The first step for most new businesses is choosing a name. There are a number of U.S. and California laws that impact business names. Generally, these laws are straightforward, but like most areas of the law, there are some traps for the unwary.
If the new business is a corporation or a limited liability company, the California Secretary of State is required to clear the name when the business files the articles of incorporation or in the case of an LLC, the articles of organization. 1 The Secretary of State will not permit the filing if the name is likely to mislead the public or closely resembles the name of an LLC or corporation already on file. 2
Name Reservation. A corporation or LLC can reserve a name with the Secretary of State prior to filing. 3 The alternative to reserving a name is to check the name availability on the website www.ca.gov and type in "name availability." While this will tell you if there is another business already on file with the same name, it does not prevent another business from filing under the name you selected before you do. It also does not guarantee that the Secretary of State will not determine your name closely resembles another name on file.
Although not required, a name reservation is a good choice. Otherwise, if the name is not available when the articles of incorporation or articles of organization are filed, the Secretary of State will reject the filing. This sometimes causes significant complications, as the business may have already begun to transact business between the time of the filing and learning that the filing was not accepted. The filing fee for a name reservation is $14, is good for 60 days, and thus is a very cheap insurance policy.
Fictitious Business Name. A business that will use a "fictitious name" is required to file a statement in the county where it has its principal place of business within 40 days of commencing business. 4 If the business is a sole proprietorship and will operate under a name different than the name of the business owner, it must file a Fictitious Business Corporations and Name Statement. Partnerships are subject to similar restrictions. 5 LLCs that transact business under a name different from that in their articles of incorporation or articles of organization, respectively, are also required to file a fictitious business name statement. The statement is required to be filed in the county where the business has its "principal place of business." 6 While there is no requirement to file in other counties, filing in other counties where the entity transacts business/has an office may help avoid a dispute with a business operating under a similar name in that county.
Filing a Fictitious Business Name Statement is easy. The statement is a one page form, listing the fictitious name and the date business commenced. The filing fee is $10.
A Fictitious Business Name Statement expires five years from the date it was filed in the office of the county clerk, or 40 days after any change in the facts the applicant states in the Fictitious Business Name Statement. 7
While there is no penalty for not filing a Fictitious Business Name Statement, failure to do so can cause a number of problems. Importantly, a business can not pursue a lawsuit to collect an account or on any contract, or transaction, in the fictitious business name in any court in California until the Fictitious Business Name Statement has been executed, filed, and published. 8
Trademarks. There is one last "catch" to the name game. The filing of articles of incorporation or organization does not grant a business the right to use the name in connection with the sale of goods and services. If the business name is "confusingly similar" with another business that has filed a California or U.S. trademark, the trademark holder generally has the right to use the name and to exclude use of the name by others. Trademark rights accrue from the date of use in commerce. Thus, the final step in selecting a business name is to perform a trademark search before filing the articles of incorporation. Depending on the circumstances, and the size of the business, this search may be as simple as searching the trademark index maintained by the US Patent and Trademark Office (USPTO) online at USPTO.gov, and searching the name through a search engine such as Google. The most reliable search results are obtained by having an attorney perform a search and providing a "clearance opinion" stating that the proposed business name does not violate an existing trademark. After the search is complete, the next step is to decide whether to file a trademark registration, and if so whether to file only in California or with the USPTO. A California trademark grants rights only in California, while a federal filing with the USPTO provides rights nationwide.
