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Whether you’re starting an online business or a brick and mortar store, running your very own clothing business is an exciting venture.
When it comes to selling clothing, there are so many opportunities for you to reach the right market. So, how do you start a clothing business?
In addition to your registration process, marketing plan and business structure, you also need to think carefully about how to protect your business – this is where your legals come in.
In this article, we’ll go through the following:
- How to run an online clothing business
- What legal documents you may require
- How to register your clothing business
- How to protect your brand
- Consumer rights
- Overseas business considerations
Read on to learn more!
Is A Clothing Business Profitable?
First thing’s first – how do we know if starting a clothing business will actually make good money?
The answer here really depends on your approach. If you have a well thought-out business plan, adequate resources and the right mindset, your clothing business is bound to bring in great profits.
This is also because the online space offers a great opportunity to expand your reach (internationally, too!).
So, where do we start?
How To Start A Clothing Business
Before you dive into any serious business, you want to think about your business structure.
This is the first (and arguably most crucial) step in the process of starting a business. Your business goals, activities, achievements and capacity will depend heavily on the structure you choose from the beginning.
If you want to keep your business small and simple (such as a local thrift shop), you may opt for a sole trader or partnership structure. This is because it is simple and relatively cheap to set up, however, this simplicity comes at the cost of liability.
A sole trader and partnership has unlimited liability, so if the business runs into trouble, this liability extends to you!
A company structure, on the other hand, has limited liability. So, whatever the company is liable for remains with the company, and does not affect you or your personal assets.
However, this also means it’s a little more expensive and complex to set up. If your business intends to grow internationally, or if you intend to enter into high-risk transactions with other parties, a company structure may be better to protect your business.
If you need help choosing a business structure, or you’re not sure which one may be right for you, chat to one of our lawyers.
How To Start A Clothing Business Online
Online businesses are popular for a variety of reasons. For one, it expands your reach to customers. You get more exposure to the market which is great for your business.
It’s also a popular option because it’s a lot more convenient and easy for customers to shop online.
However, starting an online business is no simple task. You need to consider your legal documents, your policies, what laws may affect your online presence and how you can limit liability.
Let’s discuss your considerations when starting a clothing business online.
Do I Need A Privacy Policy For My Clothing Business?
With anything operating online, one of your biggest considerations should be your privacy obligations. Privacy is taken very seriously in Australia, and the Privacy Act 1988 covers some key grounds.
For example, the Act requires businesses with an annual turnover of over $3 million to have a Privacy Policy in place (there are some exceptions to this rule, so make sure you’re familiar with privacy laws).
If you collect any personal information (such as emails and phone numbers when users make an account), you should have a Privacy Policy to protect both you and your users.
Regardless, it’s good business practice to have a Privacy Policy that sets out how you use customer data, why you use it and what will happen if you don’t collect that information.
It’s also a good way to keep a good relationship with your customers because you’re showing transparency and trust.
Do I Need A Cookie Policy For My Clothing Business?
Many online businesses collect cookies to keep a record of user preferences and their online activity. This, in turn, aids their marketing strategies so they can display the items that they know their users are interested in.
However, collecting this data is quite personal. It’s important for your business to have a Cookie Policy in place to remain transparent about how you collect this kind of information.
How Does Liability Work For A Clothing Business?
Like we suggested earlier, liability is an important consideration when choosing a business structure. You want to protect you and your business as much as possible.
However, your business is likely to have important obligations with respect to customers regardless of your business structure.
For example, if a customer is injured at your clothing store, you’d need to lodge a Customer Injury Report with the Australian Competition and Consumer Commission (ACCC).
There is also the concept of product liability in Australia, which means that you are legally responsible if you make defective products available to the public which then cause loss or damage as a result.
Do Clothing Businesses Need To Get Licences?
You may also wish to consider how licensing certain IP can help your clothing business.
| ExampleLet’s say you wish to open a kid’s online clothing store. To appeal to your market, you want to include Disney characters on certain pieces of clothing. However, you’d need a licence to do this. This is because those Disney characters are Disney’s intellectual property, and you may not be able to use these characters without their permission. Under a licence, you can pay a fee to Disney to use these characters as designs on your clothing (we’ve written more about IP Licence Agreements, so it’s worth familiarising yourself with how it works if this is something you’d want to do). |
How Do I Register My Clothing Business?
When you start your own business in Australia, one of your first steps is to register your business with the relevant bodies.
In Australia, you’d need to register your business with ASIC as required by the Corporations Act 2001.
This way, you can be officially registered as a business and can register for the relevant taxes, fees and annual checks.
If your clothing business is under a sole trader or partnership structure, you’ll need an Australian Business Number (ABN) and a business name.
If you’re under a company structure, however, you’ll need an Australian Company Number (as well as an ABN).
Can I Trademark My Business Name?
While your business name is technically your IP, it’s not automatically protected when you register it.
So, if you want that additional protection, you can trademark your business name.
You can also trademark a number of other forms of IP in your business – we’ll cover this in more detail later.
What Documents Do I Need To Start A Clothing Business?
Now that we’ve gone through the initial stages of starting a business, let’s dive into the legal side of things – your documents!
Starting a clothing business carries risks, just like any other business. Whether it be customer injuries, faulty items or online bugs, anything could go wrong.
This is why you need to protect your business by having the right contracts and policies in place to secure your liability from the outset.
The effort required to draft the right agreements is less than the headaches you experience when a legal issue arises, so it’s best to get some legal help to make sure you’re doing it right.
So, what do you need for a clothing business?
Supply Agreement For Clothing Businesses
Starting a clothing business means you’re likely receiving your items from a manufacturer or supplier.
This could be in Australia or overseas – either way, you need to secure this business relationship by having a Supply Agreement.
A Supply Agreement covers key details around the supply chain, such as:
- How will the clothes be delivered?
- How long should it take to be delivered?
- What happens if an item is faulty?
- Who is liable for missing items?
- How payment will work
- Confidentiality around the design of clothing
- How the contract can be terminated
- How disputes will be handled
Online Shop Terms And Conditions
Online shop terms and conditions are useful for protecting both you and your online customers if you’re operating online.
Many things could go wrong when users use your website. Terms and conditions mitigate these risks by setting out terms that users need to agree to and be aware of before they further engage with your business.
Your terms and conditions may limit your liability if something goes wrong (for example, if the online payment method doesn’t work, who is liable?) and can have disclaimers (such as no liability for missing items).
Limitation Of Liability For Clothing Businesses
A business has numerous responsibilities to their customers, whether in person or online.
So, legal documents are great for limiting this liability where possible. It doesn’t remove your responsibility entirely (as this would be unfair in circumstances where you are at fault for not fulfilling your obligations), but it can restrict it to a certain extent.
The allowance of limitation of liability clauses under Australian law recognises that not every business can control the risks involved in their business activities.
So, it strikes a fair balance between the customer’s rights and the business’ liability.
Business Plan
Every business needs to have a blueprint which sets out how everything will run, from the early stages through to the more developed stages.
A Business Plan is the best and most common way to do this. It should detail what resources the business has, milestones, timelines, goals and strategies.
However, a business plan includes very detailed information about a business’ internal activities, which could be fatal in the wrong hands (especially in a competitive environment!).
As such, you may want to invest in a Business Plan Non-Disclosure Agreement.
But what exactly is a Non-Disclosure Agreement?
Non-Disclosure Agreement For My Clothing Brand
A Non-Disclosure Agreement (NDA) is an agreement between parties where they promise not to disclose any inside information about a business to third parties.
Since it is a legally binding document, there will be legal consequences if a party breaches this promise. In other words, if someone discloses information about a business that was not intended for the public, the business can take legal action against them.
In Australia, there are clothing businesses everywhere around us. A good NDA can ensure that your ideas and unique designs aren’t stolen by competitors, thus saving your brand.
So, how else can you protect your brand in a highly competitive climate?
How Can I Protect My Clothing Brand?
The online space is thriving with businesses of every type. As such, laws are required to protect their brand names and intellectual property.
One of the most common ways you can protect your IP is through registering a trade mark. You can trademark a logo, slogan, design or even a smell! These are all considered forms of IP that are central to your brand and your unique identity on the market (like we mentioned before, you can also trademark your business name).
This prevents other parties from using your IP without your permission.
Non-Compete Clauses
If you’ve had employees or contractors work for your business, and they’ve had access to integral inside information such as trade secrets and trademarked things, you may want to include a Non-Compete Clause in your Employment Contracts.
A Non-Compete Clause prevents these ex-employees from working with other businesses (however, the type of business and the duration of this restriction must be specified in the agreement).
This minimises the risk of these employees exposing important inside information that would damage your business if it ended up with competitors. It also reduces the risk of threatening your competitive edge due to the skills and knowledge that they would have obtained during their employment with you.
Is Dropshipping Worth It For Clothing Businesses?
Running a clothing business can be overwhelming at times. After all, you’re managing a lot of tasks at once but you also want to prioritise efficiency for customer satisfaction, which is what keeps your business going.
A common solution to this issue is adopting a dropshipping model.
How Does Dropshipping Work?
Dropshipping is a common model used by businesses to cut costs and increase efficiency.
As you may know, online retailers would purchase stock from their manufacturers and then hold this stock in an inventory until customers purchase it.
Under a dropshipping model, this process looks a little different. Instead, the retailer (in this case, your clothing business) would not hold any stock. Rather, you would only order the stock once you’ve received an order from a customer.
This way, the manufacturer will deliver that order straight to the customer upon request or purchase, and you won’t need to hold any stock that may not even be sold.
What Should My Clothing Business Know About Misleading And Deceptive Conduct?
Consumer rights are extremely important in Australia. When it comes to the relationship between businesses and customers, the law recognises that some consumers are in a vulnerable position compared to sellers.
In other words, it can be quite easy for businesses to mislead or take advantage of customers so that they can make money off of them.
The concept of misleading and deceptive conduct tries to address this issue. Section 18 of the Australian Consumer Law prohibits businesses from making false or misleading representations about a product that would cause the customer to buy the product.
In other words, they cannot make false statements (or even an omission) about a product that would be likely to mislead consumers about that product. This law is designed to protect consumers from unfair trading practices.
So, as a clothing business, it’s important that you understand your Australian Consumer Law obligations as misleading statements about the clothing you sell could hold your business liable for a breach of consumer law.
This law applies online as well, so make sure you are compliant.
Are Customers Entitled To Refunds Or Exchanges With Clothing?
Under the ACL, customers have a right to receive a refund, repair or replacement for a product if it does not meet consumer guarantee standards.
In other words, if the product they bought does not do what it was advertised to do, or is faulty in some way, this is a breach of consumer guarantee obligations. As the business who had this duty, you are required to provide them with a refund or exchange.
Is Your Clothing Business Operating Overseas?
In this day and age, businesses don’t have many limits around how far their business can expand.
If your business is online, it’s even easier to reach an international market.
If you’re doing business overseas, it can be a great next step for your business and its success. However, it also means you have additional legal considerations.
For example, you need to familiarise yourself with the taxes and customs of the country you wish to conduct business in.
You may also need to look at things from a cultural or social perspective. Things that businesses do in Australia may not be considered ethical or socially acceptable in other cultures.
Internationally Enforceable Contracts
Your business is likely to be entering into many different contracts with other parties. So, what happens if the contract is an international contract?
Usually, you’d need to include an international arbitration clause in a contract you wish to enforce overseas. This just sets out how the matter would be handled in another country.
However, if no such clause exists in the agreement, you and the involved parties may need to discuss two main things:
- Governing law
- Jurisdiction
Governing law refers to the country whose laws will apply to the agreement, and jurisdiction refers to which country will have jurisdiction over the matter in case a dispute arises.
Our contract lawyers are happy to help you draft your contracts so that they are internationally enforceable.
Key Takeaways
Starting your very own clothing business is an exciting step to take. However, it’s important not to skim over your legal considerations, and ways you can protect your business both in Australia and overseas.
To summarise what we’ve discussed:
- Your business needs to comply with its privacy obligations, whether this be through a Privacy Policy or a Cookie Policy
- Limiting your liability is always a good idea, so make sure your agreements and terms cover this well
- Register your business with ASIC and obtain your ABN or ACN
- You’ll need the right Supply Agreements, Terms and Conditions, Business Plan and Non-Disclosure Agreements to secure your business relationships
- It’s important to protect your intellectual property by registering a trade mark
- Your business practices should avoid misleading customers about your products as these have serious consequences under consumer laws
- Doing business overseas is great for your business, but still carries risks – ensure your legal documents mitigate these risks appropriately
If you would like a consultation on your options going forward, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
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