Choosing a name can be one of the most important decisions a company can make. After considering the business and marketing implications of a given name, a company also needs to ensure the desired name has not been trademarked through use or by registration with the U.S. Patent and Trademark Office. Finally, when registering the entity to do business in a state, there are a number of legal requirements that vary depending on where the entity registers.
The legal requirements for company names in New York can present many difficulties. Some things that have the potential to create problems or delays include:
the large number of active registered companies (This increases the chance that the name you want will not be available for use.)
a somewhat nebulous procedure for determining whether a name is different enough from the names of existing entities in the state
the inability to obtain consent for the use of a similar name
the need to obtain another state agency’s approval for the use of many words and phrases
Decreased Pool of Available Names Due to Number of Registered Entities
New York state’s history as one of the most populous states and the fact that it is a major financial center have likely played a major role in the large number of business entities that are registered in the state. New York has over 1.7 million active registered companies, which is more than highly popular filing states like California, Florida, Delaware and Nevada. In fact, as of the end of 2010, New York holds the title for most active companies on record.
A contributing factor to the large number of active entities on record is New York’s somewhat lax policy regarding dissolving existing corporations. Many Secretary of State offices administratively dissolve companies that have not filed their annual reports after a specified number of years. In New York, the primary reason for administrative dissolution (dissolution by proclamation) is notification from the Department of Taxation and Finance that the company is delinquent in paying franchise tax. These notifications, however, do not always occur within a predictable time frame, so there are many companies that have not paid taxes for years, but are still listed as active on the Secretary of State’s records.
New York state’s voluntary dissolution requirements also help to create a situation where inactive corporations remain on record. New York does not allow a corporation which never engaged in business to quickly and easily dissolve as many other states do. Instead, the company must apply for tax clearance and file a tax return, even if shares have not been issued and the corporation never engaged in business. Because of this, some New York corporations, especially those formed carelessly or in error, ignore their obligations and let inactive companies remain on record.
With well over 100,000 companies getting filed each year and the policies described above that contribute to keeping inactive or delinquent companies on record, it is a fairly common occurrence in New York that the name a company wants to use is not available.
Strict Requirements Regarding Distinctiveness of Entity Names
New York’s rules regarding the uniqueness of an entity name also contribute to desired names not being available for use. Every state requires that a registered entity be either “distinguishable” or “distinguishable on record” from other registered entity names, or not “deceptively similar” to them. Usually, it is easier to find an available name in states like Delaware with “distinguishable on record” statutes. For example, making one word plural in Delaware is enough to distinguish one name from another. “Deceptively similar” states, such as California or Texas, tend to take a stricter approach and not allow names which vary in spelling, or form of the word.
New Yorkuses the term “distinguishable” in the Business Corporation Law and, through the New York Codes, Rules and Regulations, operates like a “deceptively similar” state. Section 156.2 of Title 19 states that a name is not considered distinguishable if the only difference between the proposed name and an existing name is a change in tense or form of the word (including abbreviations, alternate spellings, or alternate numeral systems, such as Roman and Arabic), punctuation differences or the addition of the word “company.” Whether a word is considered to be a form of another word is often decided by the individual reviewer at the Secretary of State’s office and procedures change over time. For example, the terms “real estate” and “realty” have at times, in the past, been considered to be indistinguishable, but at other times have not.
In some ways, Texas is tougher than New York when it comes to entity names. Besides “deceptively similar” rules that are very similar to New York’s, it has a further, broader category of “similar name requiring consent.” Under section 79.40 of Title 1 of the Texas Administrative Code, names that contain “similarities which may tend to be misleading as to the identity or affiliation of the entity” will require the consent of the existing entity to be accepted. Under this rule, a company wishing to use the name “United Phase Two” or “United Productions” would need to provide a letter of consent from an existing “United Company,” because they share the word “united.” This is a much broader interpretation of similar names than New York. A key difference is that Texas, like many other states, allows an existing company to grant consent to the forming company. In New York, this is never allowed; the new company must provide a distinguishable name.
Use of Assumed Name When Desired Name Not Available
New York offers an alternative that allows a company to use the business name they want even though it is not available. A Certificate of Assumed Name can be filed, pursuant to Section 130 of the General Business Law, after registering as a corporation, limited liability company or limited partnership under a unique, but less desirable, name. Note that in New York, an assumed name cannot contain an entity indicator such as Inc., Ltd., LLC, etc.
An assumed name filing only registers the name with the state, meaning that in the state’s eyes, it can conduct business using that name. It does not protect the name in any way, since assumed names in New York are not required to be unique. A company should also bear in mind that registering an entity name, either as an assumed name or as a true entity name with the Department of State does not in any way ensure that the chosen name could not be considered a trademark infringement and subject to legal proceedings. Whether choosing an assumed name or an entity name, a company should first ensure that the name it wishes to have will not be confusingly similar either because of a registered trademark or prior usage that would constitute a common law trademark.
Finally, when choosing an assumed name in New York, note that Section 130(2)(3)(c) of the General Business Law indicates that corporations, limited partnerships and limited liability companies can’t use a name “which consists of or includes a word or words the use of which is prohibited or restricted…” by the laws governing the formation of those entities.
Prohibited or Restricted Names in New York
The list of words that are prohibited or restricted is quite long in New York and extends well beyond the list of 31 words and phrases listed separately in Sections 301(5)(a) and (b) of the Business Corporation Law. My company has found that there are at least 90 words and phrases that are either listed in the statutes or have been determined through experience to require additional consents and approvals from other agencies. Often, this consent or approval will be required even when the meaning of the word as it is used in the name makes it clear that the company is not engaging in an activity that the approving agency governs. For example, let’s say an independent bookstore decides it wants to use the name “The Title Page Book Store, L.L.C.” Even though it is clear from the name that this company is not involved in the title insurance business in any way, it will still be required to obtain consent or waiver of consent from the Insurance Division of the New York Department of Financial Services to use that name. Consents and approvals can be obtained, but the process is often a lengthy one, so it is wise to verify whether the name contains a restricted word well before the company wishes to form.
Reserving Names: Beware of Limitations
Name reservations can be requested to help protect a desired name, but it is important to understand their limitations in New York State. A name with a restricted word can be reserved without obtaining the required approval from the appropriate state agency, but consent will be required when filing the documents. The name reservation itself does not guarantee that the name can be used. When reserving the name, it is important that the company reserves exactly the name it wishes to use. If the name on the filing differs from the reserved name in any way, even if it is only the omission of a comma, the state will require that the existing name reservation be canceled for an additional fee before the document can be filed.
Finally, it is important to be aware of certain delays that occur when reserving a name. A name reservation filing receipt, which is issued late in the afternoon after the actual reservation, must accompany the filing. Accustomed to procedures in other states, people often wish to reserve the name one day and form the company the next. In New York, due to the filing receipt requirement, this cannot be done unless the company pays expensive two hour expedite fees when filing the reservation.
Importance of Registration Confirmation; Registration Does Not Protect the Name
When registering an entity, keep in mind that the final determination is always in the hands of the filing officer. Even if every precaution has been taken to ensure the availability and acceptability of a name, it is important to wait until the document has been accepted and filed before obtaining bank accounts or taking other actions that assume there will be no problem with the registration. Understand that registering an entity name with the Secretary of State does not necessarily mean the company is legally allowed to use it. The desired name should be checked against trademarked names and names already in use to ensure that it will not be subject to trademark infringement legal proceedings. Similarly, registering a name as an entity in New York or in any state also does not protect it from anything other than having another entity register the same or very similar name based on the particular state’s rules. Trademark filings are needed to protect a name nationwide.
In summary, understanding the legal requirements for company names in the state or states where a company is registering is critically important. New York is one state where those requirements can create unexpected issues. A knowledgeable and experienced service provider can alert you to potential problems and pitfalls of the chosen name and help you avoid the additional costs and delays involved when filings are rejected.