If you accept credit card payments, you should have a registered business name. It will create consistency over your business identity and reduce the chance of the costly friendly fraud. A registered business name also helps your marketing efforts and protects your privacy. This article examines the benefit of registering a business name.
What’s Your Name?
How would you name your business? As an entrepreneur, you must have thought about it a thousand times. However, not every new business owner knows how to formally register it, especially when you started out as a sole proprietorship.
Am I a Sole Proprietorship?
A SOLE PROPRIETORSHIP (meaning a person, or a SOLE PROPRIETOR, owns 100% of his/her business and does business under his/her own name) is the easiest way to start a business. Because it is so easy to create a sole proprietorship, sometimes a person may not even realize that he or she has created a sole proprietorship or a business. For example, a person could create a sole proprietorship by simply opening an online store or offering a paid service to his friends & neighbors.
A sole proprietorship doesn’t require any formal registration. For example, Katy Brown could rent a corner on the street and start a floral shop. She may put a sign on the entrance with the name “Spring Bloom Floral Shop” on it. It is not against the law but it is not recommended, as we’ll explain later.
Every sole proprietorship is automatically assigned a LEGAL name; the business name by default for all sole proprietorships is the legal name of its owner. For Katy Brown, her floral shop is called KATY BROWN by the Canada Revenue Agency (CRA). This is also what we meant by “running a business under his own name“.
The Legal Name of a Business
Legal Name of a Sole Proprietorship
As previously mentioned, the legal name of a sole proprietorship is the legal name of the business owner. That’s how a sole proprietorship is registered in the database of the Government. In fact, even if a sole proprietor has several lines of business, they are all given the same name. For example, Katy may also drive as a self-employed Uber driver in the evening. CRA still calls the Uber business by her name, KATY BROWN.
In addition to the legal name, a sole proprietorship can have one or more alternative business names (or sometimes referred as “trade names”). Katy can formally register Spring Bloom Floral Shop as a trade name and do business under this particular name. After the successful registration, she can then use this trade name for all her business activities and create consistency over the identity of her business.
Legal Name of a Partnership
How about the other two forms of business, partnerships & corporations? The legal name of a partnership is simply the combination of the partners’ legal names. For example, when a couple, Jack & Judy White, runs their family auto-part shop together, CRA calls the partnership as JACK WHITE, JUDY WHITE. (A little bit awkward, isn’t it?)
Again, we recommend registering an trade name and establish a consistent business identity.
Legal Name of a Corporation
For corporations, the issue is less of a concern. A corporation is created by several formal procedures so the formal business name is usually registered in the process. If a corporation doesn’t have a business name, most likely that’s because the owner(s) doesn’t think it’s important. For example, a corporation may be a family holding company and doesn’t need to do business with external companies. These companies are also called “number companies” because their legal names are in the following format: 1234567 B.C. LTD.
Benefit of Registering a Business Name: Reducing Friendly Fraud
FRIENDLY FRAUD refers to the situation when a client had paid for his product/service by a credit card, received the product/service, then called the bank to dispute the credit card payment. Although it may sound relatively harmless, friend fraud is pretty ugly for the businesses: not only will the bank reverse the payment, the bank also slaps a chargeback fee of $20-$100. For a $100 transaction, the business may actually lose more than $100 when we add up the chargeback fee, the cost of the product/service and the prior credit card processing fee.
Sometimes the friendly fraud is a malicious act; at other times, consumers may have engaged in friendly fraud unknowingly. They may have forgotten about the purchase or cannot recognize the name of on the credit card statement. Let’s imagine you had walked into Spring Bloom Floral Shop and bought some beautiful flowers for your mom. One month later, you received your credit card bill and saw $50 paid to KATY BROWN. Can you recognize it was for mom’s flowers? Similarly, how can you recognize the $30 you paid to JACK WHITE, JUDY WHITE is for a new USB charger you bought for your car?
That’s why you should not use your legal name on credit card sales; instead, you should use your registered business name. Using your own legal name s very confusing to the consumers. You should always use the same business name as the one you put on your storefront. That brings the biggest benefit of registering a business name — if you formally register a business name and use it consistently when issuing sales receipts and accepting credit card payments, you will have fewer instances of friendly fraud.
Benefit of Registering a Business Name: Marketing Effectiveness & Privacy
Registering a business name also has the following benefits:
- Enhancing Marketing Effectiveness: A well-thought name helps your potential customers clearly understand what products/services you provide and remember your business. You may not know who Chip Wilson is but you definitely know what Lululemon Athletica stands for. The business name, Lululemon, is much easier to promote than its owner’s name.
- Avoiding A Name Conflict: Imagine that you have spent $5,000 in designing a website, printing brochures & business cards, only to find out that someone else has been using that name in an unknown city for 5 years. Isn’t that frustrating? If you had tried to register your business name, you would have found out the name conflict much sooner and avoided the issue.
- Maintaining Privacy: You can use your business name on your business license or other government documents. Otherwise, you need to put your legal name on the business license in every store you own. That may attract unnecessary attention.
Conclusion
Having a registered business name has the following benefits:
- Reducing friendly fraud by displaying your business name on credit card statement
- Enhancing marketing effectiveness by using a name that customers can easily understand and remember
- Preventing a name conflict
- Maintaining privacy
Ready to register a business name? Read our guide on how to register a business name in BC.
Having more questions about business registration & taxation? We are glad to help.
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Image by Nathana Rebouças