Over the years, this author has heard time and time again about how “easy” it is to form an LLC. “You can do it online yourself,” many say. “It just takes a few minutes and a few clicks and then you’re in business.” Sometimes free advice is worth far more than what one pays for it, and other times it is dangerous, yielding a negative value. In the case of the alleged easiness of forming an LLC, be careful whom you listen to.
Multiple blog posts or even scholarly articles can be written about whether an LLC is the best choice of entity for a particular purpose, the advantages and disadvantages of an LLC compared with a corporation, the importance of tax considerations when starting a business and options afforded an LLC, membership interests versus units and whether each is owned individually or in trust, what state’s laws are best to organize under, member-managed versus manager-managed limited liability companies, and spousal rights and access (or the lack thereof) to the business. All of these concepts or decisions are very important and—more to the point of this blog post—frequently overlooked. In addition to this already sizeable collection of oft-ignored considerations, another important topic is regularly bypassed in the process of trying to create an entity for the least amount of money or effort: trademark law.
Entrepreneurs tend to be innately independent people. They have a passion, even a need, for freedom, autonomy, and self-reliance. Who can fault the pursuit of those things? They are foundational American principles. Where there appears to be a disconnect with some entrepreneurs is in the pursuit or exercise of their principles in comparison with the respect of others and theirs. There doesn’t need to be any attribution of ill will with respect to this asymmetry. Intense focus on a goal can leave even a virtuous man temporarily blind to the needs or rights of others.
In the context of starting a business, there are some (but certainly not all) entrepreneurs who are fixed on calling their business a certain name and proceed towards formally naming it as such. The name may have certain significance to them based on where they are from, a childhood sports team, a favorite car, family history, or an aspirational goal. It may also just have come to them in an epiphany as the “perfect” name for their business. Taking what may be fool’s gold instantly accessible to them, entrepreneurs form the LLC overnight and begin the process of buying domain names, procuring social media handles and pages, opening bank accounts and credit cards, printing business cards, etc. The potential mistake grows exponentially each step of the way.
These fast-moving people, deeply desirous of achieving freedom, autonomy, and self-reliance, might not have taken the extra time to consider how they would feel if similar others treaded over their corporate babies, intangible persons they conceptualized, nurtured, and funded until self-sustainable. How would they react, for example, if a competing business usurped their business name, logo, slogan or tagline, even if the appropriation were not intentional? Based on this author’s experience, business owners become quickly inflamed when a newcomer takes without compensation a piece of their intellectual property, irrespective of intention. Great minds may differ about whether or not it would be beneficial if all humans consistently chose to think one or two steps ahead; however, it certainly pays to be cognizant of one’s elders when it comes to choosing the name of a business.
The digital world in which we all now live has accelerated the need to be careful about the names chosen for new businesses and the importance of being remotely found by certain search terms, description meta tags, hashtags, or images. A coffee shop local to Overland Park, Kansas might not have been known to anyone outside of the Kansas City metropolitan area in the 1970s, but that same coffee shop today could probably be found by a large percentage of people across the state, region, nation, and even world. My small law firm in Leawood, Kansas has attracted clients or potential clients (whether or not I was able to service them) from a large number of states and even a few different countries. That’s even more remarkable of an occurrence when one understands the ordinary consumer of legal services to be a local one, often sharing a physical jurisdiction with where the attorney has earned a law license.
The process of creating a unique company name or at least one legally available for use in commerce is laborious, yet another reason it may not attract a wide audience or a loyal following. The dual objectives of creativity and legal compliance may be hard to satisfy. It may help weary founders to consider the immense cost of rebranding or a trademark infringement lawsuit when spending anywhere from several hundred to several thousand dollars (or more) with marketing and legal professionals. Ask around about the cost to rebrand an existing business or to defend a trademark infringement claim. Those who do their homework may end up subscribing to the timeless phrase that an ounce of prevention is worth a pound of cure.
Searching and clearing a corporate name is a process. There is a common misconception—even among business lawyers—that availability of a name within a given secretary of state’s office, such as the Kansas Secretary of State’s Office or Missouri Secretary of State’s Office, is an invitation to proceed with the use of the name or the filing of articles under the name. The mere fact of incorporating, organizing, or qualifying to do business in a given state does not preclude the possibility of a successful challenge by another company using the same (or similar) name or a federal trademark or service mark registrant with priority of use. Business law and trademark law are indeed separate legal fields, and many attorneys who perform services in one do not perform services in the other. CPAs who may advise on the tax implications of a business formation might be even further removed from the distinction between the capability of making a state business filing and the right to operate under the name as filed.
Let’s break this technical name availability concept down using an admittedly imperfect analogy. Think of the ability to file for a new business with a given secretary of state’s office, under a name deemed to be available, like the ability to drive your car at the speed it will allow. Many cars today will go well over 100 miles per hour. There is not a place in the United States that legally permits such a speed by an ordinary civilian. Like one is permitted to make a business organization or incorporation filing under an “available” name, one is permitted to drive his car at its maximum speed. Neither act may be legal. Both acts may have serious financial and/or other consequences.
Given the quantity of businesses and brands already in existence, the dual objectives of creativity and legal compliance as well as widespread visibility even for small enterprises (as discussed above), coming up with a good company name is very difficult; nonetheless, it is still just the first step. It should be followed by a thorough trademark search, trademark clearance, and then one or more trademark applications. The type of trademark application(s) (e.g., Section 1(a), Section 1(b), single or multiple-class, state-based, etc.) is dependent upon factors such as when the business will start operating, the breadth of the business’ operations, and where the business will operate.
Here at Kincaid Business & Entrepreneurial Law, LLC ®, we have substantial experience working on trademark and service mark matters, including developing, clearing, registering, and maintaining business name or trade name rights. Please contact us at 913-735-7707 or conveniently schedule with us online if we might be of assistance to you or your team. You may also wish to read about the potential benefits to filing a federal trademark application on our website.
Matthew T. Kincaid