Setting up and running your own fashion label- helpful tips from StitchLand [Part 3]

When the planning stage has begun, you might ask yourself how to structure your business prior to launch? 

Here are a few business types courtesy of British Fashion Council:

• Creative Partnership - Two creative designers
• Solo Designer - Independent designer looking to grow business
• Designer and Business Partner - A creative with a business partner
• Designer and Licensing Partner - Designer with a royalty contract
• Designer and manufacturer - Designer with manufacturing contract with manufacturer
• Partnership with Investor - Designer with backing of investor

[Source:http://www.designerfactfile.com/content/362/Fashion-business-types]

StitchLand London, UK - Pattern cutting, sampling and clothing manufacturing 

But what about the type of company you should be setting up? For a complete novice, here's a summary of business structures that you might find helpful as suggested by British Fashion Council:

1. Sole trader

Becoming a sole trader is perhaps the easiest way of starting up in the fashion business. No legal formalities are required and there are few legal restrictions as to when you can begin trading. An individual who operates as an owner and runs a business on his/her own account, with or without employees, is termed a 'sole trader ' or ‘sole proprietor’.

• There are no statutory requirements governing the format of your accounting records and there will be no need to have an annual audit of the accounts or to file them at Companies House for public inspection
• Although there may be a degree of involvement from financiers, you will have personal control of the business but will be personally responsible for its liabilities
• There is no difference between a business debt and a personal debt and therefore a creditor, having obtained a court order, would in theory be quite entitled to take possession of your personal property, including possibly your home, if the business had insufficient funds to pay its debts
• You need to ensure that your name, as the proprietor of the business, with an address in Great Britain where documents may be served on you, is set out on all business correspondence, invoices etc and displayed at your place of business. It is advisable to contact an accountant who will be able to complete and file the necessary forms for you. The set up costs associated with setting up a sole trader business are negligible
• One disadvantage of not forming a company is in relation to providing security against which you can borrow funds. Unlike a company, as an individual you cannot create a floating charge over all the assets used in your business (for example, your customer debts, stock, fixed assets and so on), something which banks find difficult to accept
• For taxation reasons, it may be worth starting as a sole trader or partnership and then converting to a company at a later date. This is a relatively cheap route whereas the reverse may prove costly and confusing.

2. Partnership

StitchLand London, UK - Pattern cutting, sampling and clothing manufacturing 

A simple definition of a partnership is when two or more self-employed people work together in a business with a view to making a profit.
Some key points to note here are:

• The legal position is not that different from a sole trader in that the partners are personally liable for the firm's business debts.
• A partner has a legal right to be involved in the management issues of the partnership and can commit the partnership to contracts on the firm's behalf.
• If one partner incurs business debts, the other partners are liable even if they know nothing of them. Each partner is jointly and severally liable for all business debts (so if your partner vanishes, for practical purposes you are liable for all the debts).
• As in the case of a sole trader, a partnership is not required to have annual accounts audited or to file them formally at Companies House for public inspection.
• A partnership is not required to register itself on creation with the Registrar at Companies House.
• It is advisable to contact a solicitor to help draw up a specific partnership agreement before starting to trade. This agreement is an essential document as it will set out the necessary rules by which the partnership will operate. Possible disagreements over quite basic matters such as profit share arrangements, funding responsibilities, and issues on retirement and new partners can thereby be prevented.

3. Limited Company, privately owned

The vast majority of business organisations in the UK take the form of companies limited by shares.

What is a Ltd company and what is the main advantage over a partnership or sole trader business?

Unlike a sole trader or partnership, a company is classified as being a separate entity from its owners and directors. One of the most common reasons and advantages for setting up a limited company is that a company can be sued by a third party in its own right. This means that the individual directors and shareholders cannot be sued for their personal assets.

• There are really only two exceptions where a director can be held personally liable for business debts. The first is where he has traded improperly or fraudulently and the second is where he has given personal guarantees.
• In contrast, for partnerships and sole traders, each partner or trader has unlimited liability and risks his personal assets if the business is sued by a third party.

[Source:http://www.designerfactfile.com/content/395/Company-Types]

We hope you find this information useful!