Company name vs trading name: which one should you use?
Understanding the differences between a company name and trading name
When starting a business, choosing the right name is crucial. A company name and a trading name are two terms that are often used interchangeably, but they are not the same thing. It's essential to understand the differences between these terms to avoid confusion and make informed decisions for your business.
The definition and purpose of a company name
What is a company name?
A company name is a legal name that identifies a business as a separate entity from its owners. In most countries, registering a company name is a legal requirement for businesses that want to operate as a limited liability company (LLC) or a corporation. The purpose of a company name is to establish the legal identity of the business and to protect it from unauthorized use by other businesses.
A company name can consist of any combination of letters, numbers, and symbols, as long as it's not already in use and does not infringe on any trademarks or intellectual property rights. The name is registered with the relevant government authority, such as the Companies House in the UK or the Securities and Exchange Commission (SEC) in the US, and is included in official documents such as the articles of incorporation or the certificate of formation.
Are you ready with your company name? When registering a business with Companies House in 2023, it's crucial to choose a name that is not only unique but also compliant with the current legal framework. The Companies Act 2006 and the Corporate Transparency and Register Reform Act 2020 have set guidelines that must be followed when choosing a company name.
- Firstly, the name of the company must not suggest any affiliation with HM Government or any public authority. This means that words like "royal" or "crown" cannot be included unless approved.
- Secondly, the name must not include sensitive words or expressions without prior approval, such as terms that could be contentious or politically offensive.
- Additionally, the chosen name must not be too similar or identical to that of another registered company. It's essential to conduct a thorough search before deciding on a name to avoid potential legal issues in the future.
- The name must also include the appropriate ending, depending on the type of company registered, such as Ltd, CIC, or Plc.
- Companies House encourages businesses to choose names that are not offensive, misleading, or promote illegal activities. For example, names that suggest a connection to illegal activities or are deemed to be offensive will not be accepted.
By following these guidelines, businesses can ensure that their chosen name is compliant and reflects their values and purpose. It's also important to note that choosing a suitable name is a critical aspect of building a brand identity and establishing credibility in the marketplace.
What is a trading name, and why do businesses use them?
What is a trade name?
A trading name is a name under which a business operates but which is different from its registered name. A trading name is often used for marketing purposes and may be more memorable or descriptive than the official company name. For example, a company called "ABC Holdings Ltd." might use a trading name like "ABC Solutions" or "ABC Consultancy Services" to better reflect the services it offers. A trading name does not have any legal status, and there are no specific legal requirements for using one.
When you register your business with Companies House in the UK, your company name is legally protected from use by any other business. This protection is not extended to trading names, which are alternative names used by a person, partnership or company, but are not registered with Companies House. While a company can have multiple trading names, they cannot be registered as official names of the company.
Many UK businesses use trading names to operate under a different name than their registered one. It's not uncommon for limited companies to run multiple businesses with different trading names under a single registered company. Sole traders and partnerships are also allowed to use trading names. However, it's important to note that trading names do not have the same level of legal protection as registered company names.
Understanding the limitations of trading names in the UK
Using a trading name can be a convenient way to operate your business, but it comes with certain limitations and risks.
Unlike a registered company name, a trading name does not offer the same level of protection. If someone else were to register your trading name as a limited company, they could legally demand that you stop using the name, even if you have been using it for a long time and have an established customer base.
Another potential issue is the risk of being sued for "passing off" if your trading name is too similar to another existing business or sole trader. This could damage your reputation and lead to costly legal battles.
It is also important to keep in mind that you have a legal obligation to disclose your registered company name and address on all business documents, including invoices, purchase orders, and license applications. This means that you would need to display your trading name and address on your company letterhead and your registered company name and address in the footer of the letter. It is also essential to clearly display your registered company name on your company website.
Using a trading name also carries the risk of infringing on someone else's trademark. Therefore, it is recommended to conduct a thorough UK trademark search in addition to a business name check before using a trading name. If no results are found, it may be worthwhile to register your trading name as a trademark to protect your brand for the future.
Overall, using a trading name requires careful consideration of the potential risks and limitations. It is essential to ensure that your trading name is unique, not too similar to any existing businesses, and that you have taken steps to protect your brand through trademark registration.
Legal and registration requirements for company and trading names
When registering a company name, there are several legal requirements that must be met. The name must be unique, not misleading, and not offensive. The Companies House or other registration authority will check if the name is available and complies with these requirements. A company name must also include the legal status of the business, such as "Limited," "Ltd," or "PLC." Failure to comply with these requirements can result in the rejection of the application.
In contrast, there are no specific legal requirements for a trading name. However, if a trading name is used, it must not be misleading or infringe on another business's trademarks. It's also important to ensure that the use of a trading name does not violate any consumer protection laws, such as those related to unfair or misleading advertising.
Pros and cons of using a company name vs trading name
Both company names and trading names have their advantages and disadvantages, and it's important to consider these before making a decision for your business. Here are some of the pros and cons of using a company name and a trading name:
Pros of using a company name:
Cons of using a company name:
Pros of using a trading name:
Cons of using a trading name:
Overall, the choice between a company name and a trading name depends on your business's goals, branding strategy, and legal requirements.
Branding considerations: which name to choose for your business
When choosing between a company name and a trading name, branding considerations are essential. A company name can provide a sense of stability and professionalism and can help establish a strong reputation over time. A trading name, on the other hand, can be more creative and memorable, and can help distinguish the business from its competitors.
In some cases, businesses may choose to use both a company name and a trading name. This approach allows for the benefits of both options and can help businesses establish a unique and recognizable brand identity. For example, a company might use its registered name on legal documents and contracts but use a trading name on its website and marketing materials.
Examples of company names vs trading names in real life
To illustrate the differences between company names and trading names, here are a few examples:
Company Name: Tesco PLC
Trading Name: Tesco
Tesco PLC is the registered company name of the supermarket chain, but they use "Tesco" as their trading name.
Company Name: Unilever PLC
Trading Name: Dove
Unilever PLC is the registered company name of the multinational consumer goods company, but they use "Dove" as a trading name for their line of personal care products.
Company Name: Starbucks Corporation
Trading Name: Starbucks
Starbucks Corporation is the registered company name of the coffeehouse chain, but they use "Starbucks" as their trading name.
Company Name: Apple Inc.
Trading Name: Apple
Apple Inc. is the registered company name of the technology company, but they use "Apple" as their trading name for their line of electronic devices.
Company Name: ASOS PLC
Trading Name: ASOS
ASOS PLC is the registered company name of the online fashion and beauty retailer, but they use "ASOS" as their trading name.
How to change your company name or trading name
If you decide to change your company name or trading name, there are specific steps that must be followed. To change a company name, you will need to submit an application to the relevant registration authority and pay a fee. Changing a trading name is a simpler process and does not require any formal registration. However, it's important to ensure that the new name is not already in use and does not infringe on any trademarks or intellectual property rights.
Making the right choice for your business.
Choosing between a company name and a trading name can be a challenging decision for any business owner. It's essential to understand the differences between these terms and the legal and branding considerations that come with each option. Ultimately, the right choice will depend on your business's goals, branding strategy, and legal requirements. By taking the time to consider all these factors, you can make an informed decision that will help your business succeed.