Company name vs trading name: what’s the difference?
Did you know, it’s possible to register your business name at Companies House, but then to trade under one, or even multiple different names for your company? Some businesses in the UK can have several trading names with only their original name being the one registered with Companies House. You may wonder why some organisations decide to do this and whether there are any advantages. It’s important for business owners and, particularly those just starting out to understand the difference between a company name and a trading name.
The definition of a company name is the name an incorporated business is known by. Company names should be used on all official correspondence, such as letters and invoices and some businesses may also have an obligation to display their company name on their premises too. A trading name describes the situation when a company does business on a day-to-day basis under a different name to the one they have registered with Companies House.
In this article, we will explore both the benefits and drawbacks of using a trading name vs a company name, as well as the factors a business owner should take into consideration before opting to go down this route.
Table of contents
- What is a company name?
- What is a trading name?
- Are there any restrictions if you use a trading name?
- Company name vs trading name: the benefits
- Company name vs trading name: the drawbacks
- Expert insights
- Wrapping up
What is a company name?
When you register your business with Companies House, you are creating a limited company. Having a registered company name will demonstrate to both investors and potential customers that you are a legitimate operator. A business must have a unique name to be registered and it is not possible to register a company if there is already a registered business with the same name. To learn more about choosing a name for your business, see our blog on how to find the perfect name for your business.
Under the terms of the Companies Act 2006, in order for a company to be accepted and registered with Companies House, it must abide by the following conditions:
- It cannot give the impression that the business is connected with HM Government or any local or public authority
- It cannot include sensitive words or expressions unless these have prior approval
- It must not be the same as or too similar to the name of another registered company
- It should include the appropriate ending (i.e. Ltd, CIC, Plc), and
- It must not include certain characters, punctuation, or symbols
Sensitive words include terms that could be contentious or politically offensive. They are expressions that imply a company could have a certain special status. Examples of these include words such as ‘Royal’, ‘Trust’ or ‘Association’.
So, how do you avoid sensitive terms for your company name? The easiest way is to use an online tool, such as the Tide company name checker. Not only will it tell you if your company name is available, but it will also alert you if your chosen name contains any of the sensitive words.
Once you have decided on the new name for your company, then you can use Tide’s free company registration service to register your company for free with Companies House. As well as being quick and convenient, we’ll even pay your incorporation fee for you.
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What is a trading name?
When you register a business with Companies House, it is protected by law, which means that no other company can use this name. Trading names do not have this level of protection. The definition of a trading name is a name (or names) that a person, partnership, or company may use which is different from the name they have registered with Companies House. A business may be permitted to use as many trading names as required, but these cannot be registered as official names of the company.
It’s quite common for UK companies to adopt a trading name to run their business with. This is essentially a different name to that which their business has been registered under. Some limited companies even run multiple businesses with various trading names, yet all under the umbrella of a single limited company. As well as limited companies, sole traders and partnerships are also permitted to use trading names too.
Are there any restrictions if you use a trading name?
As previously explained, trading names do not have the same level of protection as a registered company name. This means that if someone wanted to register your trading name as a limited company, then they would be able to do so. They would even have the right to demand that you stop using the name too! This could cause you considerable problems if you had been trading for a while under this name and had built up an established reputation and customer base. It could prove difficult to recover from the potential disruption this could have on your business.
Another factor to take into consideration is that if you selected a trading name that was too similar to an existing business or sole trader, then there is the risk you could be sued for ‘passing off’. This means that you could be seen to have benefitted from both the reputation and standing established by another business.
You also have a legal obligation to disclose your registered company name and address on your business documentation. This includes invoices, purchase orders, business letters, and any licence applications. Usually, this takes the form of displaying the trading name and address on your company letterhead and then the company’s registered name and address in the footer of the letter. You would also need to ensure that your registered company name is clearly displayed on your company website.
By using a trading name, there is also a risk that you may be infringing a trademark. Therefore it is always recommended to carry out a UK trademark search in addition to a business name check before you start using a trading name. You could incur considerable legal costs if you were found to be infringing another company’s trademark.
If your trademark searches don’t generate any results, then a worthwhile action to take would be to register your trading name as a trademark. This would give it protection for the future and would also help to safeguard your company ‘brand’.
Company name vs trading name: the benefits
Despite the risks and potential restrictions, using a trading name is frequently favoured by many UK companies and there are a number of potential advantages to this approach.
Firstly using one or more trading names to run several businesses under one company may save you time and money with both administration and company secretarial work, such as filing of confirmation statements and annual accounts. This is because you would only have to file these documents in the name of the registered company.
You can also use trading names to differentiate various sections of your business. For instance, the company you have registered with Companies House may be a specialist web design business, but you also provide content services and technical SEO. You could then offer these services with separate trading names so it’s clear to potential customers from your names as to the services you can offer.
A trade name can also bring benefits if you can create one that matches your website domain. This could be particularly useful if the domain name and social media handles for your registered company have already been taken. You would be able to work around this by using the trade name that matches your desired brand name, website and social media profiles. This will also help with the branding of your business and create one identity for your business. For more tips and ideas about branding, see our blog article on how to build a brand for your business.
Company name vs trading name: the drawbacks
One of the main disadvantages to using a trading name is that you always run the risk that someone else may register your name for their business with Companies House in the future. This could cause huge disruption to your business and potentially damage your reputation and standing with your customer base too. Secondly, if you fail to carry out sufficiently thorough searches for both trademarks and company names before you decide on a trading name, then you are running the risk of having legal action taken against you. Thirdly, there is the further risk that, should your trading name be similar to the name of another local business, then this business could accuse you of ‘passing off’ your business as theirs.
💡 Expert insights
Kevin Hanson is a commercial and intellectual property lawyer at LawBite, a digital legal platform for business.
LawBite is the modern way for small and medium-sized businesses to get the high-quality legal advice they need, but faster and cheaper.
Instead of the traditional legal experience that is difficult to navigate and full of hidden charges, LawBite streamlines the engagement with the latest online tools and the first client to lawyer app. With its own law firm on the platform, businesses can be confident that all work is regulated and insured.
What are the pros and cons of using a trading name from a legal perspective?
Many companies use a trading name for one reason or another. This is common in the case of sole traders and unincorporated partnerships where the business owner does not want to use its own name. Limited liability companies use trading names to enable multiple brands to be sold by a single entity.
Pros
- A trading name can generate goodwill in the same way as a company name
- There is no barrier to registering a trademark for a trading name (within the bounds of local trademark laws of course)
- A trading name has no lesser trademark significance than the actual name of a business
Cons
- Use of a trading name instead of a company name in the UK removes access to the Company Names Tribunal in respect of company names registered that are considered too similar.
- A trading name is also potentially more difficult to find online. This can moderately increase the risk of adopting a brand that is already being used by a potential competitor
- Likewise, potential competitors may not identify your use of a trading name when adopting new brands
Wrapping up
There are undoubtedly benefits to operating your business under one or more trading names. Aside from the potential cost benefits of only having to submit confirmation statements and file accounts for the main registered company, you also have the opportunity to clearly differentiate the various functions of your business, as well as build a strong brand by aligning your trading name with your domain name. However, there are serious risks and pitfalls too and it certainly makes sense to carry out comprehensive company name and trademark checks before you decide to go down this route, as the risks could prove costly.
Sources used for this article
- Wikipedia – trading names
- Wikipedia – company names
- Companies House – sensitive names
- The business name act 1985 – https://www.legislation.gov.uk/ukpga/1985/7/contents
- Business companion – company and business names
All sources checked as of 9th September 2021
Photo by Polina Zimmerman published on Pexels
