When you start a business, you spend a lot of time choosing the perfect name—but the name you choose may not end up being the name your business is known by. This is the difference between a trade name and a business name.
If your business has an “Inc." or “LLC" at the end of it, you may find that you drop those letters when you advertise or talk about your business. To protect yourself and your business name, and meet legal requirements, you will need to do some additional paperwork to cover all the names you use.
What Is a Legal Business Name?
Your business' legal name is the name that you use on the paperwork you file to create your business. If you own a corporation, it is the name on the corporation papers you file with your state, including the articles of incorporation. If it is an LLC, it is the name on the LLC formation papers you file with the state. By filing those papers, you officially designate the legal name of your business. This is also the name that appears on your tax ID or employee ID paperwork and is the name used on your tax returns.
The legal name is the formal, official name of your business that identifies it with the government. If you have a corporation, your name probably contains the designation “Inc.," such as Cute Boots Inc. If your business is an LLC, your name likely concludes with “LLC," like Valley Woodwork LLC.
What Is a Trade Name?
A trade name is the name your business is commonly known as or the name you use when advertising or doing business. A trade name is also called a DBA (doing business as) name. A good example of this is Walmart. Walmart's legal business name is Wal-Mart Inc. but its trade name is just Walmart—that's the name it uses on its advertising and website, and what most people refer to it as. However, its legal name, which appears on all of the paperwork involving the government (corporation filings, taxes, compliance, etc.) is Wal-Mart Inc.
A trade name is usually just the business' name with “Inc." or “LLC" dropped. So if your business is registered as Tasha's Dog Grooming LLC, the name on the sign on your building, ads, and receipts. The name your customers know is likely just Tasha's Dog Grooming.
However, a business' trade name can be something entirely different from its legal name. You might have registered your business as Jameel's Book Store LLC, but decide to just refer to your business as Best Books because it's more memorable or simply shorter.
Some companies create different trade names for different parts of their business. Gap Inc., for example, does business as Old Navy, Athleta, and Banana Republic even though all of those brands are just part of the Gap Inc. company.
The bottom line is that you are not required to have a trade name, but you might find having one comes in handy.
If you are forming a corporation or LLC, you are required to register your company's legal business name with your state. Registration of the name is simply part of your official corporation or LLC formation paperwork. Whatever name you use in those filings is your legal name. No separate registration is required.
Note that before you file your formation papers you can do a name search with the state to determine whether the name you want to use is available. You may be able to place a hold on a name (with a fee) until you are able to get your papers filed, but that is not a formal registration of the name.
You are not required to have a trade name; you can simply do business with your full legal name. But if you choose to use a trade name, you will need to register it with your state or county. To protect consumers (so they can determine who actually owns a business they interact with), you must file a fictitious name statement (sometimes just called a DBA filing) by filling out a simple form, paying a fee, and sometimes placing a legal notice in a newspaper.
Benefits of Trade Names
Having a trade name comes with some benefits. It allows you to legally recognize what your customers might end up calling your business anyhow because they are likely to drop the “LLC" or “Inc." designation. By registering a trade name, you can use the trade name freely without concerns that you are misidentifying your business.
A trade name registration also means you have can one bank account for both names. So, whether a client writes a check to Meema's Auto Repair Inc. or just to Meema's Auto Repair, you can cash the check because the bank has your registration papers for both names.
Drawbacks of Trade Names
The biggest drawback of a trade name is that, in most states, registering a trade name does not give you the exclusive right to use that name. If your business's legal name is Sandy's Ice Cream LLC but your trade name is Yummy Ice Cream, any other business could also use that trade name. In some states, the first business to register a DBA gets the right to it. You might have been calling yourself Yummy Ice Cream for a year before you register it, but if Tia's Ice Cream LLC has registered Yummy Ice Cream already, you won't be able to use it if your state has this rule.
The only way to be certain that you can have exclusive rights to a trade name is to register it as a trademark, which is a more involved and expensive process you can complete through your state's business registration office.
Your state might require you to renew your DBA filing every few years or register it in every single county in which you plan to do business. That means filing a form and paying a fee in each county, which can add up.