If you’re starting a business or launching a product/service, you’ve probably heard of both LLCs and trademarks. Both of these terms are essential for any business owner to understand, but they serve entirely different purposes! In today’s post, we’ll break down the differences between LLCs and trademarks and explain why your business probably needs both!
What is an LLC?
LLC stands for “Limited Liability Company”. It is a type of business entity that separates and protects a business owner’s personal assets from that of the business’s liabilities.
An LLC has its own tax ID number (EIN), can own assets, can enter into contracts, and can sue or be sued. As such, registering an LLC simply signifies that you are operating “X Business Name within X state”. This along with your EIN helps the IRS identify your business come tax season.
So in simple terms, your LLC’s name could be your trade name, i.e. the name your business is commonly known as or the name you use when advertising or doing business (DBA – “doing business as”). (And your trade name may even be the same as your trademark if you choose to register your brand name).
One of the main advantages of forming an LLC is that it provides personal liability protection. This means that if the business is sued or owes debts, the members’ personal assets, such as their homes or cars, are protected. Another major advantage of an LLC is that it offers flexibility in how your business is managed and taxed.
However, a disadvantage — or, a very popular misconception among new entrepreneurs — is that registering your LLC prohibits others from using your LLC name aka trade name. That is completely false.
Two or more businesses can share the same name as long as they operate within different states. The purpose of an LLC is not to prevent others from using your business name; it is just intended to identify the name and state of your business’ operations.
What is a Trademark?
A federally registered trademark, on the other hand, is a symbol, word, or phrase that identifies and distinguishes a product or service from others across the country.
The purpose of a trademark is to protect a company’s brand identity and prevent other businesses from using your exact and/or a similar mark (brand name, logo, slogan, or other source-identifying mark) that could cause confusion among customers.
Though both LLCs and trademarks —specifically a brand name trademark — have a “name” component to them, trademark registration is what protects your business’ money-makers, making it the most valuable business asset you can own.
Once a trademark is registered with the United States Patent and Trademark Office (USPTO), the owner has exclusive rights to use it in connection with the products or services it represents. For a full list of all the benefits granted through trademark registration, check out this blog post.
And we’ve created a simple Venn Diagram to help you remember:
Difference Between LLC and Trademark
So now that we’ve defined LLCs and trademarks, let’s explore the differences between them.
Legal Entity vs. Intellectual Property
We alluded to this before, but a major difference between these two terms lies in the fact that one is a legal entity and the other an intangible property.
I like to say that your LLC is how the state recognizes your business, but your trademark is how the country (and the world) identifies your brand.
By forming an LLC, the IRS knows that you are operating X Business Name within X state. However, by registering your trademark, the entire country is put on notice that X Business Name — or any other other mark — belongs to this source and prohibits anyone from using anything identical and/or remotely similar to X Business Name in your exact and/or similar industry.
Ownership and Liability
Another significant difference between an LLC and a trademark is ownership and liability.
An LLC is a business entity owned by one or more members, whereas a trademark is an intellectual property right owned by an individual, multiple individuals, or a company, like an LLC.
And in fact, many prefer that their LLC own their own trademark(s) rather than to file them as an individual(s), making them subject to their own personal financial situation.
Moreover, remember: LLCs offer personal liability protection to the members, whereas trademarks do not.
Registering your trademark offers an entirely different type of protection, specifically “brand protection”, as it mimimizes customer confusion, distinguishes your brand from copycats, and ultimately upholds your business’ reputation by preventing identical and/or similar marks from entering in the marketplace.
Registration Process & Costs Associated
Lastly, the process and costs of registering an LLC versus registering a trademark couldn’t be any more different!
To form an LLC, you must file an articles of organization within the state the business will operate and pay a fee that varies from state to state.
In New York, for example, the state filing fee is $200 with a biennial renewal fee of $9. Notwithstanding the 6-week Publication requirement for New York LLC’s, that many DIY entrepreneurs unknowingly skip, the process is relatively straight-forward and less time-consuming.
Registering a trademark, on the other hand, is a lot more complex and more expensive!
Currently, due to COVID-19, trademark registrations take an estimated 12-18 months to complete compared to the previous 6-9 months timeline. And it takes a minimum of 9 months before your application is even reviewed by an Examiner compared to the previous 3-month wait! With more time on their hands, so many entrepreneurs began to take their brands more seriously, including filing trademark applications. Now, the USPTO is severely backed up.
This means that if you choose to work with an attorney, you will likely be working on this project for over a year.
Furthermore, the process of registering a trademark also involves more steps when working with a licensed trademark attorney. We perform a comprehensive trademark search, review the results and provide you with our legal analysis in the form of an Opinion Letter, research and collect information needed for your application, draft and file your trademark application, monitor for conflicting marks, respond to potential Office Actions issued by an Examiner, and conduct other ancillary services.
Due to the amount of research and time dedicated to a single trademark application, registering a trademark is more expensive than forming an LLC. The cost of an application alone ranges from $250 to $350 per mark/class.
Final Thoughts
In summary, an LLC and trademark are two essential concepts that every business owner should understand and likely own. They serve entirely different purposes!
And so, deciding whether to form an LLC or register a trademark depends on the business’s needs and goals. If personal liability protection is a concern, forming an LLC may be the right choice. If protecting a brand’s identity and preventing other businesses from using a similar mark is the priority, registering a trademark is necessary. And we venture to think that both will be important to new entrepreneurs.
Our Firm can provide you with valuable guidance in setting your business up as an LLC or with registering a trademark. Book a Discovery Call or Trademark Discovery Call for your legal solution!
