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Compliance Issues When Choosing a Company’s Name

When forming a corporation or a limited liability company it is important to keep in mind that the name has to comply with corporation and limited liability company statutes.
 

Choosing a Company’s Name

 
A company’s name is one of its most valuable assets.  It can affect its sales, reputation, and even its chance for success.  Therefore, business name selection is one of the most important decisions a business’ owners make. 
 
There are a number of factors to consider, such as whether the name is memorable, unique, easy to spell and pronounce, whether it reflects the right message, and so on.  However, if the owners are forming a statutory business entity – most likely a corporation or LLC – they also have to consider whether the name meets the requirements of the formation state’s corporation or LLC statute.  And if it will be qualifying as a foreign company, the foreign state’s statute is another consideration.
 

Statutory Restrictions on Name Selection

 
Every corporation or LLC is formed under its “legal name”.  This is the name that appears on its articles of incorporation or articles of organization.  In choosing the legal name, remember that a corporation or LLC cannot simply have any name it wants.  There are restrictions imposed by the statute under which it will be formed.  These restrictions deal with three issues – required words, prohibited words, and name availability.
 
Required Words. Most corporation and LLC statutes require the name set forth in the formation document to contain a specific word, phrase, or abbreviation indicating the type of entity it will be.  For example, a corporation statute may require the name of a corporation to contain the word “corporation”, “incorporated”, or “company”, or an abbreviation of one of those words.
 
Prohibited Words. Many statutes prohibit the use of certain words or phrases in legal names.  Mainly this is to prevent the public from being misled as to the type of business entity it is dealing with.  Therefore, for example, an LLC may be prohibited from using the word “corporation” in its name and a corporation may be unable to use a name containing a word such as “bank” unless it is in the banking industry. 
 
Name Availability. Most corporation and LLC laws provide that the name must be distinguishable from the names of other domestic or foreign entities appearing in the filing office’s records.  
 

Foreign State Law and Name Selection 

 
A corporation or LLC that transacts business in a state outside of its formation state must qualify to do business in that state and its name will have to meet the same requirements as a domestic company.  If the legal name does not comply - say, for example, because there is another business entity on record with the same name - the company will typically have to qualify and do business under a compliant fictitious name.  
 

How the Availability Requirement Protects Names

 
When a corporation or LLC is formed, its legal name becomes unavailable in the formation state.  No other company can be formed or qualify under that name.  As a result, the state corporation and LLC laws protect the legal names through their name availability requirement.  
 
Another way they protect names is by allowing companies to file a name reservation before forming or qualifying.  A name reservation gives a company the exclusive rights to a name for a limited period of time.  This is useful, for example, if a company wants to start using its name on marketing materials, signs, etc., before actually filing its formation document. 
 

How Do Names Differ From Trademarks? 

 
Do not confuse a name with a trademark. A trademark is a word, symbol, phrase, or design used to identify a particular manufacturer’s or seller’s products and to distinguish them from the products of others.  A company’s name is not necessarily a trademark.  A trademark identifies a company’s goods or services.  A name identifies the company itself.   However, a name may be a trademark if the company uses it in commerce to identify its products or services.

 

How Do Trademark Laws Affect Name Selection?

 
Trademarks are governed and protected by federal statutes, state statutes, and common law.  These laws impact name selection in two main ways.  First, a company will want to select a name that does not infringe upon someone else’s trademark rights.  
 
CT Observation: A good way to find out if the desired name might infringe on an existing trademark is to consult with a company that performs trademark searches.
 
CT Observation: For information on whether a term may be trademarked, see our Trademark Explorer.
 
Secondly, not all trademarks qualify for protection under the trademark laws.  Therefore, if the company is going to use its name as a trademark it will want to select a name that will qualify for protection.
 

Conclusion

 
What’s in a name?  For a new business a great deal.  The owners will probably spend a great deal of time, money, and effort choosing its legal name. Part of that effort should be knowing what laws govern name selection and complying with those laws.
 
To read more about company names, see:
 
 
For information on naming services, see:
 
 

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