When you start a new fashion business, there are lots of competing interests for your time.
You want to get finance to pay for stock and staff. But you also need to start marketing and build your social media profile. Before long, you will need to start thinking about hiring your first employee.
So many things to do and so little time! Each question has legal consequences which it is good to understand in advance...
One of the first things you will need to think about is where are you based and what legal structure will you adopt?
Most fashion businesses are founded by a special combination of creativity and business acumen. There are a few exceptional people who combine these talents in one but more often than not a fashion business is started as a team effort. This can cause tensions down the line if no thought is put into the structure of the business at the outset.
There are many different business structures in Europe. You can just register as a sole trader with minimal paperwork but higher risk. You could also form a partnership or a limited company.
Incorporating a company is not essential. It is important that you work out your objectives, projected revenue and ultimate business plan and tie this into the structure that is right for you as your business evolves.
The great advantage of a company is that you are not responsible for the business risk as an individual but via a separate legal entity - a company. At its simplest, this means that if your company goes insolvent, is sued or otherwise subject to a large and unexpected liability, you are much less vulnerable to being made personally bankrupt as a result.
As well as protecting you from personal liability, a company makes you appear more professional and may be necessary to conclude some contracts. It can also make it easier to keep track of intellectual property rights, assets such as leases and key contracts. Everything is owned by a company and then ownership of the company is distributed based on individual contribution.
Ownership is divided into shares in the company (also known as equity). When you're starting out it is common to have one type of share which is owned by a small number of people and has fairly broad rights to vote, get a dividend and be protected against sale to third parties. As a company grows and takes investment from other people, the company may increase the types of share which are available and the rights that attach to those shares. Existing shareholders usually have a say in how the shares are changed over time.
Companies offer enormous flexibility in terms of share structure, decision making and the opportunity to scale up or get new cash flow easily.
The company location will influence your funding opportunities, business model and potential liability. For example, in Europe, the default position is that a party is sued in their home jurisdiction. In the case of a company it is the place where they are incorporated. Whilst you may get a tax break to incorporate in a particular jurisdiction, if you are concerned about your legal exposure and you are unfamiliar with the language or legal customs, it may not be the best location for you.
Thinking through a few fundamental issues in advance and making strategic decisions from a position of knowledge and appreciation of the relative costs will save you money, frustration and heartache down the line.
To find out more contact Rosie Burbidge, Intellectual Property Partner at Gunnercooke LLP in London - rosie.burbidge@gunnercooke.com
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