What is Trade Name?
The term “trade name” refers to the official name under which a firm or an individual (sole proprietor) decides to run its business. A company usually registers a trading name as a fictitious name with the county where its core business is located. Typically, the customers and clients of a business know it by its trade name only. It is also popularly known as a “doing business as” name or DBA name.
Some of the key takeaways of the article are:
- It is an official or fictitious name under which a firm or individual operates its business.
- Typically, this can be derived by dropping just “LLC” or “Inc.” from the business’s name.
- Registering a trading name for a business is mainly motivated by making the tax collection agencies aware of a particular company.
- It doesn’t provide any protection to the business’s brand name.
In simple words, it can be said that a trading name is typically just the name of the business with “LLC” or “Inc.” dropped. So, if a business is registered as “ABC Inc.,” then the trade name of the business will be “ABC,” which means the customers and clients will know the business as “ABC.”
In some cases, the business’s trade name differs from its legal name. For instance, a business might have registered itself as “John’s Food LLC,” but it decided to refer to its business as “Tasty Food” instead of “John’s Food” because the former seems to ring a bell in the customers’ minds.
Let us look at an example to understand how a trading name works in real life. The popular American hypermarket chain Wal-Mart Inc. is its legal business name. However, its trade name is Walmart, used on its advertising and website. Although most people call it Walmart, Wal-Mart Inc is the legal name that appears on all paperwork involving the government.
Why does it need a Trade Name?
The need for trade name registration for a business is primarily motivated by making the tax collection agencies aware of a particular business rather than providing any brand name protection. There are instances of multiple companies currently operating and registered under the same trade name, which indicates that trade name registration doesn’t provide brand name protection.
Importance of filling Trade Name
Although a trading name doesn’t provide any brand name protection, the process of trade name registration is an essential step in a company’s branding. The laws on requirements for trade name registration may vary across states, but most require the companies to register their business either with the local government or through the county clerk’s office. Registering a trading name for a business is primarily done for administrative and accounting purposes, such as filing a corporate tax return with the tax department.
Trade Name vs. Trademark
Many people get confused with the words “Trade Name” and “Trademark.” This is the reason most of them end up using them interchangeably. However, it is essential to note that the two words are distinctly different and require a separate set of evidence for their protection. The following points show how both the terms are different from each other.
- It refers to the official name under which an individual or a company runs its business. On the other hand, a trademark refers to the legal name, symbol, logo, or slogan that a business uses to promote its products in the market.
- It neither provides any protection to the brand name by itself nor does it come with unlimited rights for the use of the particular name. However, registering a trading name is a step toward protecting the brand. On the other hand, a trademark helps in preserving the brand name in most cases.
Some of the advantages are as follows:
- It provides privacy to business owners, especially sole proprietors, who find it useful. Of course, they can use the company’s name, but it helps maintain privacy while running the business under the official name.
- It provides excellent flexibility for businesses as they can use multiple trade names within a business, helping them market different types of products of the same company.
- It helps businesses establish and strengthen their brand and enhance the value of their products. In the process, it protects the company’s name from adverse advertisements.
Some of the disadvantages are as follows:
- It doesn’t protect the business’s brand name unless registered for trademark. So, it doesn’t provide the company owners absolute rights over the particular name.
- Sometimes, the businesses must register their trade names with the local or state government. Further, some states mandate that companies register their trademarks every few years, resulting in extra cost and effort.
Although registration of a trading name for a business doesn’t provide any legal protection, the trade name selection should still be carefully selected. The reason is that it is a business’s initial step to establish its identity in the marketplace.
This is a guide to Trade Name. Here we also discuss the definition, example, need, importance, and advantages and disadvantages. You may also have a look at the following articles to learn more –