You've selected a creative and distinctive name for your business and you're excited about your new logo. You want to protect your brand from competitors who take shortcuts and cause consumer confusion by pretending to be you, so you wisely decide to apply for trademark protection. The question becomes whether you should trademark your name (the text), or the logo (artwork).
I usually advise my clients to trademark the name, not the logo. I'll explain why.
There are two kids of trademarks: 1) standard character marks, consisting of text only; and 2) stylized marks, consisting of artwork.
Suppose your business name is represented in logo form, you really love the artwork, and you don't want anyone else to use it. You apply for a stylized mark, spend the money and go through the application process, waiting approximately nine months until the registration is issued, then you are the registered owner of the mark. Congrats!
You later grow tired of the mark and decide to revise. Maybe play with a new font, size, or color scheme, or perhaps a total rebrand to something fresh. I recently had a new logo made for my law practice. Trademarks do not carry over to new logos. You would have no trademark protection for the new artwork, and would have to apply all over again. You would be chained to the original logo design and would be de-incentivized to rebrand.
You learn a competitor is using a name very similar to your own. They might be using the name as a standard character or it might be incorporated into artwork, but you are justifiably upset and want to act to protect your rights. Your attorney advises you that your mark is only for the artwork itself, and if the text is represented in a different form by a competitor, you do not have federal trademark protection. (You might have common law trademark rights in your state, but this lacks statutory remedies.)
In summary, unless a competitor is copying the exact or very similar logo, your stylized mark offers little protection.
Your business name is incorporated into a logo, which you love. You apply for a standard character mark, consisting of the text only, and do not seek trademark protection for the artwork.
Once the registration is issued, you have trademark protection however you choose to publish the trademark, whether it's basic text of any font or size, or embedded in any kind of artwork. By opting for a standard character mark, instead of a stylized mark, the scope of protection for your mark is much broader. If a competitor knocks off your name in any format, you're on much stronger legal footing than if you merely had a stylized mark.
My other business, Eternal Roots, has a standard character mark. The name is embedded in a couple different logo variations, but I didn't bother trademarking the logos themselves. As long as the registered text is in the artwork, then you're protected. I'm now exploring new logo options, and whatever happens to the logo over time, the core brand - the name itself - will always be protected by trademark.
when are stylized marks necessary?
I'm not bashing stylized marks in general. I have multiple applications pending at the USPTO for clients with stylized marks. There are situations where stylized marks are appropriate.
If your brand has distinctive artwork that is not dependent upon standard characters, like the Nike swoosh, and you have built significant brand recognition, then a stylized mark is appropriate.
If you are concerned with bad actors knocking off your brand and selling counterfeit goods, then you definitely want to lock down the artwork.
One of the applications I have pending consists of my client's initials in logo format. We are not concerned about a competitor trying to steal her personal name, but by having the registration, being able to put that ® next to the logo, she's showing the world she takes her brand seriously and is an established businesswoman.
In closing, standard character marks offer the broadest possible protection and enable you to modify your artwork at will. I generally counsel my clients to register their marks as standard character. However, there are circumstances where a stylized mark is appropriate.
Real scenario: a business owner called me to inquire about registering his Nevada LLC to conduct business in California. He lived and operated in California, yet he formed the LLC in Nevada because that state does not have income tax. He formed the entity using an online service - not an attorney - and had no idea what to do next. He didn't have legal advice when he created the entity, he just paid an online service to create the entity.
I inhaled deeply and hoped he wouldn't shoot the messenger. I informed him of the procedure and cost for registering his Nevada LLC in California, which he is required to do, and considering the cost of maintaining one entity in two states, he could form a new entity in California for less. Given the cost and extra paperwork, it made no financial sense to operate his Nevada LLC in California. He still has to pay state income tax to California, and he only created more work and expense for himself.
I gave him a quote with the option of: 1) forming a new California LLC; or 2) registering his Nevada LLC in California. I advised him that the legal cost of each option was roughly the same, but the ongoing/future cost of the second option was twice as high. The prospective client said he would "figure it out," and he never called back. The poor guy wasted money and made his business structure unnecessarily complicated. Sometimes my job requires me to tell people what they don't want to hear.
If you are operating your business in California and considering incorporating in one of the seven states that do not have income tax (Texas, Florida, Nevada, Alaska, Washington, South Dakota, or Wyoming), it can be tempting to form your company out of state then operate in California. By forming your business entity in a non-income tax state, you don't have to pay state income tax, even if you live in California, right? Not only is this assumption wrong, but forming the entity out of state, then operating in California will double your expenses and paperwork.
entity formation in general
Creating a legal entity is relatively simple. You complete a form and pay a fee to the secretary of state of your chosen state, then file the annual statement (called a Statement of Information in California). You have to do more than that to properly maintain the entity (a separate topic for a future article), but that is literally all you have to do to create a legal entity that has a separate legal existence from you personally.
You must designate a person or company in the state of incorporation as your agent for service of process. This is the only person authorized to accept service of legal process, such as a summons or subpoena.
Every year you must file an annual statement, called a Statement of Information in California, and pay a $25 fee (due bi-annually for LLCs). California's Franchise Tax Board also charges $800 a year for the privilege of operating a business entity in California - regardless of whether the entity was formed outside California. You will get a penalty and interest hit if you pay the fee late, and the state will suspend your business if you fail to pay at all.
This process is generally the same across the states, subject to variations in nomenclature.
registering a foreign entity
Suppose you live and work in California, but have already created an entity in another state. Regardless of whether you have a foreign LLC or corporation, you need to register the entity in California before it can do business here. If you are transacting "intrastate business" in California (a fluid and undefined term), then you must register with the California Secretary of State before transacting business. It's a safe bet to assume that if you are an LLC or S-Corporation, and you live and work in California, but formed a Nevada LLC, you need to register the LLC in California.
Here's what to do. You must submit a form and pay a fee to the Secretary of State of your state of incorporation, and request what is generally called a Certificate of Good Standing. Again, nomenclature varies among the states.
Once the Certificate of Good Standing arrives, you file an Application to Register a Foreign LLC with the California Secretary of State, along with a $70 filing fee. Upon approval, you have to file and pay for the annual Statement of Information (due within 90 days), and you must pay the annual $800 FTB tax.
These annual fees are in addition to the fees you must pay to the state of incorporation. You also must appoint an agent for service of process in California, in addition to an agent in the state of incorporation.
In summary, by registering your foreign company to conduct business in California, you have annual filings and fees in two states.
but what about no income tax?
Wasn't the whole point of incorporating in a foreign state to avoid paying state income tax? Unless you are personally domiciled in that zero income tax state, the answer is No!
Consider this - LLCs and S-Corps have pass through taxation, so the profits and losses are allocated to the tax returns of the individual members/shareholders. The entities themselves don't file tax returns. If you are domiciled in California, then you pay income tax to California. Your Nevada LLC doesn't absolve you of tax liability to California.
If you formed a Nevada LLC to avoid state income taxes, but you are domiciled in California, then you are going to pay income tax, and the entire purpose for incorporating out of state was frustrated.
Even worse, you will have to register your business in California (if you are transacting business here), and that entails fees and paperwork to both states. You also must submit annual filings and fees to both states, and appoint a registered agent in both states.
In closing, if you're considering forming your LLC or S-Corp. out of state to avoid income tax, and you are domiciled in California, I hope this article gives you pause. Go speak with your tax professional to corroborate your tax savings theory. If you have already formed the entity out of state and are domiciled in California, you might consider dissolving the foreign entity and forming a new entity in your home state.
Being in business is hard enough, and you shouldn't complicate your life with unnecessary paperwork and fees.