is very similar to registering a corporate name. You must choose a name that conforms with your state’s LLC requirements. Most states require you to use the words “Limited Liability Company,” “Limited Company,” or their abbreviations (“LLC” or “LC”) in your name. You then check with the appropriate state office and ask if the name or names you’ve chosen are available. Most states allow you to reserve LLC names for 30 to 120 days by paying a small fee, usually no more than $50.
Choosing a Trade Name
Your trade name is your public name—the moniker customers, clients and other businesses will use when contacting you. Once you have picked a legal name, you must decide whether you also want to use it as your trade name.
Using Your Legal Name as Your Trade Name
The simplest thing to do is to use your legal name as your trade name. If, you’re a sole proprietor, this means you’ll use your personal name as your trade name. If you’re a partnership, an LLC or a corporation, you’ll use the name you’ve chosen as your legal name (or the last names of the partners).
If you use your legal name as your trade name, you may add words at the end of it to make it clear that you are in business. For example, a sole proprietor consultant named Justin Smith could use the name “Justin Smith Consulting.” There is no requirement that you do this, but you might find it helpful for marketing or identification purposes.
Depending on the state you live in, you may have to register your name if you add a word to the end. No matter where you live, however, you will always have to register your name if the additional words imply that your sole proprietorship has more than one owner (for example “Justin Smith and Company”).
Using a Made-Up Name as Your Trade Name
Instead of using your legal name as your trade name, you have the option of making up a new name that differs from your legal name. A made-up name can sound catchier, help identify what your business does or make you seem more businesslike.
Example: Roseanne Zeiss quits her job with a public relations firm and sets up her own public relations business as a sole proprietor. The legal name of Roseanne’s sole proprietorship is “Roseanne Zeiss.” Instead of using this as her trade name, she decides to call her business “Thought Leader Public Relations.”
You can obtain bank accounts in your new name (provided you file a fictitious business name statement, discussed below). To help avoid confusion, if you use a made-up trade name, you’ll usually need to provide it along with your legal name when you file lawsuits, apply for loans and conduct most business transactions.
Avoiding Conflicts With Other Trade Names
Your trade name—regardless of whether it is the same as your legal name—should not be substantially similar to that of another business in your field. If your name is so similar to a name already being used that it may confuse the public, you could be sued under state and federal unfair competition laws. If you lose such a lawsuit, you may be required to change your business’s name and even pay monetary damages.
Before selecting your trade name, conduct a name search. If you find the same or a similar name for a company involved in a field that is the same as or related to yours, it’s probably best to choose a different name to avoid potential headaches later on. Similar names used by companies in fields entirely unrelated to yours probably won’t pose a problem, unless the name is a famous trademark like McDonald’s. For example, even if your name is Joe McDonald, don’t name your business “McDonald’s Consulting.” Companies with famous names are usually fanatical about protecting them.
Here’s how to do a quick and free name search:
- Do a Google search to see if other people or companies are using similar names.
- Check your county or state fictitious business name database to make sure no one else has already registered the name you want to use. Such databases—often called “fictitious business name indexes”—are usually searchable online.
- Find out if there is a similar federally registered trademark by using the U.S. Patent and Trademark Office (USPTO) website. Click “Trademarks” on the homepage and then “Trademark Search.”
- In addition to checking the federal trademark register, it’s a good idea to check your state’s trademark database. The state register is often part of the secretary of state’s office, though in some states it has a department of its own.
- Find out if there is a similar unregistered trademark at the Thomas Register, a comprehensive listing of companies, brand names, products and services.
- See if there is a similar Internet domain name by doing a search at any domain name registration website, such as Register.com or Network Solutions.
Registering a Fictitious Business Name
In most states, a person or an entity doing business in the state under a name other than its own “true name” must register that business name with the county clerk or secretary of state’s office as a “fictitious business name” or a “doing business as” (DBA) name. For a sole proprietorship or partnership, a business name is generally considered “fictitious” unless it contains the last name of the owner or all the general partners and does not suggest the existence of additional owners. Generally, using a name that includes words like “company,” “associates,” “brothers,” or “sons” suggests additional owners and will make it necessary for a business to register.
If you fail to register, you open yourself up to many problems. For example, you may not be able to open a bank account in your business name. You also may be barred from suing on a contract you signed using the business name. And, if you don’t register your fictitious name, you aren’t putting other businesses on notice that the name is already in use. If a competing business can’t find out that you’re already using the name, it might take the name—and possibly some of your business—for its own. There is usually a time limit within which you must register your name, often within a month or two after you start doing business.
In most states, fictitious business name registration is handled at the county level. You’ll have to register in the county where your business is located; in some states, you must also register in any other counties where you do business.
Procedures vary from state to state and county to county, but it’s usually a routine process. Many states require you to begin by searching the county or state fictitious name database to make sure the name you’ve chosen isn’t already being used by someone else. If the name is available, you must obtain a name registration form (over the phone, in person or from the office’s website) and submit it with the correct filing fee, typically $10 to $50.
Some states also require you to publish your fictitious name in a newspaper and then submit an affidavit (sometimes called a proof of publication) to the county clerk or state agency to show that you fulfilled the publication requirement. This makes it easier to track down those who change their business names to confuse and avoid creditors. Some communities have newspapers that specialize in publishing such legal notices. If not, your local newspaper should be able to help you with this filing if your state requires it.
Your fictitious business name registration will be good for a specified period of time after which it must be renewed; five years is a common period. If important facts in your statement change—for example, the number of owners or your business address—you may have to renew your statement before it expires. Check with your county clerk or state agency to find out which types of changes trigger a renewal requirement.
Links to fictitious name filing requirements in all 50 states can be found here.
Legal Effect of Registering a Name
People often think that once they have complied with all the registration requirements for their trade name, they have the right to use that name for all purposes. This isn’t so. Registering a corporate or an LLC name or registering a trade name by filing a fictitious business name or “doing business as” statement does not make your name a trademark. Though registering a name allows you to do business under that name, it does not give you any ownership right in the name: In other words, it does not allow you to prevent others from using it. If someone else uses your name to identify a product or service to the public before you do, it doesn’t make any difference that you registered the name as a legal, trade, corporate or an LLC name. If they were the first to use the name publicly in the marketplace, they will have the exclusive right to use that name in the marketplace.
Simply put, if the name you have registered was already in use or federally registered as a trademark or service mark, you will have to limit your use of the name to your checkbook and bank account. The minute you try to use the name in connection with marketing your goods or services, you risk infringing the existing trademark or service mark.
If you plan to use your business name in your future marketing plans, in addition to complying with name registration requirements, you must make sure that no one else is using the name as a trademark. If you plan to market your goods or services on the Internet, you’ll also want to make sure that no one else has already taken your proposed name as his or her domain name. If so, at the very least, you’ll have to use a slightly modified name to do business online.
MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.