Why Company Formations are for Everyone
One of the fist decisions to make when starting a business is how the operations should be structured. There are company formations, sole traders, partnerships and other business types to choose from and comparing them may stand one clearly above the rest in terms of which one is well suited to the purpose.
If the conclusion is that a limited company should be used as the trading vehicle then this can be effected by contacting a company formation agent and going through the registration procedures.
On the other hand, a sole trader, partnership or another type of unincorporated business is selected then it might be a sensible decision to form a company as well.
Trading and Business Names
It is very common for an unincorporated business to find that another party has registered a company in exactly the same or similar name as their business. This can occasionally lead to elongated legal battles as to who got there first and which business is suffering the most due to the other’s presence.
Under the rules of company and business names, company formations are allowed to use a title even where an existing unincorporated entity is using that business name, subject to a trademark being in place.
Irrespective of the trading vehicle initially chosen, consideration should also be given to the exposure of the unincorporated business in the situation where someone, now or in the future, chooses to form a company in that name.
Mitigating the Risks
There are essentially two options available to sole traders and partnerships seeking to mitigate the risks highlighted above. The first is to trademark the business.
The characteristics of achieving a successful result are largely to be able to establish with reasonable certainty that the name, terms or phrase is widely and publically associated with that business.
This is a very difficult position to maintain for a new business start-up which is largely unknown perhaps locally, yet only on a regional or national basis. The costs of engaging trademark specialists and solicitors to present the case may also be prohibitive when starting business and funds are restricted.
The second option entails using company formations as a means to negate the risk of another party registering an incorporated entity in the same name as that of the business.
Company Formations to Protect a Business Name
Many believe that the company formations option will result in them having increased, arduous and expensive administrative tasks which would need to be carried out in order to maintain this entity.
In reality, many companies are formed as dormant and remain that way with the express purpose of protecting the business name. The duties levied on such companies are few and those which do exist are inexpensive and straight-forward.
Conclusions
Where the option to start business as a sole trade or partnership is taken, consideration should still be given to company formations as a means of protecting the business name.
It is generally better to have this in mind at the outset so as to mitigate the risks immediately and thus be confidence going forward that this particular threat has been overcome.