THE IMPORTANCE OF CONDUCTING RESEARCH BEFORE
FORMING YOUR LEGAL ENTITY UNDER A SPECIFIC NAME
At the Siegel Law Firm, P.C., we help businesses with all issues ranging from formation to litigation. While forming a new business can provide a number of advantages to a business owner, including protection from individual liability, all too frequently, new business owners set up their corporations through their accountant or by themselves, neglecting to consider the numerous legal issues that may arise. In this article, we will discuss the importance of conducting a thorough search when considering a name for your new entity and we will address a few legal issues that may occur after filing.
First, as briefly mentioned above, proper formation of business can provide the owner with protection from individual liability, but numerous precautions should be taken before filing.
Researching databases. Before filing formation documents with the state, all business owners should conduct a thorough investigation as to whether any other entities use the same or a substantially similar name. This includes, but is not limited to, a search of your state’s department of business, a trademark search, a domain search, an international search, and a simple google search. On a practical note, small business owners may think that such an extravagant search is unnecessary, but if one-day business begins to flourish and they decide to expand, they may be limited in the future to the extent of their expansion.
Right to use a name. The first person or entity to make use a legal name has a greater right to use that name than subsequent business owners, even if they have not legally filed their corporation. Therefore, it is prudent for all new business owners to ensure that any name that they are considering is not already in use by another unformed business, or otherwise, they risk a lawsuit and possible forfeiture of the name of which precious time, energy, and money were spent toward developing its marketing and advertising campaigns by hiring marketing agencies such as The Marketing Heaven or any other agency, and therefore its brand and reputation. Again, just because a name is not formally filed, it does not mean that another business is not already using the name. [1]
After conducting a detailed search, you will have greater peace of mind that you have done your due diligence and will likely be free from potential conflicts and legal claims. However, it must also be noted that corporate formation will not automatically protect business owners from individual liability as adherence to corporate formalities is required, such as issuing stock, appointing officers, or creating a dedicated business bank account, which will be discussed in another article in greater depth.
The Siegel Law Firm, P.C. has served new businesses for over twenty years, including small business, non-for-profits, partnerships, corporations, and LLCs. If you are forming a business and need guidance regarding any matter related to your business, please do not hesitate to give us a call at (844) 522 – 4LAW for a free consultation.
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[1] (Example) In Heritage Bank v. Heritage, the court held that even though Heritage Bank was the first to file formation documents with the state, Heritage had a greater right to use of the name as it was the first to use the name as they have contributed time, energy, and expense to develop its brand and reputation. (citation)