Can a Departing Founder Use the Company Name?

What Decides Who Owns the Company Name After a Founder Leaves?

The business whose use built the name’s reputation owns it, so a name a founder built through a company belongs to the company. For a family surname, the company’s power to stop a same-name use likely to deceive comes when the name acquires a secondary meaning by becoming closely associated with the company’s business. A founder may own the name personally when the founder kept a registered mark and let the company use it under the founder’s control.

The U.S. Supreme Court addressed a founder’s name in Herring-Hall-Marvin Safe Co. v. Hall’s Safe Co., 208 U.S. 554 (1908). Joseph Hall’s company had sold its business and goodwill, and his sons later started a competing safe company under the Hall name. The Court said of the name’s reputation, “Whoever achieved it did so through the medium of the company,” and “The good will thus gained belonged to the company.” The buyer took that goodwill when it bought the business.

The Minnesota Supreme Court applies the same principle to a founder’s own name. In Mayo Clinic v. Mayo’s Drug & Cosmetic, Inc., 262 Minn. 101, 113 N.W.2d 852 (Minn. 1962), it stated, “If he acts in good faith, a person may transfer either his surname or his given name to a corporation he has founded.” The court affirmed an injunction for the Mayo Clinic against a drug company whose incorporator happened to be named Mayo. It also stated that “There can be no exclusive appropriation, generally, of a family surname so as to constitute it a valid technical trade-mark.” In Howards Clothes, discussed below, the first of three requisites a plaintiff had to prove for relief was “That plaintiff’s name has a special significance or secondary meaning in the trade.”

A registration is evidence of ownership that the other side can rebut. “A certificate of registration of a mark upon the principal register provided by this chapter shall be prima facie evidence of the validity of the registered mark and of the registration of the mark, of the owner’s ownership of the mark” under 15 U.S.C. § 1057(b). Under 15 U.S.C. § 1115(b), though, “To the extent that the right to use the registered mark has become incontestable under section 1065 of this title, the registration shall be conclusive evidence” of “the registrant’s ownership of the mark,” subject to the defenses that subsection lists.

A license can change the answer. When a founder owns a registered mark and the company uses it under the founder’s control, the company’s use “shall inure to the benefit of the registrant or applicant for registration” under 15 U.S.C. § 1055. Section 1127 defines a related company as “any person whose use of a mark is controlled by the owner of the mark with respect to the nature and quality of the goods or services on or in connection with which the mark is used.” Disputes between unrelated businesses that share a name turn on different facts.

What Does a Secretary of State Name Filing Protect?

A Minnesota entity name filing keeps another new entity off the state’s records under a name that is not distinguishable from yours. The exception is a new entity that files your written consent, a Minnesota court decree of its prior right, or a qualifying affidavit with its articles. It does not decide who may use a name in the market, and the statutes say so.

For an LLC, the name must “be distinguishable upon the records in the Office of the Secretary of State from the name of each domestic limited liability company, limited liability partnership, corporation, and limited partnership” on file, under Minn. Stat. § 322C.0108 subd. 1. A matching name can still be filed with “the written consent of the domestic limited liability company, limited liability partnership, corporation, or limited partnership” that holds the existing name. The section also accepts a Minnesota court decree establishing the applicant’s prior right to the name, or an affidavit showing the earlier name holder has gone inactive and unreachable under the conditions the section lists. Minn. Stat. § 302A.115 subd. 1 sets the same rules for corporations.

Assumed names work differently. Under Minn. Stat. § 333.055 subd. 4, the Secretary of State accepts an assumed name certificate “notwithstanding the fact that the assumed name disclosed therein may not be distinguishable from one or more other assumed names already filed with the secretary of state” when the certificate complies with the assumed-name statutes and carries the fee. A departing founder can therefore file the same assumed name your company files. The founder cannot file one matching your entity name or a mark registered with the Secretary of State without a written consent, a court decree of prior right, or an affidavit of nonuse filed with it.

Neither filing settles the dispute. Section 302A.115 subd. 4 provides that the corporate name rules “do not abrogate or limit the law of unfair competition or unfair practices,” state trademark law, federal trademark law, “the common law or the principles of equity.” Section 322C.0108 subd. 3 says the same for LLCs. A court may also “enjoin the limited liability company from doing business under a name assumed in violation of this section,” under § 322C.0108 subd. 5, and § 302A.115 subd. 6 matches it.

How Do Trademark and Deceptive Trade Practices Claims Stop Confusing Use?

The company can sue a departing founder whose use of the name is likely to confuse buyers about who stands behind the new business. The main routes are the federal Lanham Act and Minnesota’s Deceptive Trade Practices Act, and the company can use both without a registration.

For a registered mark, 15 U.S.C. § 1114(1) reaches use “likely to cause confusion, or to cause mistake, or to deceive.” For a registered or unregistered name, 15 U.S.C. § 1125(a)(1) reaches use that “is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person.” That affiliation language can reach a founder whose new business looks like the old one. The factors courts use are covered in how courts weigh likelihood of confusion.

Minnesota’s act reaches a person who “passes off goods or services as those of another” or who “causes likelihood of confusion or of misunderstanding as to affiliation, connection, or association with, or certification by, another,” under Minn. Stat. § 325D.44 subd. 1. Under subd. 2, “a complainant need not prove competition between the parties or actual confusion or misunderstanding.” The remedy is an injunction under Minn. Stat. § 325D.45 subd. 1, which provides that “Proof of monetary damage, loss of profits, or intent to deceive is not required.” Fees are limited: subd. 2 allows them when “the party charged with a deceptive trade practice has willfully engaged in the trade practice knowing it to be deceptive,” or when the complaining party sued knowing its claim was groundless.

A Minnesota Court of Appeals decision shows how far that relief can go. In Claybourne v. Imsland, 414 N.W.2d 449 (Minn. App. 1987), the trial court found more than 50 instances of actual confusion between two computer businesses, then let the defendant keep its name with a prefix. The Court of Appeals held that “the court went too far in permitting respondents to do business as INFO PRO d/b/a CBM Computer Center,” and it remanded.

A company with a Minnesota registration has one more claim. Minn. Stat. § 333.28 reaches anyone who uses “without the consent of the registrant any mark” so similar to the registered mark “as to be likely to cause confusion or mistake on the part of a purchaser.” Under Minn. Stat. § 333.29 subd. 1, the court “may enter judgment for an amount not to exceed three times the profits and damages and reasonable attorneys’ fees of the prevailing party if the court finds the other party committed the wrongful acts with knowledge or in bad faith or otherwise as according to the circumstances of the case.”

Delay can weaken the company’s position. Even against an incontestable federal registration, 15 U.S.C. § 1115(b)(9) preserves the defense “That equitable principles, including laches, estoppel, and acquiescence, are applicable.” Those defenses, laches, estoppel, and acquiescence, can help a founder who used the name openly while the company said nothing.

When Can a Founder Use Their Own Surname in a New Business?

A founder may use their own name in a new business when the use comes with an explanation that keeps buyers from thinking they are dealing with the old company. A founder may not use the name in a way likely to deceive, and a court may bar the use entirely when an explanation will not prevent confusion.

The Minnesota Supreme Court set out the rule in Howards Clothes, Inc. v. Howard Clothes Corp., 236 Minn. 291, 52 N.W.2d 753 (Minn. 1952). “The right of a corporation to use the personal name of one of its founders or incorporators is determined by the same principles applicable to an individual,” it wrote. A later user of a personal name, “though it be his own,” “may not, even in the exercise of good faith, use such name as a tradename in a market where another has acquired a prior right to use the same name with respect to related goods, unless such subsequent user accompanies the name with a distinguishing legend.” Both stores had adopted the name in good faith, and the court affirmed an order requiring the words “of New York” to appear prominently.

The Minnesota Court of Appeals later distinguished Howards Clothes. Claybourne, decided under the Uniform Deceptive Trade Practices Act (UDTPA), described it as a family-name case “decided prior to the UDTPA which makes it easier for plaintiffs to obtain injunctive relief,” and it held a modifier insufficient where confusion persisted. Mayo points the same way: “However, names often acquire secondary meanings by becoming closely associated with a given business. In such cases, a person of the same name cannot subsequently use his name in the same business in a way which would probably result in deception of the public.” The court also noted that a plaintiff “might be adequately protected” by an order limiting the defendant to explained use, and it allowed a total ban when needed to prevent deception.

The U.S. Supreme Court’s Herring-Hall decision drew the same line between a founder’s family and the buyer of the founder’s company. The buyer “has the right, but not the exclusive right, to use the name Hall,” and “the rights of the two parties have been reconciled by allowing the use, provided that an explanation is attached.” Among the defenses to the conclusive evidence of an incontestable federal registration, 15 U.S.C. § 1115(b)(4) lists a use, “otherwise than as a mark, of the party’s individual name in his own business.”

What Happens to the Name When a Founder Sells Out?

When a founder sells the company, or the company sells its business with its goodwill, the name goes with the business. In the U.S. Supreme Court’s Donnell decision, a corporation’s sale of its business did not convey the rights personal to its members, including the founder’s sons’ right to use their own name.

Federal law ties a mark to the business behind it. A registered mark “shall be assignable with the good will of the business in which the mark is used, or with that part of the good will of the business connected with the use of and symbolized by the mark,” under 15 U.S.C. § 1060(a)(1). Subsection (a)(3) adds, “Assignments shall be by instruments in writing duly executed.” A transfer of the name alone, an assignment without the goodwill, can fail.

A corporation’s sale does not sell its owners’ personal rights. In Donnell v. Herring-Hall-Marvin Safe Co., 208 U.S. 267 (1908), the Hall family’s company sold its business, and the buyer had the founder’s sons sign personal contracts not to compete. “Those contracts were limited in time and scope and have been discharged,” the Court wrote, so the sons could compete under their own name. The buyer kept the name “So far as it may be used to convey the fact of succession,” and the Court reversed a broader injunction.

Minnesota filings follow the deal. A corporation or LLC that “acquires by sale, lease, or other disposition to or exchange with an organization all or substantially all of the assets of another organization, including its name, may have the same name as that used in this state by any of the other organizations,” under Minn. Stat. § 302A.115 subd. 5 and § 322C.0108 subd. 4. For a mark registered in Minnesota, Minn. Stat. § 333.23 provides for recording “written conveyances of any mark along with that part of the goodwill of the business in connection with which the mark is used.” An assignment of a Minnesota registration “shall be void as against any subsequent purchaser for valuable consideration without notice” unless it is filed with the Secretary of State within the period that section sets “or before the subsequent purchase,” so I suggest checking the current text and recording promptly.

I suggest reading the purchase or redemption agreement first in any later dispute, because its list of what was sold or kept can decide who owns the name. A trademark assignment agreement signed at closing makes that list easier to prove.

How Does Minnesota’s Noncompete Ban Apply to a Founder’s Exit?

Minnesota’s noncompete ban voids agreements that restrict a worker, after the work ends, from working for others, in an area, or in a similar role, unless an exception applies. It allows a temporary, geographically restricted noncompete agreed upon during the sale of a business, and a noncompete limited to a reasonable area where the business operated if agreed upon in anticipation of a dissolution.

Minn. Stat. § 181.988 subd. 1 defines the covenant as “an agreement between an employee and employer that restricts the employee, after termination of the employment, from performing” work for another employer for a period, in an area, or in a similar capacity. “Employee” means “any individual who performs services for an employer, including independent contractors.” Under subd. 2(a), “Any covenant not to compete contained in a contract or agreement is void and unenforceable.” The ban took effect July 1, 2023, and “applies to contracts and agreements entered into on or after that date,” under 2023 Minn. Laws ch. 53, art. 6, § 1. Older agreements are covered in agreements signed before the ban.

The exceptions reach two events, the sale of a business and an anticipated dissolution. Subd. 2(b)(1) applies when “the covenant not to compete is agreed upon during the sale of a business.” It allows the seller and “the partners, members, or shareholders, and the buyer of the business” to agree on “a temporary and geographically restricted covenant not to compete that will prohibit the seller of the business from carrying on a similar business within a reasonable geographic area and for a reasonable length of time.” Subd. 2(b)(2) applies when “the covenant not to compete is agreed upon in anticipation of the dissolution of a business.” The owners may then agree “that all or any number of the parties will not carry on a similar business within a reasonable geographic area where the business has been transacted.”

Other terms survive a void noncompete. Under subd. 2(c), “Nothing in this subdivision shall be construed to render void or unenforceable any other provisions in a contract or agreement containing a void or unenforceable covenant not to compete.” The definition also excludes nondisclosure and nonsolicitation agreements. I suggest putting the name terms in their own section of the exit agreement, because a court that strikes the noncompete then has a separate name term to read.

What Duties Does a Founder Owe Before the Exit Is Final?

A founder who is still a member of a member-managed LLC, a manager, a governor, or a director may owe the company loyalty. That duty can bar launching a competing business under the company’s name before the exit takes effect. In a member-managed Minnesota LLC, a member must refrain from competing with the company in the conduct of the company’s activities before dissolution. The exception is an act all of the members authorize after full disclosure of all material facts. The operating agreement may instead restrict or eliminate that duty, or set a method for authorization by one or more disinterested and independent persons. Those duties end only for matters after the member’s dissociation.

In a member-managed LLC, Minn. Stat. § 322C.0409 subd. 2 includes the duty “to refrain from competing with the company in the conduct of the company’s activities before the dissolution of the company.” It also includes the duty “to account to the company and to hold as trustee for it any property, profit, or benefit derived by the member” either “in the conduct or winding up of the company’s activities,” “from a use by the member of the company’s property,” or “from the appropriation of a limited liability company opportunity.” In a manager-managed LLC, “Subdivisions 1, 2, 3, and 5 apply to the manager or managers and not the members,” under subd. 7, and subd. 8 applies them to governors in a board-managed LLC. In both structures, “A member does not have any fiduciary duty to the company or to any other member solely by reason of being a member.” Under subd. 6, “All of the members of a member-managed limited liability company or a manager-managed limited liability company may authorize or ratify, after full disclosure of all material facts, a specific act or transaction that otherwise would violate the duty of loyalty.” Under Minn. Stat. § 322C.0110 subds. 4 and 5, an operating agreement, “If not manifestly unreasonable,” may “restrict or eliminate the duty” described as “to refrain from competing with the company in the conduct of the company’s business before the dissolution of the company,” and it “may specify the method by which a specific act or transaction that would otherwise violate the duty of loyalty may be authorized or ratified by one or more disinterested and independent persons after full disclosure of all material facts.”

Leaving changes the duties going forward but not the past. Under Minn. Stat. § 322C.0603 subd. 1, “if the company is member-managed, the person’s fiduciary duties as a member end with regard to matters arising and events occurring after the person’s dissociation.” Subd. 2 provides that dissociation “does not of itself discharge the person from any debt, obligation, or other liability to the company or the other members that the person incurred while a member.”

In a corporation, a founder who sits on the board must act “in good faith, in a manner the director reasonably believes to be in the best interests of the corporation,” under Minn. Stat. § 302A.251 subd. 1. I suggest that a departing founder not file a new entity, buy a matching domain, or tell customers about a new business until the exit documents are signed. Acts taken while still a member of a member-managed LLC, a manager, a governor, or a director fall under the duties above. Minnesota’s trade secret act also applies: a “Trade secret” under Minn. Stat. § 325C.01 subd. 5 can be a “compilation” that “derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use,” and that “is the subject of efforts that are reasonable under the circumstances to maintain its secrecy,” and under Minn. Stat. § 325C.02, “Actual or threatened misappropriation may be enjoined.”

How Does Cybersquatting Law Treat a Founder’s Domain Name?

A founder who registers a domain name matching the company’s mark is liable under the federal cybersquatting provision only with a bad-faith intent to profit from the mark. Under 15 U.S.C. § 1125(d)(3), that action “shall be in addition to any other civil action or remedy otherwise applicable.” A court may weigh whether the domain is the founder’s own legal name.

15 U.S.C. § 1125(d)(1) makes a person liable who “has a bad faith intent to profit from that mark, including a personal name which is protected as a mark under this section,” and who registers, traffics in, or uses a domain name that, “in the case of a mark that is distinctive at the time of registration of the domain name, is identical or confusingly similar to that mark.” Liability for using a domain reaches only the person who registered it or that registrant’s authorized licensee. Bad faith “shall not be found in any case in which the court determines that the person believed and had reasonable grounds to believe that the use of the domain name was a fair use or otherwise lawful.” Among the bad-faith factors, a court may consider “the extent to which the domain name consists of the legal name of the person or a name that is otherwise commonly used to identify that person.” A founder’s domain built on the founder’s full name sits differently from one copying the company’s brand. The rest of the factors are covered under anti-cybersquatting law.

Domains, social media handles, and listings that a founder registered during the company’s life need a named owner at exit. I suggest listing each one in the exit agreement with the person or company that will hold it, because the cybersquatting statute answers only the bad-faith cases.

What Should Founder Documents Say About the Company Name?

Founder documents should state that the company owns its name, marks, and domains, and should move any name rights a founder held before formation into the company in writing. They should also record any founder’s written consent to use a personal name and set post-exit name terms in their own section.

Once, a co-founder of a new Minnesota LLC asked me to quote its founding documents. The issues I raised included moving work done before the company existed into the company in writing, and a clearance search of the product names before any filing. The same two steps can prevent a founder-name dispute before it starts.

For “A registered mark or a mark for which an application to register has been filed,” federal law requires the writing: “Assignments shall be by instruments in writing duly executed,” under § 1060(a)(3). Under § 1060(a)(1), an application filed on an intention to use the mark under section 1051(b) cannot be assigned before the applicant files the amendment under section 1051(c) or the verified statement of use under section 1051(d), “except for an assignment to a successor to the business of the applicant, or portion thereof, to which the mark pertains, if that business is ongoing and existing.” A founder’s own name needs consent to be registered. Federal law bars registering a mark that “Consists of or comprises a name, portrait, or signature identifying a particular living individual except by his written consent,” under 15 U.S.C. § 1052(c). Minnesota’s registration act bars a mark that “consists of or comprises the name, signature or portrait of any living individual, except with written consent,” under Minn. Stat. § 333.19 subd. 1. Both laws also restrict registering a mark that “is primarily merely a surname” unless it has become distinctive.

I suggest that a co-founder agreement or shareholder agreement cover these points:

• Ownership: the company owns its name, marks, domains, and social accounts, including any a founder registered personally.
• Assignment: each founder assigns any earlier rights in the name to the company, with the goodwill, in a signed writing.
• Consent: a founder whose name is the brand gives written consent to its registration and use.
• Exit terms: after an exit, the founder may use their own name only with a stated disclaimer, and may not claim to be the company or its successor.
• Forum: the agreement names the court and the law that will govern a dispute over these terms.

Registration strengthens the company’s position. A certificate of registration on the federal principal register is prima facie evidence of ownership under § 1057(b), and the choice between federal and Minnesota registration is covered on a separate page.

Next Steps When a Founder Leaves a Minnesota Company

The first step for either side is to gather the documents that decide ownership. They include the operating or shareholder agreement, any purchase or redemption agreement, every assignment and license, and the records of the Secretary of State and the U.S. Patent and Trademark Office (USPTO). Those papers can answer who owns the name before any statute or case does.

For the remaining owners, I suggest saving evidence of confusion as it happens, such as misdirected calls, emails, reviews, and orders, because the findings in Claybourne rested on misdirected telephone calls and mail. A cease-and-desist letter proposing a disclaimer or a transition period can resolve the dispute without a lawsuit. For the departing founder, I suggest choosing a new business name that a buyer would not mistake for the old company. The Minnesota cases above allowed a personal name used with an explanation and barred a use likely to deceive.

More on trademark law for Minnesota businesses is on the practice page. If you are on either side of a founder’s exit and the company name is in dispute, email [email protected] with the company’s name, your role, and a short description of the dispute. After an intake and conflict check, and before you send any confidential documents, I can tell you which of these rules fit your situation and what the agreements you signed would need to show.