The Name Game
The answer is a resounding yes if franchisors prefer their franchisees follow state law. It is a common practice that protects the franchisee and can be done in a way that keeps the franchisor’s trademark intact. Registration guidelines vary from state to state, so it’s important to understand your individual requirements based on location. Let’s clarify.
When you invest in a franchise (become a franchisee) it is recommended that you form a separate legal entity to avoid personal liability. Whether that entity is a corporation, or a limited liability company will vary depending on the state in which you do business.
Let’s break those down first.
- A corporation is a legal entity that is separate and distinct from its owners. Typically, articles of incorporation can be filed for only one business name per state.
- A limited liability company (LLC) is a corporate structure in the United States whereby the owners are not personally liable for the company’s debts or liabilities.
Many states in the U.S. require that a business operating under a name different from its legal name, register that trade name with the state as a fictitious name.
It’s called a DBA, d/b/a or “doing business as.”
For example, if XYZ, Inc. is doing business as KL Franchising (the trade name of the franchise), then XYZ, Inc. would file the fictitious name registration with the state, doing business as KL Franchising. Many franchisors prefer the fictitious name include their trade name, plus the locale of the territory associated with it. This protects their trademark while at the same time allows the franchisee to comply with state law.
Here is the formula using the XYZ Inc. example.
BUSINESS NAME + REGISTERED AS + doing business as + FICTITIOUS NAME + LOCALE
XYZ + Inc. + doing business as + KL Franchising + of Philadelphia.
XYZ, Inc. d/b/a KL Franchising of Philadelphia
Business registration is a simple but required crucial step to take when one becomes the business owner of a franchise. The way a business is registered clarifies protections for both the franchisee and the franchisor. Therefore, to answer the question, a franchisor should absolutely allow, even prefer, a franchisee to comply with their state’s laws and file a fictitious name registration when required by that state.
Have additional questions? Contact Spadea Lignana Franchise Attorneys or learn more about our franchisor legal services.