Assumed Names: What You Need to Know
Regardless of your form of business— corporation, limited liability company, partnership or sole proprietorship— you need to comply with your state's assumed name statutes if do business using any name other than your legal name.
What is considered "doing business" varies among the states. If you are operating your business—selling products or services, hiring employees—you will most likely be considered to be doing business. In other cases, an examination of all the facts and circumstances may be necessary to make the determination. It's important to realize that doing business for purposes of an assumed name filing may be determined differently from doing business for other purposes, such as having to qualify in a different state or for tax purposes.
These provisions are designed to ensure that the public can find out the true owners of business for a variety of purposes, such as checking credit ratings, searching for judgments or liens against the business, and serving the business with notice of a lawsuit.
If your business operates as a corporation, limited liability company (LLC), or a limited partnership (LP), your legal name is the one used on the formation or foreign registration documents. If your business was required to adopt a different name because of a name conflict in a foreign state, the name chosen in the foreign qualification process is equivalent to your legal name in that state. In the case of a sole proprietorship or partnership, the legal name is the name of the owner or partners.
Why Use an Assumed Name?
There are many reasons why you might want to operate your business under an assumed name. The following are some of the more common reasons:
- The legal name is difficult to pronounce, cumbersome or unwieldy. For example, International Business Machines is far more recognizable as IBM.
- You may offer a variety of different product lines or services and want a name that appeals to each of these different segments. For example, you operate a hair salon and you also provide in-home beauty services: Your salon operates as "Kelsey's Custom Cuts," while the in-home services operates as "Hairs to You."
- Your name has a negative connotion or is associated with negative publicity—even if you had nothing to do with the situation.
Assumed names, unlike legal names, are not exclusive in most states. If you incorporate as "Wally's Widget World, Inc.," your competitor will be barred from incorporating under that name. They are also barred from using a deceptively similar name, such as a plural form ("Wally's Widget Worlds, Inc."). No such protection exists for an assumed name. If you wish to protect an assumed name, you will need to file for protection under the trademark and tradename laws.
State Rules Vary Widely
Although nearly all states require businesses to register if they use an assumed name, there is little uniformity beyond the basic information: your legal name, principal place of business and home state. In most states, the information required will depend upon the type of entity (e.g., corporation versus sole proprietorship).
The office where you must file also varies by state. Although most states require that the assumed name document be filed with the secretary of state, this is not true for every state. Some states require the documents to be filed as the county level. Depending upon the state, the proper county for filing is where:
- your principal place of business is located
- your registered office is located, or
- your business is to be transacted
Some states require both state and county filings. In a number of states, you are also required to publish an assumed name notice in a local newspaper.
You may wish to conduct your business under a number of assumed names. If you do, then you will mostly likely needed to file separate documents for each name you are using.
In many states, your filing responsibilities don't end with the initial registration. Depending upon the state, you may have to file periodic renewals. If you opt to stop using an assumed name, you generally should file a document cancelling the assumed name registration.
Failing to File Carries a Number of Risks
Nearly all states have some teeth in their assumed name statutes. Some states impose monetary penalties, which can mount up, while others impose criminal fines. In some states, you cannot enforce a contract or bring a lawsuit until you have properly registered your assumed name.
In addition to these statutory penalties, you can find yourself personally liable for contracts that you intended to enter into on behalf of the business because you failed to adequately disclose the identity of the business.
Given the fact that assumed name statutes are far from uniform and may require multiple filings at the state and county level, many small business owners opt to use a company that specializes in business filings to ensure that the correct form is filed in all the necessary locations (BizFilings is one company that offers such assumed name services). But whether you opt for a complete do-it-yourself approach or work with a professional service provider, it is essential that you follow the rules in order to avoid unpleasant repercussions.