business formationAlthough most aspects of corporate law remain a mystery to non-lawyers (and to some non-corporate-lawyers), a few bits and pieces have seeped into the public consciousness. Regrettably, a few of those bits are wrong. One of the most common misconceptions I’ve come across as a corporate lawyer is the belief that registering the name of a new business – perhaps by “reserving” the name or filing for a “d/b/a” – is vitally important to the business’ success. Unfortunately, if you rely on a name registration to start operating your business, you’ll find that name isn’t worth much at all – because you’ll be conducting business illegally.

The first (and I mean the first) step to create a new business entity is to register the company with the Secretary of State (this is variously also referred as “incorporating” or “organizing” the company). This is the only way to bring your business into official corporate existence. Usually you will do this in the state in which you will be doing business, but you can register your business in any state (and sometimes there are good reasons to register in other states). Depending on what kind of corporate entity you choose (a corporation, a limited liability company, etc.), registration will involve filing a document called Articles of Incorporation or Articles of Organization or a similar name. Once the Secretary of State accepts and files your document, your entity exists – and you can move on to the rest of your “to do” list. The registration has to happen first. For example, you can’t obtain a federal tax ID number (EIN) or open a business bank account until you’ve completed this step.

Now let’s compare the business registration with these “name registrations” that people keep telling you are so important. First, there is a creature called a name reservation. This is another filing made with the Secretary of State. A name reservation “holds” a name for you, before you create the business entity, so no one else can register a business with that name. A name reservation is only good for a set period of time, after which time the name could be used by someone else, if you still haven’t registered the business. However, a name reservation is neither required nor, in most cases, necessary. The only reason to file a name reservation is if you’ve chosen the name but, for whatever reason, you aren’t ready to register the business yet – and you have reason to believe that someone else might take your name in the meantime. In fact, registering the business is the most effective way to “hold on” to a name, because once a company is registered, the Secretary of State will not allow another company of the same type to register under the same name in that state. (Which reminds me: you should check with the Secretary of State before you submit your business registration documents to confirm that your name is available. In most states, you can check this online.)

Then there are fictitious name registrations, also known as trade name or “d/b/a” (doing business as) registrations. These registrations are a matter of local, not state, law; they are done at the city or county level, and the rules for them vary widely. A fictitious name registration is appropriate if you create a corporate entity under one name but intend to operate your business under a different name. For example, if Ann organizes a company called Ann’s Restaurants, LLC, but she calls her first restaurant “Souper Salads,” then Ann would need to file a fictitious name registration for “Souper Salads,” as this is her “d/b/a” name. On the other hand, if Ann had organized her company with the name Souper Salads, LLC, then a fictitious name registration would not be necessary.

Finally, you can also protect your company’s name (or trade name) with trademark or service mark registrations. We’ll save the trademark discussion for our IP lawyer, but suffice it to say for now that (1) it’s a good idea to perform a trademark search during your name selection process, to make sure no one else is already using your desired name; and (2) trademark registrations can only be done after you register your company with the Secretary of State. Like name reservations and fictitious name registrations, trademark registrations should never be confused with the process of officially creating your business entity by registering with the Secretary of State. There’s no substitute for Step Number 1!