Are you looking to start a new business, or have you recently started one? Wondering whether to register your business name as an LLC, trademark, or both? What provides the best legal protection for your business and yourself as an individual?
LLCs vs Trademark
Which options to choose when it comes to LLCs vs. trademarks and when will depend on the specific fact and circumstances of your business. Most importantly, it will depend on what type of legal protection is most important for you and your business.
LLCs, or limited liability companies, are a type of corporation existing of at least one owner, (referred to as members) who actively manage the company’s business affairs. Thus, the member or members are the ones who actively manage the LLC, rather than the business owner.
LLCs protect a business owner by creating a legal layer of protection between the individual or individuals who own the business and the business itself. LLC members enjoy limited liability. This means that, if your LLC was sued, the LLC’s members would not be personally liable.
LLC members share in the profits of the business and in the tax deductions that come along with a limited liability company while being able to minimize and limit potential financial risks. From a tax perspective, the IRS treats the LLC as a pass-through entity, which means that the profits and losses of the business pass directly to each LLC member and are only taxed on the individual level.
Moreover, LLCs allow for a flexible management structure in that they can be managed by either the members or by managers. This means that as a business owner, you can decide the level of control and hands-on management you would like in the business.
LLCs are created by registering your business with your state. You will want to follow whatever particular steps are necessary for your specific state.
Business Name Protection
Overall, LLCs are a convenient tool for businesses to provide legal protection while enjoying financial benefits. However, LLCs do not typically provide you with protection over your business’s name. While registration with your state will likely provide you with the ability to restrict infringing use within your specific state, these rights won’t extend beyond that.
To obtain the protection of your business name – to prevent other people from using a confusingly similar name on a related business – you will want to explore obtaining a trademark.
Trademarks are signs, designs, expressions that indicate the particular source of goods or services. Trademark rights are a type of intellectual property right that provides legal protection for your logo, business name, or related concept.
Common Law Trademark Rights
Trademarks are automatically afforded certain common law legal rights simply by being used. However, these common law rights only extend to the specific geographic region that your trademark is being used.
Common law rights are based on the laws within the specifically applicable state, and this can vary widely. However, if you have been using a business name for years without seeking any type of trademark registration, know that you have some legal protection over your business name.
Nevertheless, it is a good idea to look into whether state or federal trademark registration is a good idea for you and your business.
State Trademark Rights
State trademark registration can be helpful if you are operating a business within one specific state only and have no plans to expand it further. This can provide you with legal protection against competitors from using your business name. Each state has different steps to take to apply for and obtain trademark registration, so be sure to take a look at your specific state.
Some business owners find that LLC creation is not necessary because of the nature of their business. Perhaps your business is very small with no employees and no benefits from the legal and tax status provided by an LLC. In these instances, business owners might still register their business name with their state’s trademark office to ensure no competing use of their business name.
Federal Trademark Rights
Federal trademark registration with the United States Patent and Trademark Office (USPTO) provides you with the greatest legal protection for your business name or trademark. Federal trademark registration gives you priority over the business name or other trademark on a national scale. Most businesses pursue federal trademark rights rather than state trademarks.
This priority is granted from the date you file your trademark application with the USPTO. Federal trademark registration allows you to seek legal action under the Lanham Act to stop a party from infringing on your trademark, perhaps through competing use.
This type of legal action can be pursued in federal court. Upon successfully winning your trademark lawsuit, you would be able to obtain damages from the infringing party for the harm caused to your business by their infringing use. Moreover, often you will also be able to get an injunction against the infringing party to stop them from this competing use completely.
Register Your Business Name with the Secretary of State
To create a business entity, including an LLC, you must prepare and submit an application with your state’s Secretary of State. Once this application is submitted, the state will compare and analyze your business’s name against the business names already registered within the state.
The requirements for your business name, i.e. how different your business name must be from similar, competing names, will depend on the specific state in play.
Upon approval from the Secretary of State, no other legal entity will be able to register an identical business name within your state. And generally, even the smallest difference will allow a competing company to register their business name with the Secretary of State. However, this only applies to the specific state in which you register your business. This is why trademark registration for your business name can be so important to ensure the greatest legal protection.
Filing a Trademark Application
Filing a trademark application with the USPTO is an important step for your business. After conducting some trademark searches within the USPTO’s Trademark Electronic Search System (TESS) can be helpful in making sure there are no other business names that will prohibit you from obtaining registration.
Submit your trademark application using the USPTO’s Trademark Electronic Application System (TEAS) forms. You will choose between the TEAS standard or the TEAS plus forms depending on the type of goods or services involved in your underlying business.
Once your application has been submitted, you will work with the USPTO attorney assigned to review your application. Be sure to thoroughly answer any questions that may be posed. Once any questions have been answered, your trademark will be published in the Official Gazette.
So long as no one files any complaints against your trademark, the USPTO will then issue you a trademark certificate of registration for your business name.