9th July 2020 - Jax Floro

Opening a business, and starting your own clothing line, is definitely exciting but it is also hard work. Conceptualising your store, planning your product line and coming up with a business plan is not even half the work. You also need to consider your legals!

Choosing a business structure

There are various business structures available that you need to think carefully about. Seek professional advice to know the legal consequences that apply to each type of business structure. Some of the types of business structures available are: sole trader, partnership, or company.

Sole Trader

A sole trader owns and controls the business or businesses. This is the simplest business structure.

Advantages and Disadvantages of Sole Trader

Advantages

• Owner keeps all the profits
• Owner controls the business
• Less formalities needed and inexpensive to set up and operate
• Nature of the business can be easily
• Easy to maintain privacy

Disadvantages

• Unlimited liability (claims against owner’s personal assets)
• Business and the sole trader often considered synonymous
• Requires high degree of personal involvement
• Owner may lack management skills or expertise
• Difficulty in raising large amounts of capital

 

Partnership

A partnership allows two or more people to own the business.

Advantages and Disadvantages of Partnership

Advantages

• Allows a flexible operation
• Relatively inexpensive to set up and operate
• Owners have sole control of the business
• Management and responsibility are shared by all owners
• Expenses and costs are shared by owners

Disadvantages

• Unlimited personal liability
• Each partner is liable even if debts are incurred by another partner
• Profits are shared by partners
• Possible management conflicts among partners
• Changes, additions or removal of partners can be difficult
• Each partner is taxed at individual rate

 

Company

A company is a distinct legal entity separate from the personality of its shareholders.

Advantages and Disadvantages of a Company

Advantages

• A separate legal entity from the shareholder, members and those who control operations
• Limited liability
• Perpetual succession
• The company can sue and be sued
• Transferability of shares
• Taxation benefits

Disadvantages

• Establishment and ongoing fees are expensive
• Onerous administrative duties required by law
• Limited management role for shareholders
• Possible loss of control of the company to shareholders
• Onerous legal responsibilities imposed on the company officers and directors
• Can be onerous reporting requirements

 

Register your business

You must apply for an Australian Business Number or ABN. Registration is free. An ABN is an 11-digit assigned number that serves to identify your business to others such as your customer, suppliers, the Australian Tax Office (ATO) and the general public. It is especially useful for tracking orders and invoices. It should not, however, be confused with a tax file number (TFN). An ABN can entitle you to claim goods and services tax credits, energy grants credits, and an Australian domain name, among others.

You will also need to register a business name. Acquiring an ABN can be simultaneously done with business name registration.

Consumer protection

Familiarise yourself with the Australian Consumer Law (‘ACL’). If a customer buys something from you, your products and services come with automatic guarantees that they will work and do what your customer asked for. For example, your clothing must be of an acceptable quality, conform to purpose and match the descriptions stated in packaging, labels and advertisements. You also need to make sure that your prices are accurate. It is an offence under the ACL to use incorrectly priced items to mislead your customers.

When you open a clothing store in NSW, you have obligations under the Industrial Relations (Ethical Clothing Trades) Act 2001 also known as the Ethical Clothing Trades Extended Responsibility Scheme. This is a mandate for the protection of clothing outworkers. Manufacturers who produce clothing outside of standard factory locations such as their homes, converted residential premises or even unofficial factories are considered clothing outworkers.

Employees

Make sure you familiarise yourself with the laws that protect employee rights.

The Fair Work Act regulates minimum pay, superannuation, and working conditions such as suitable breaks for employees working in shifts.

The General Retail Industry Award 2010 covers a wide range of employees and award payment rates.

Employer rights and responsibilities are also detailed at the Fair Work Ombudsman website for small businesses.

Register your trade mark or design

It is a good investment to register your trade mark and designs as it is your responsibility to protect your intellectual property rights. You can register trade marks and designs through IP Australia

A trademark can be a logo, a name or even a jingle that serves as a sign by which the public can identify your brand, product or services in the market. You can register your trademark in Melbourne  under the guidance of our trademark lawyer in Melbourne

Trade Marks

The benefits of a registered trade mark are:

Asset. It is an asset which can be bought, sold, assigned, and licensed (you have the exclusive right to authorise other people to use your trade mark for the goods or services in your registration).

Exclusive Right. A trade mark registration clarifies ownership and you obtain the exclusive right to use the trade mark and to obtain relief for infringement.

Deterrent. A trade mark sends a message to the Australian marketplace that a business takes its intellectual property seriously.

Defence. It provides a valuable defence to allegations of trade mark infringement.

Competitors. It can also deter competitors from using or trying to register the same or similar trade mark if they search the Australian Trade Marks Register and find the trade mark registration.

Prevent Others. The right to prevent others from using a substantially identical or deceptively similar mark.

Renewal. You can maintain the trade mark indefinitely through renewal.

Australia. Registration usually gives rights throughout Australia.

Importation. Importation of goods bearing infringing marks may be prevented by asking the Australian Customs Service to seize the offending goods.

Designs

It is also good business practice to register your designs. A design protects the overall appearance of your product as to its distinct and unique form, pattern, configuration or ornamentation. Upon registration, as the owner of the design, you have legal protection for the appearance of your product and the right to prevent others from using the new and distinct features of your design.

Manufacturers and NDA

If you decide to enlist the services of a third-party manufacturer to produce your designs, it is also good practice to enter into a non-disclosure agreement (NDA) to protect the confidentiality of your designs and ensure they are not shared with competitors.

Takeaway points:

• Seek professional advice as to which business structure works best for you and your clothing business
• Register your clothing business by applying for an Australian Business Number (ABN) and registering your business name
• Comply with laws that protect the rights of consumers under the Australian Consumer Law as well as rights of employees under the Fair Work Act and General Retail Industry Award
• Protect the intellectual property rights of your business by registering your trademark and designs.

 

Jaclyn-Mae Floro, BCompSc

Contact W3IP Law on 1300 776 614 or 0451 951 528 for more information about any of our services or get in touch at law@w3iplaw.com.
Disclaimer. The material in this post represents general information only and should not be taken to be legal advice.