You are ready to start up a business. What comes first-- the limited liability company (LLC) or the trademark? I get this question quite a bit, so we’ll answer that in this blog and video. We’ll also be talking about the differences between the two and how you can secure the name of your business without getting into hot water legally: What is the benefit of trademarking? Should you even do it? Is it necessary? We’ll talk about that as well. Also, we’ll discuss what it means to register a trademark and why sometimes you might not want to do it.
LLC, for those who don’t know, is a limited liability company. It is one of many types of entities that you could create. It is the most popular these days because it does provide you with limited liability while usually offering pass-through taxation for the business owner as well. (See my other video on this channel about S-Corp taxation status, which is a totally different topic. LLCs can also be S-Corps for tax purposes.) But eventually a company or entity of any type is designed to do two things.
First, it protects you and your personal assets from the debts or liabilities of the company, meaning if there’s a lawsuit and the company is found liable, they couldn’t come back to your own assets like your personal vehicle or your personal home or vacation homes should you have any of those.
Second, the other main benefit to different entity types in choosing them wisely is tax classification. But most people start with LLCs. It’s the most popular these days for generic businesses. In your state, you may have to file a professional corporation or a professional LLC. Definitely check with an attorney before you get started building a medical practice. But if you are building just a regular business for publishing or online courses or for something else entirely that is non-professional work, you can use a LLC.
It is easy, and it is flexible. C-Corporations or corporations have some formalities that you have to adhere to in order to retain that limited liability basis. So, for today’s purposes, let’s assume that you are starting a LLC.
Now what a lot of people do when it comes to choosing a name for their LLC is Google search for available names, or they’ll go onto the Secretary of State’s website, if they know enough to do that, and they’ll search for names that are possibly available there. So, one comment that I hear all the time when people just start their business, which can be a period of confusion for new people, is “All right, I got the domain name, so we are good to go.” What you need to know is that buying a domain name doesn’t protect you and doesn’t guarantee you the rights to the name, either the business or otherwise. Even if the name is available in your state and your state division of corporations doesn’t restrict you from using it, letting you register the LLC with that name, it still doesn’t provide you with the right to use the name. So, that’s where trademark law comes in.
So, what is a trademark? It is better to give examples. It is either a logo or slogan or a company name or a product name that is associated with a particular maker/creator/vendor. Famous examples include the Coca-Cola name & curvy bottle, and Kodak’s “yellow” is actually a trademark, so you can trademark names, shapes, and colors. You can even trademark sounds, believe it or not. But most of the time, we are looking at business names or their slogans. Think of the famous slogans you’ve heard over the past thirty years, whether it’s “Have it your way,” at Burger King, or “I’m lovin’ it,” at McDonald’s, or anywhere else that is a little bit more functionally in line. But those are usually trademarks.
You’ll know what has official trademark protection when you see specific denotations. When the little “R” is present, the little “R” in the circle, ®, means it is trademarked. That’s “all rights reserved.” Those people who have a little ™ next to their name don’t actually have a federally registered mark, but they are claiming to have rights to use that mark around the country, putting people on notice. Now that’s called “common law rights.”
So, a trademark is something that you are claiming and the purpose of trademark law is to let consumers know who’s making it. So, if there are a ton of companies out there with red, curvy bottles and they all look like cola or they have variations of “coca” and “soda” in their names, you are not sure which one is from the “coke” that’s based in Atlanta. It might just be a knock off. And so, part of trademark law is to prevent confusion in the marketplace. That does a couple of things. It helps protect the creator of that content, but it also helps protect the consumers as well. We won’t get into all of the details, but know that this using a name in commerce, assuming nobody else has it in your jurisdiction or in your area of service, gives you certain common law rights to it. That’s where you’d see that little ™.
Now why would I register a trademark if I get common law rights to it? So, registering your trademark federally guarantees that you are the only one that can use that mark across the country. Just because you looked at your state LLC office, or you bought a domain at GoDaddy or somewhere else, it doesn’t mean that you are not infringing on somebody else. So, the first thing to do, when you are starting your company or when you are looking to potentially trademark something, is to start with a Google search, but then also search social media. These searches are good ideas, but they are not comprehensive enough because trademark law not only protects the actual name, Coca Cola, but also prevents people from using similar names whether it is similar sounding, similar looking, or similarly spelled or just derivations thereof. So, I couldn’t start a soda company called Coca Cola spelled with k’s. It would just not be right, and I’d be infringing on Coca Cola. Similarly, I could not create a company that would be called “Coca Soda.” I couldn’t say something like that or “Coca Pop.” It would not be allowed, but we do know that the generic name for soda or cola is allowable. So, you are not prohibited from competing with Coke. You just can’t try to gain recognition by using their name.
So, why would you register a trademark? First, to make sure you are not accidentally infringing on somebody else’s mark. Say you have a really cool name idea, and you thought nobody else had it, but the U.S. Patent and Trademark Office had a different idea that somebody else was using that mark. Perhaps someone around the country, or somebody has registered that mark at the federal level. Obviously then, you would have to switch to a different mark, so that you don’t get into trouble for infringing on theirs. That can be really expensive if you started your business, not having done any trademark search. You are already out there, and you are getting bigger and bigger and bigger, and then all of a sudden, somebody who has a registered trademark that sounds really close to yours says, “Hey, buddy, you need to knock it off! So, cease and desist from using our mark. You are infringing on our mark.” This is pretty scary. You could challenge it, but if you are getting a “cease and desist,” it’s likely that you are pretty close. So, the consequences of that are that you have to rebrand entirely. Otherwise, you can incur legal fees and potentially damages. Rebranding entirely from where you’ve already built up this big following is hard but will have to be done. So, it’s better to get this locked down now, or at least get an idea of what you can do now.
I actually don’t offer trademark services, so I have no dog in this fight. I would recommend talking to a trademark attorney or using a service like LegalZoom or Incfile to help you with a trademark search because it is not something you can do on your own. In fact, I don’t do it on my own. I pay a trademark attorney as well, so that’s where my money is and that’s where my mouth is as well.
Second, one of the other benefits is that you are protecting your brand if you register your mark. So, this is the polar opposite of the first benefit where you know you are not accidentally infringing on somebody else’s mark. If your mark is registered, you’ll prevent other people from making similar marks to yours. So, it’s kind of like you can protect and prevent anyone else from using something that is infringing, likely to cause confusion in the marketplace. If patients are looking for your services, and these patients find somebody else, thinking it is you, the practice using your name will have to “cease and desist” at that point, and you will have to go through the process for that.
Third, if you end up wanting to pass your business on to somebody else at some point or sell later on, registered marks do add value to a business from an acquisition standpoint. It’s an asset that your business owns and given enough following and brand recognition can be super valuable.
If you have the means, a trademark with an attorney is about $1500 total. LLCs can be registered for under $200 unless you live in a state like Massachusetts, New York, or California, where the fees are pretty high. In fact, you could use the company like Incfile, and I’ll put a link for them down below. They’ll do it for free, and you just have to pay the state fees. So, that’s a great opportunity as well. The state fees vary by state, so again they should be under $200.
So, which one should you do first? There are several different opinions and this is all for educational and informational purposes, but I recommend,
Some people would say do them at the same time, so you don’t waste your money, having set up a LLC with a name that is infringing. Then, if that happens, there’s a lot of paperwork. In an ideal world, you’d have the trademark search done first, but most people don’t do that. Getting your LLC up and running is not a bad idea. You can change the LLC name. There’s an amendment fee. It’s under $100 most of the time. And if money is tight, starting your LLC, getting going, and getting revenue in is usually the faster path.
Again, LLC registration is about $150 and trademark is about $1500 if you go through an attorney. LLC is cheaper and you can immediately begin to earn some revenue. And then already if you start to use the mark and commerce, so making sales, you have some common law rights to the mark already. And then you can prove that when you go to apply. So, it’s actually up to you. That’s it for LLCs vs. trademarks, which comes first, with a lot of trademark specifics & rights thrown in. Check out our other videos on S-Corp and LLC on our Functional Lawyer YouTube channel.