Navigating the many legal issues that face young brands can feel like running a marathon when you’ve never even entered a 5K race. Fortunately at UBM’s Swimlessons event, held last week at the Parsons School of Design, MR contributor Douglas Hand, a founding member of the law firm Hand Baldachin Amburgey LLP and a professor of Fashion Law at NYU and Cardozo Law Schools, and three members of his firm – Marc Reiner, David Schumeister, and Justin Pollak – gave a brief outline of some of the most important issues facing entrepreneurs in the fashion field.
1.) Do you form a sole proprietorship, LLC (limited liability corporation) or standard corporation?
While each entity has advantages and disadvantages in such areas as taxation and flexibility of forming boards of directors, among other issues, the firm primarily recommends forming a LLC or corporation in order to protect yourself against personal liability (aka the seizure of personal funds and property) if you’re sued. Still, not every business actually needs to be incorporated.
2.) Do you finance your company through debt or equity?
Maxing out your credit cards or borrowing money from friends or family is a fairly common way to start – or even grow – your business. The downside is that you need to make (or find) money fairly quickly to pay off your debts. Conversely, equity financing means giving up a share of your business, including future profits, but usually no money has to be returned to lender until the company is sold. Each solution has pluses and minuses that need to be carefully considered.
3.) How do you protect your product?
It behooves any start-up brand to learn the difference between copyright, trademark and patent protection. In short, trademarks ensure that only you can use a particular name, logo or symbol. (Occasionally, even a color can be trademarked). Copyright protection is fairly rare in fashion, although certain pieces of artwork used on apparel can qualify. Finally, patents are primarily used for inventions or ideas, and it is very important to make sure you own the patent so your product can’t be duplicated.
4.) The importance of registration
That little mark that connotes your product is registered can actually be assigned even before your product goes to market. And in doing so, it puts the industry on notice that you have a product coming that is worthy of protection. Moreover, in some countries, entrepreneurs file registrations of names even if they don’t have a particular product in mind, or ever plan to sell anything with that name; but once they have it, you may not be able to register the name you want – or at least not be able to sell your product globally.
5.) Knowing the basics of labor law
While your company may start out as a one-man (or woman) show, the odds are you’re eventually going to hire other people to work with you. Among the areas you have to consider is whether these people will be exempt or non-exempt employees (the latter category may be entitled to overtime if they work more than 40 hours); independent contractors (you will be paying them on a non-salaried basis and are traditionally not responsible for their benefits, but many other restrictions apply); or interns (which can no longer be non-paid positions, and are also subject to specific employment laws.)