Registering a business name is one of the first steps of setting up a new business. However, there is confusion about what entity should have the business name and what protection it offers. The consequences of getting it wrong can undermine your asset protection and business structure.
We recently had a client who was sued by one of their customers. The client’s structure was set up so that one company owned the assets of the business, and another company ran the day-to-day operation.
However, the business name was registered in the name of the asset holding company instead of the trading company. This meant that the customer sued the company with hundreds of thousands of dollars’ worth of assets, instead of the trading company which had no real value.
In this case, the claim was relatively minor and the insurer picked up the bill. It was also arguable that the customer was suing the wrong company. However, it highlights the importance of correct business name registrations. An asset holding company should be insulated from risk, and should not have proceedings brought against it in the first place.
Who should hold the business name?
In most circumstances, it is an offence under the Business Names Registration Act 2011 to carry on a business without being the registered holder of the business name. Therefore, business names should be registered in the name of the entity that carries on the business (that is, the trading entity).
The asset holding entity does not carry on the business and therefore should not be the registered owner of the business name. Not only does this expose your assets to risk, but the trading entity would also be committing an offence!
But my trading entity doesn’t own the trademark!
Many people mistakenly register the business name to the asset holding entity, because it owns the trademark or other IP behind it.
However, business name registrations are not about intellectual property. The business names register is for the protection of the public, so that customers know who they’re dealing with and who they can sue. Your asset holding entity is the last entity that should have the business name!
Although it is generally not possible to register a business name if it is already taken, a business name registration does not give you exclusive use of your brand. If you register the business name and someone else already holds the trademark, you may even be sued for infringement.
To protect your brand name from competitors, and to avoid disputes over which entity owns valuable intellectual property, you should consider registering a trademark for your business. The trademark should be held by the asset holding entity and licensed to the trading entity. The terms of the licence should include permission to register a business name.