New Law to Soon Relax Texas Business Naming Rules
Without great fanfare, last June Texas Governor Greg Abbott signed House Bill 2856 into law.
The bill, entitled "an act related to names of domestic and foreign filing for transacting business in this state," changes the standard that the Secretary of State's Office (SOS) must use to determine if a business name is available for registration. This change also applies to businesses formed out-of-state but wish to register to do business here in Texas. The bill provides a date of June 1, 2018, for the law change to go into effect.
"Deceptively Similar" Is Now "Distinguishable upon the Records"
Section 5.053 of Business Organizations Code currently prohibits the SOS from accepting any name that is the same or deceptively similar to a name already in its active records. The new standard, which is already in use in many states, allows a proposed name as long as it is distinguishable from others already on the SOS active records. Therefore, many names previously rejected by the SOS as deceptively similar to an existing business name will be acceptable after June 1, 2018. How close a new name can be to an existing business name, however, will ultimately depend on changes to the current Administrative Rules yet to be proposed by the SOS. Delaware, for example, considers a name distinguishable as long as it contains as little as one additional character from another name. Other states have adopted more restrictive rules that still consider punctuation, spaces, and pluralization when determining if a name is distinguishable.
So why the change?
According to the bill analysis prepared by legislative staff, the benefits of this change include:
-making the process of choosing a business name in Texas more uniform with that of other states;
-ease the formation of new Texas business entities; and
-expedite the registration of out of state business entities to transact business in Texas.
Indeed, the change makes more potential names available at a time of substantial economic growth for our state. However, the bill does not change the manner in which rights to business names derive under common law. Acceptance of a name by the SOS under the current or new standard does not prevent another business with a similar name or trademark from filing a civil suit to prevent the use of a similar name by another party.
Notwithstanding this important change in the law, great care is always in order when selecting a business name. There are many factors other than availability that one should consider when deciding on both a business name and operating structure. Feel free to contact an Austin business entity attorney here at the Posey Law Firm for any questions or to assist in determining how to select the right name for your new or growing Texas business.
AUTHOR: Jake Posey
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.