Business Law

A Rose by Any Other Name: Making Sure Your Trade Name Smells as Sweet

What’s in a name?  Quite a lot, actually.  Most entrepreneurs are aware that their businesses’ trade name has value as a trademark or service mark and that using someone else’s name could expose them to liability for infringement, but that’s only part of the story.  What they frequently don’t know is that using any name other than their full, legal name can actually be a crime if the alternative name is not registered.

For a simple illustration, say a company incorporates under the name “Paddle Peddlers, Inc.” but then wants to operate under the name “Oars ‘R’ Us.”  To do so lawfully, it would need to file a name registration.  Less intuitively, say the same company wanted to use signage that said “Paddle Peddlers” instead of “Paddle Peddlers, Inc.” or used the domain name “paddlepeddlers.com” without identifying the full name on its website.  Believe it or not, that would still count as a trade name that needs to be registered.

These alternative names go by a variety of terms.  In some states like Missouri and California, a trade name is called a “fictitious” name, because the company is using a moniker other than its real name, much like a nickname.  In other states like Illinois and New York, this is called an “assumed” name, because the company has assumed a name other than the one under which it was incorporated.  Other states like Nebraska and Colorado use the term “trade” name.  Meanwhile, Kansas doesn’t have any term for this because, unusually, it does not require the registration of fictitious names.  For most non-lawyers, however, this concept is simply referred to by its signifier, “d/b/a,” meaning “doing business as.”

States similarly vary in whether they require registration at the state or local level.  In Missouri, registering a fictitious name is done with the Secretary of State’s office and is both easy and cheap (it can be done online for a registration fee of $7).  The registration lasts for five years if not renewed (RSMo. §  417.210).  Perhaps because of this ease of registration, the potential penalties for failing to register are harsher than one might think.  Missouri requires that business owners register a name within 5 days of when they begin using it, and if a business fails to do so, the owner is guilty of a Class D misdemeanor (RSMo. §  417.230), punishable by a fine of up to $500 and even imprisonment.  In Illinois, the rule is a little more complex.  While corporations and LLCs register assumed names with the Illinois Secretary of State’s Office (805 ILCS 5/4.15), individuals must register assumed names with the County Clerk of the county where they do business and publish notice in a newspaper (805 ILCS 405/1).  An individual’s failure to do so is a Class C misdemeanor in Illinois, yet curiously there is no statutory penalty for an entity that makes the same omission.

Notably, the need to file for a fictitious name applies regardless of business structure.  In other words, while a corporation or LLC would need to register any fictitious names, so too would a simple partnership or sole proprietorship that is unincorporated.  The latter scenario is a common oversight for individuals who may have an unincorporated side business (e.g. freelance photography) that uses a business name.

So what’s the big deal about registering a trade name, and why do states care whether you do?  One obvious goal is the prevention of fraud, but the over-arching rationale boils down to accountability.  Just as corporations and LLCs are required to publish and maintain a registered agent who can be served with process to initiate a lawsuit, creditors and the general public need to have a way of unveiling the person or entity behind a trade name so that the principal can be held accountable.  For instance, a customer of Oars ‘R’ Us who was injured by one of the company’s products would not have an easy way of knowing who the responsible party behind that product was if the name wasn’t registered.  That creates a problem if the customer attempts to bring a lawsuit against Oars ‘R’ Us, because technically no such entity exists.  With a properly filed fictitious name, the injured party would be able to ascertain the real name of the company and then contact the company’s registered agent.

The reasons to register a trade name extend beyond the legal mandate, however.  If the company above opened its bank account under “Paddle Peddlers,” it may need to show evidence of its registered name before depositing checks made out to Oars ‘R’ Us.  Similarly, from a marketing perspective, whereas the company’s legal name might be non-descriptive or unappealing, a business owner may decide on a fictitious name that is more descriptive of the products or services it offers, is easier to remember, or associates the business with something well-known in the community.  In that same vein, a fictitious name is unavoidable for businesses operating under a franchised brand name.

That said, business owners should not be mistaken that registering a fictitious name will establish exclusive rights to use that name.  Unlike with trademarks, which are potentially exclusive rights established through use in commerce and are registered through a different process, as far as the Secretary of State’s Office is concerned, an infinite number of businesses could register the fictitious name Oars ‘R’ Us.  Further, keep in mind that, depending on the state, there may be local filing and publication requirements in addition to or instead of a state-level d/b/a registration.

For something so common, fictitious names are poorly understood, and it’s remarkable to think how many business owners and freelancers are actually unwitting criminals because of it.  As it turns out, Juliet’s famous musing was a little oversimplified.  Even if a rose does smell as sweet by any other name, you may find its alternate moniker has a few extra thorns if you’re not careful.

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