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One of the first things you do as a business owner is choose a business name. Your business can operate under your legal business name. Or, you can operate your company under a trade name. So, what’s the difference? Read on to learn more about business name vs. trade name and how they contrast.
Business name vs. trade name
What you call your business can make or break your company’s success. Sure, there are a lot of things that play a role in how successful your business is. But, your business’s name is definitely a key component.
Your business name is one of the first things potential customers notice about your company. It connects your customers to your products or services. With a good business or trade name, your business is one step closer to being successful.
When it comes to what you call your company, you need to know whether it’s more beneficial to use your business name or trade name. Find out the difference between business name and trade name below.
What is a business name?
A business name is your business’s legal name. It is the official name of the person or entity that owns a company. And, it’s the name you use on your government forms and business paperwork.
A business’s legal name can vary depending on its type of business structure. If you operate as a sole proprietorship, your business legal name is your full name (e.g., Jason Williams). You can include other words along with your full name (e.g., Jason Williams Insurance Corporation). However, you must include your full personal name if you have a sole proprietorship.
If you are an owner of a general partnership, the business name is typically a combination of the last names of the partnership’s owners and must be included in the partnership agreement.
Limited liability companies (LLCs) and corporations must establish their legal names when registering the business. Unlike other business structures, the business legal name for LLCs and corporations does not have to include any of the owners’ names to be the business name. However, some states require LLCs and corporations to include “LLC” or “Corporation” in their legal name (e.g., Rockwell Technology LLC).
What is a trade name for small business?
If a business owner wants to operate under a different name other than the company’s legal name, they can use a trade name instead.
A trade name does not need to include additional words or legal phrases (e.g., Corp, LLC, etc.). For example, a company’s trade name is Mike’s, but their legal business name is Mike’s Corporation. A business can opt to have their business name and trade name be the same.
A trade name may also be called a doing business as (DBA) name. It’s the name the public sees. Think of it as your business’s nickname. Businesses may use their trade or DBA name for marketing and sales purposes instead of their legal business name to help draw in more customers.
If you want to operate under a different name than your legal business name, register a trade name for your company. Every state and county has different rules for registering a DBA. Some require a separate fee and application for each DBA you register. Check with your jurisdiction for more information about registering a trade name.
Using business legal name vs. trade name: Pros and cons
Typically, a business will have both a legal business name as well as a trade name. The legal one, as mentioned, appears on legal documents and government forms. On the other hand, a trade name generally appears on advertisements and signs.
It’s up to the business to determine whether or not it can benefit from using a trade name in place of their legal business name. Using a DBA or trade name has its advantages and disadvantages. Before you decide to use a trade name instead of your legal name for business, consider the following pros and cons of using a trade name.
Pros of utilizing a trade name:
- Can be inexpensive to register a trade name
- Gives your business more credibility
- Helps differentiate brands if you have a variety of products
- Allows you to further clarify your business’s purpose
Cons of a trade name:
- No exclusive rights to the name unless you register for a trademark
- Potential extensive application procedures
- Typically only valid in the jurisdiction you filed in (may have to file for another if you want to operate elsewhere)
Choosing a name for your business
Deciding what to call your business is not as easy as it may sound. The name of your company tells consumers a lot about your business. So, you need a name that is unique, memorable, and attention-grabbing.
To choose the perfect name for your business, you should:
- Think about how to apply your business’s message to its name
- Pick something that is easy to pronounce and memorize
- Avoid using hard-to-spell or lengthy words in the name
- Ensure the name isn’t already taken (check domain names, do a search online, run a trademark search, etc.)
- Ask your family, friends, and team for feedback on the name
Selecting a business name to operate under is a big step. It takes some trial and error, patience, and time to choose the right name. List out the business names you like and do your homework on whether they are available to use. If the name is already taken, go back to the drawing board.
After you decide what to name your business and check its availability, register the name with your state.
Changing the name of your company
As your business evolves, you may find yourself wanting (or needing) to change the DBA name of your company. Maybe you are planning on adding a new line of products. Or, maybe a partner joined your company. Whatever the case may be, sometimes you need to shake things up with your business name to have it align with the changes you are making to your company.
Switching your business name requires a little legwork on your end. And, the process may vary depending on your business structure.
Generally, you must follow the steps below to change your business name:
- Check for availability of the new business name
- Contact the Secretary of State to inform them of the DBA change (unless you operate as a sole proprietorship*)
- Notify federal and state tax agencies that your company name has changed
- Contact your bank to change your DBA name on your account
- Revise the name on your business licenses and permits by contacting your county, city, or local government authority
- Notify the IRS of the new DBA
- Revise business paperwork, such as contracts, agreements, leases, bank accounts, and loan documents to include the new name
- Update your business website, signs, and other branding materials with the new name
*You must file a new DBA registration if you operate as a sole proprietorship
Regardless of what name you operate under, you need to keep track of transactions. Patriot’s online accounting software is easy-to-use and offers free, USA-based support. Try it for free today!
This article is updated from its original publication date of March 21, 2017.
This is not intended as legal advice; for more information, please click here.
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