Avoiding Legal Issues When Selecting a Company Name

What's in a name?

For a company it could be everything. The name is the first introduction you have to your future customers. It's a way of building a brand and can matter a lot when it comes to establishing a foothold in the marketplace.

Think of it as planting your flag in the corporate world. The hitch is, if somebody got there before you, you'll be sent back to the drawing board.

The Legalities

The first legal issue is to make sure your proposed company name isn't already being used by another company. When you file articles of incorporation you are looking to qualify to do business and that begins with your company name. In other words, you can't open up a retail store and call it Target.

For instance, your Widget Inc. could survive as Widget Enterprises Inc. You should be cautioned not to pick a name that is too closely associated with a thriving business. That will get you into trademark trouble.

This is why many corporations often use a family name as the "umbrella" under which many other businesses can be created. You are able to perform a search for your business name beforehand to ensure that it is available. You might find that adding descriptive qualifiers can help if the name you want is similar to another.

The Trademark Issue

Right now, somewhere in the world, there is a trademark infringement lawyer preparing a lawsuit. Businesses who have spent millions on developing a brand and setting up a loyal customer base don't want that all their efforts ruined by some cheeky competitor.

Consider this the rule of the "Mc."

McDonald's has done a great marketing job of associating its products with the "Mc" surname. McNuggets, McWraps, McBites, McChicken, McFlurry... you name it and they put a "Mc" in front of it.

You could come along and have a carpet cleaning business that you want to call McCleaner and McDonalds would be well within their rights to haul you into court with a "cease and desist" order mentioning that your "Mc" is diluting their "Mc" brand. And because their "Mc" is first, you will lose.

Don't think that you can get away with a name that might be close to a company with a low profile. All they would need to do is serve you with a lawsuit and your entire business can come to a screeching halt.

Issuing Shares for Your Corporation

If you are approaching the phase of your business where incorporation is the next move then congratulations!

This is a positive step towards expanding your business and bringing in an infusion of cash.

Every province will have their own distinct set of rules for articles of incorporation. Some of these "zones" are more corporation friendly than other regions. No matter where you land, you'll more than likely be required to write up bylaws, explain the roles on your board of directors and their responsibilities and issue stock.

Questions such as: how many shares should be authorized for an incorporation? Who should be listed as officers and directors? How many shares should be created?

You'll have to look at the big picture of your business for the right answer.

Millions of Shares

Every single stock certificate represents a piece of the company. The owner of that stock is entitled to a dividend based on the stock's performance and the amount of stocks they own. A typical offering of common stock could be anywhere between 10 to 15 million shares.

You can break this down as 8 million shares divided among the founders and 2 million shares for an option pool. The rest can be held in reserved and released down the road. Whatever amount you settle on for the initial release you have to stick to the number.

If you want to increase the amount of shares available that will have to be put to a vote by the board of directors and shareholders because they are all now part-owners.

That first number of shares is also important when you are considering offering them as employee incentives. In other words, you don't want to give everything away all at once and you want to make the incentive large enough to attract good talent.

Stocks for the Small Business Owner

Set aside the headline grabbing IPOs like Facebook or Yahoo. The typical startup can have a stock price share beginning at around $15. Add them up to 20 million shares and you've got a $300 million market cap. That would be an extremely successful IPO launch. It also allows for plenty of buffer room that can prevent stocks from splitting at the time of the launch.

From a small business perspective, you can incorporate your company and issue a single share of stock. Keep in mind that the more shares you do end up issuing the more you'll pay in corporation filing fees.

Before making that call, plot out where you see your business in 5, 10 and 20 years from now. If it's just going to be you and your family running things you might not need to go big. However, if you're goal is to go global, let your stock offering reflect that plan.

For more information on shares, articles of incorporation, and how to incorporate your business in Canada, please visit our website.

Federal vs. Provincial Incorporation

 What's the ideal structure for your new company?

There are two types of incorporation available for new businesses in Canada;

1)      provincial incorporation

2)      and federal incorporation

The difference between the two types of incorporation lies in whether you want to do business locally or nationally. With a federal incorporation, you will have better protection of your brand and the ability to do business all across Canada even though there may be a business with the same name in a province.

 

With provincial incorporation, you can only operate in the province that you’ve incorporated in. This means that your brand is not protected outside of your province. This does not restrict you from doing business with companies in other provinces, however, you won’t be able to protect your name outside of your province or territory.

There are a couple of downsides to federal incorporation though.

 

·         First, federal incorporation involves more paperwork to be filed every year as required by the Canadian Government and also provincial filings in the province that you’re registered in.

 

·         Secondly, federal incorporation costs more. The fee for filing federal Articles of Incorporation is $200, as well as the additional fees from name search reports and registering your company in province.  Also, the ongoing paperwork each year will cost you more than maintaining your provincial incorporation.

If you plan to be a small business - operating locally, it makes no sense to spend the money to do a federal incorporation. However, if you’re a business that has clients across the nation and even in other countries, it would be a good idea to do a federal incorporation.  If you’re an ecommerce business, where you don’t need a physical location to do business, you don’t need to be federally incorporated if you’re just operating from one province.  You can always be provincially incorporated now and then change to a federal incorporation later as your business grows.

Getting Incorporated: Tips on Incorporating a Business

There has been a lot of talk recently about whether or not a corporation can be considered a person. While pundits debate those points, the courts have already decided: a corporation is a legal entity that can enter into lawsuits, be taxed and buy land just as any individual will. As a small business owner you might soon discover there is very little space between you as a person and your corporation. The biggest advantage of incorporating is that it can protect your personal assets. Those should always be kept separate from your corporate umbrella.

The following are tips to follow as you head down the road of incorporating your company.

1)      Decide Where You’ll Incorporate

The three options for business incorporation would be within your own state or province, within your own country or in a foreign country. Most small businesses start out by keeping it simple and incorporating within their own region. However, it is worth exploring other options if for no other reason than the possible tax breaks you might receive. Once you are incorporated all the general laws will apply no matter where your company chooses to file the paperwork.

2)      Decide Your Board of Directors

The next step is to create a pre-incorporation agreement. This agreement will establish who will be on your board of directors and in what position. It will also have you establish the value of your company stock. Note that these stock shares have more to do with position than actual trading. For instance, when Facebook started up, investors and employees were offered stock options as part of their compensation. Years later, Facebook is finally going to go public and those original stock options will hold true value based on what the market decides.

3)      Decide Your Company Name

You’ll next have to file an official registration name for your corporation. Before doing this, you’ll have to research your name to make sure no other corporations that have the same title. You could simply file without the research but if your company name is rejected then you’ll have to start all over again.

4)      Decide on Your Articles of Incorporation

This will become the bulk of your incorporation paperwork and is not something you’ll be able to handle without a corporate lawyer. The procedures for creating these articles will be based on the rules and regulations that have been established in the region where you’ll be incorporating. When these articles have been filed, you’ll be sent an official certificate of incorporation. Once you sign that, you’re an official, fully recognized corporation.

Along every step of the way, there will be filing fees and legal costs you’ll have to pay out. There are some law firms that specialize in filing incorporation papers and offer affordable packages for start-up business. After you’ve completed all of these incorporation steps, you’ll need to hold your first board meeting and set up your own bylaws.