Are There Restrictions on Naming a Sole Proprietorship?

by Lee Roberts
For a sole proprietor, your name is your business.

For a sole proprietor, your name is your business.

George Marks/Retrofile/Getty Images

Starting a sole proprietorship is a relatively simple way to open a business. Sole proprietorships accommodate the talents and skills of a broad cross-section of entrepreneurs, some with years of experience, but also those with only budding ideas about the services they want to provide or goods they hope to sell. Take advantage of the simplicity of starting up your sole proprietorship, but do not neglect the rules for naming your venture.

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State Laws

Look to the laws of your state to determine your rights and responsibilities with respect to forming and running a sole proprietorship. Each state sets its own rules for specific naming conventions of the businesses within its borders, including sole proprietorships. In general, states take into account whether your name will deceive or confuse competitors, consumers and creditors about your identity and your associations with other businesses.

Structure

A sole proprietorship is not a business structure that has a separate legal identity independent of its owner. It is simply a mechanism by which one individual conducts a business. All of the business’ relationships and benefits belong to the owner, who is personally liable for all of the business’ liabilities. For example, anyone wishing to bring a legal action against the business must name the owner of the business personally, rather than treat the business as a separate party to the suit.

Business Names

Sole proprietors who wish to use names for their businesses other than their own personal names must file documents with their respective states identifying the business owner's name and that of the business. The state's interest in controlling business names is to make sure the public can identify who is legally responsible for business activity. For example, the owner of a hardware store called “John Howard’s” does not have to file a Fictitious Business Name form in California if the owner's full name is, in fact, John Howard. But he does have to register if his name is John Howard Jones, according to the Governor’s Office of Business and Economic Development of California. A few states, such as Kansas, Mississippi and New Mexico, do not require you to file documents to operate under an assumed name, as of August 2012.

Penalties

Operating a business without registering under the rules your state prescribes may result in paying penalties to the state. For example, Colorado requires a sole proprietor to file a Statement of Trade Name before operating under a fictitious business name. Failure to file may “subject the person to monetary penalties and an injunction which stops the person from continuing to transact business,” according to the office of Colorado’s Secretary of State.