Business Names: Canadian Tax Lawyer’s Guidance

What’s in a Name?

The name of a business is an important choice. It can be an advertising tool and a unique identifier for your business. In some cases, the name of business itself can become a valuable asset which can be sold. Therefore, it is important businesses understand the legal requirements of choosing their business names.

Business name regulations depend on where the business or business name is registered and differ federally versus provincially and in each province.  The discussion below is general, and may not encompass all naming restrictions or regulations. Newfoundland and Labrador, for example, does not require sole proprietorships to register a business name even if the business name is not the sole proprietor’s legal name. Before registering a business name or incorporating a business, an expert Canadian corporate and tax lawyer should be consulted to understand the local regulations.

Intellectual Property

For the purposes of this article, the discussion of business names is limited to the corporate and tax law rules. Readers should be aware intellectual property concerns may exist with regards to selecting their business names. For example, corporate law may allow a new business to register “Starbucks” as its trade name but Starbucks might be able to enforce their trademark to prevent use of this name if there is possible infringement of the trademark.

Legal Name

A sole proprietor can choose to use just his or her name as the business name, in which case no legal registration of the business name is required. If the sole proprietor would like to use a business name that is not solely his or her legal name, that individual will need to either incorporate or register a trade name. Both of these options are discussed in greater detail below.

In Ontario, partnership names depend on the type of a partnership. For general partnerships, the partnership’s business name must either be the solely the legal names of the partners, in which case no business name registration is required, or the partnership must register a trade name. Limited partnerships must register a business name which contains the words “Limited Partnership” or “L.P.”. The business name cannot include the surname or distinctive part of the corporate name of any limited partner unless that name is also the surname or distinctive part of the corporate name of a general partner. If this rule is not followed, the limited partner can be held liable for the partnership’s debts as if the limited partner were a general partner. Limited Liability Partnerships must also register their business names and use the “limited liability partnership”, “société à responsabilité limitée”, “LLP”, “L.L.P.” or “s.r.l.” in the business name.

Corporations have two options with regards to their legal names; numbered name or word name. If the corporation elects for a numbered name, the relevant government agency will assign them a name. Numbered names are typically will typically be in the format of 1234568 Canada Inc. or 1234568 Ontario Inc. – a unique 8 number string followed by the location (federal or provincial) where the corporation is incorporated and “Inc.” which indicates the business is a corporation. If a corporation is registered federally, the relevant government agency is Corporations Canada. For provincially registered corporations, it will be the corporate government agency for that province. An incorporating business may elect to have numbered name assigned, which guarantees compliance with the restrictions on corporate names, then register a trade name which is more flexible.

Word names are determined by the person or persons registering the corporation. They must comply with the requirements for word names. Federally, these are:

• The name must unique and sufficiently able to distinguish the corporation from other businesses. The name cannot be too similar to an existing business name, corporation name or trademark. Names that would be rejected may include Tax Preparation Inc. because this name describes the activities of the business and is not sufficiently distinctive.
• The name cannot contain prohibited terms such as RCMP or Parliament Hill
• Without written consent, the name cannot suggest governmental or institutional sponsorship or control.
• The name cannot be misdescriptive in a way which misleads customers as to the nature or activities of the business. A car repair business cannot be incorporated with the name Experienced Tax Lawyers Ltd. because its business is unrelated to tax law.
• The name must contain any mandatory terms required, such as Inc. or Ltd. for incorporated businesses.

Trade Name

A trade name is the name under which a business operates or does business. Trade names are administered by the provinces, and may vary depending on the province. The trade name for a business may be the same as its legal name, or a business may elect to register a trade name which is completely different than its trade name. A business can have as many trade names as it desires. Businesses generally have significant leeway with respect to choosing their trade names, but there are some restrictions. These restrictions fall into two categories: no offensive terminology and not misrepresenting the business. The latter prevents situations such as a sole proprietor claiming they are incorporated, a corporation claiming an association with a university or the government, or claiming an unrelated individual is involved in the business. A business may be required to renew their trade name registration every few years. Trade names and trademarks are separate, and businesses should consider registering both.

Whether a trade name must be unique depends on the province in which the trade name is being registered. In Ontario, there is no requirement that a trade name be unique or sufficiently distinct from other business names to be registered. Businesses are responsible for monitoring whether other businesses are registered or operating under similar trade names. However, if a business suffers damages because another business has registered and is operating under a sufficiently similar business name, the injured business can sue the other business for damages and may have the other business’ trade name deregistered. In Saskatchewan, a trade name will not be registered if the name is too similar to an existing trade name. Whether legally required that a business have a unique trade name or not, our experienced Canadian corporate and tax lawyer generally advise businesses to choose unique names to avoid confusion with competitors.

Penalties for Not Complying with Business Name Restrictions

Where specific limitations on the registration of a business name exist, proposing a business name which violates those restrictions will generally result in the business name being rejected. The business will either have to reapply and demonstrate the chosen business name does not violate the restrictions, or choose a new name and register again with the new name.

If a business decides not to register and simply just starts operating under a trade name which does not comply with the legal name rules, penalties may apply.  In Ontario, individuals can face fines of up to $2,000 and corporations can face fines of up to $25,000. If a business does register its business name but registers false or misleading information, the same fines can apply.

Canada Revenue Agency’s Tax Requirements for Business Names

The Canada Revenue Agency (“CRA”) utilizes the business’ name for tax assessments and other correspondence. It will default to using the business’ legal name unless informed otherwise. A business must notify the CRA if their trade name varies from their business name or if they change their trade name.

Taxpayers should be aware that using the legal or trade name has no impact on tax liability. For sole proprietorships, any income or losses are reported directly as part of the sole proprietors’ income on the annual T1 tax return even if the sole proprietor does not operate under his or her legal name. If the sole proprietor is remiss in paying taxes for the sole proprietorship, the sole proprietor is personally liable for the unremitted taxes. Corporations, by way of contrast, are considered a separate taxpayer from their shareholders and report their own income and losses on a T2 tax return. Except in limited cases of certain transfers while the corporation has a tax debt to which section 160 of the tax act applies, the shareholders cannot be held liable for the unpaid taxes of the corporation.

If a taxpayer is looking to claim GST/HST input tax credits, the taxpayer should pay attention to the supplier’s business name. For this purpose, business name is defined to include the supplier’s legal, operating, or trading name. The supplier would have used this name when registering for its GST/HST number. If the name displayed on an invoice differs from the supplier’s business name, the input tax credits can be denied by the CRA. The CRA offers a free online search to confirm the business name matches with the GST/HST number, and the supplier was registered on the transaction date. If the taxpayer anticipates claiming a large amount of input tax credits with respect to a single supplier, that taxpayer may wish to consider having one of our experienced Canadian tax lawyers conduct additional due diligence to ensure there will be no issue claiming the input tax credits.

Pro Tax Tips: Corporate Name Searches and Registration

The uniqueness of a legal name or trade name from the names of other businesses has been discussed throughout this article. A unique or distinctive business name is not always a legal requirement, but is almost always a good business choice. Having a business name which is confusing similar to another business’ name can lead to loss in customers and reputation. It could even lead to a lawsuit being erroneously filed against the wrong business!

Businesses can determine whether their proposed business name is unique by researching businesses in the area they’re looking to operate. The business will also want to consider a trademark registry search. To check whether a business name is already registered, a NUANS Corporate Name Search can be conducted. These searches can save businesses time and expense by validating whether conflicting business names exist before the business goes through the entire registration purpose. The application for registering the business name may allow the registrant to provide additional information to explain to Corporations Canada, or another relevant government agency, why a name which is similar to an existing business name or trademark should be allowed. Similar names will be permitted where the registrant can demonstrate a sufficient difference, such as geographic operating area, to avoid confusion between the two similarly named businesses or a pre-existing legal claim to that name, such as a trademark to a related name.

Ensuring the proper due diligence is done to ensure compliance with business name regulations is vital for properly registering a business name quickly and efficiently. Our experienced Canadian corporate and tax lawyers can assist with business name registrations, as well as other aspects of setting up your business, such as incorporation tax advice.