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If you are starting a new business or have even been in business for a while, you may have wondered about the difference between a trademark and an LLC and which one is best for your business. Should you take one or both? What exactly do they do for your business?
Trademarks and LLCs are two of the most common legal tools used by business owners. But they actually accomplish two very different things.
In this article, I’ll explain exactly what trademarks and LLCs are, why they’re important to your small business, and when you need one or both. Let’s go!
- Trademarks and LLCs are two very different things: They serve distinct legal purposes for small businesses. Trademarks protect the visual identity of the brand, including names, logos and slogans, while LLCs establish a legal separation between personal and business finances to limit liability.
- Most Small Businesses Need an LLC: For most small businesses, forming an LLC is highly recommended due to its importance for liability protection and tax benefits. This legal structure protects personal assets in the event of legal issues, providing a crucial level of protection.
- Consider both for complete protection: To establish a solid legal foundation and obtain comprehensive legal and financial protection, the article suggests considering both an LLC and trademark registration. This combination is especially beneficial if your business has a unique name, valuable brand assets, franchise or licensing plans, or if you want maximum legal protection as it grows.
Do I need a trademark or LLC for my small business?
The short answer: it depends on your specific activity! Here are some guidelines:
- Most small businesses will want to form a SARL for liability protection and tax benefits.
- If your business has a name, logo, slogan, etc. unique, save it as trademark is intelligent to avoid imitation.
- For complete protection as you grow, trademarks and an LLC are recommended.
But they protect your business in different ways:
- Trademarks legally protect your brand identity like names, logos and slogans.
- SARL Separate your personal and business finances to limit liability.
Let’s explore what each of these means so you know when to use trademarks or LLCs.
What is a trademark?
A trademark is a word, phrase, symbol, design, or combination that identifies the source of a company’s products or services.
Here are some examples of well-known brands:
- McDonalds golden arches
- Apple’s apple logo
- IKEA’s blue and yellow brand
Basically, trademarks represent the visual identity of your company’s brand. How customers recognize you and distinguish you from your competitors.
Why are brands important?
Trademarks are important because they give you the exclusive right to use that identity in commerce.
For example, Nike’s swoosh or Chick-fil-A’s “Eat Mor Chikin” cow campaign. Their brands prevent other companies from using these brand assets.
Without trademarks, another company could potentially use your company’s name, logo, slogans, brand fonts, etc. This could confuse customers and divert business away from you.
What can be a registered trademark?
Some of the most common trademarks for small businesses include:
- Your business name
- Logos
- Slogans
- Unique fonts
- Package templates
But you can also file:
- Podcast and book titles
- Course names
- Software and app icons
- And more!
Basically, if it represents your brand identity that you use in business, you can trademark it.
What is an SARL?
An LLC stands for “Limited Liability Company”.
This is a business structure that separates your personal finances from those of the business. The LLC becomes its own legal entity.
This separation gives you “limited liability,” meaning your personal assets are protected if the business is sued or goes bankrupt. Only the assets of the LLC are at risk.
Creating an LLC also allows you to:
- Open business bank accounts
- Apply for licenses and permits
- Potentially reduce personal taxes
LLCs also make your business appear more legitimate to partners and customers.
LLC vs. sole proprietorship
Without an LLC, your business is considered a “sole proprietorship” by default. This means there is no legal separation between you and your business.
This exposes you to A LOT more personal liability. If your business is sued or goes bankrupt, your personal assets could be seized to cover the debts.
This is why it is so important to move from sole proprietorship to LLC – it adds legal separation and asset protection.
Main differences between LLCs and registered trademarks
Now that you know the basics of each, let’s recap the main differences:
They protect different elements of your business
- Trademarks protect your visual brand identity – name, logo, slogans, fonts, etc.
- SARL protect your personal assets and limit your financial liability
They are recorded via different processes
- Trademarks are registered federally through the United States Patent and Trademark Office (USPTO).
- LLCs are registered locally with your state government.
They give you different legal rights
- A federally registered trademark grants exclusive national rights to that brand identity.
- An LLC gives you the right to legally operate as a business entity in your state.
They have different ongoing requirements
- Trademarks must be renewed every 10 years and actively used in business.
- LLCs require annual reports and fees to stay compliant with the law.
Most small businesses need an LLC, trademarks are optional
For most small business owners, forming an LLC is non-negotiable for liability and tax reasons.
Registering a trademark is optional but can provide valuable protection to unique brand assets.
Should I get a trademark AND an LLC?
For complete legal and financial protection as you grow, my recommendation is to acquire both an LLC and a major trademark.
Here are some scenarios where it makes sense to have both:
You have a distinctive business name
If your business name is unique or memorable, registering it as a trademark prevents competitors from using it. Even if you are currently a sole proprietorship.
Your logo or brand identity is worth protecting
The same goes for any logos, fonts, colors, slogans or other visual marks you want to lock. Brands will stop being imitated.
Are you considering franchising or licensing your business?
If your goal is to franchise your business model or license your brand, trademark registration is a must. It legally protects your intellectual property assets.
You simply want maximum legal protection
For small business owners who want the most comprehensive protection possible as they grow, brands and LLCs check all the legal boxes.
Consider your specific risks and goals. For most, having both offers great benefits with few downsides.
How do I get a trademark and LLC?
If you have decided to get both a trademark and an LLC, here are the next steps:
Apply for your LLC
Forming an LLC is done through your state government, usually the Secretary of State or Division of Corporations. Legal services like LegalZoom can also take care of this for you.
The fee to form a State LLC is generally $50 to $500 depending on your state.
Register your trademarks
The federal trademark registration process includes:
- Research – Thoroughly research federal and state records to ensure your mark is unique and available for registration.
- Application – Complete the USPTO application with details of your trademark, business services, and other required information.
- Goodbye – The USPTO performs a complete review to ensure that your application meets all legal requirements. Approval takes approximately 6-12 months.
- To use – Once registered, you must actively use your trademarks in commerce within 6 months.
Full federal trademark registration costs between $225 and $400 per class of goods/services. I would recommend working with an intellectual property attorney to ensure everything is properly formatted, filed, and filed.
Registered trademarks or SARL: points to remember
As you can see, even if brands and SARLs complement each other, they meet very different legal objectives:
- Trademarks legally protect your brand visual identity assets
- SARL legally separate personal and professional finances
My advice to most business owners is:
- Create an LLC Immediately to Receive Liability and Tax Benefits
- Trademark your name, logo and other brand assets if they are unique and worth protecting
Having both sets a fantastic legal foundation for your business as you begin to grow.
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