Chapter 5: Starting the Business and Launching the Line:
How to Choose the Right Business Structure
Thomas Pitegoff
Summary adapted from Chapter 5 of "Fashion Law: A Guide for Designers, Fashion Executives and Attorneys" edited by Guillermo C. Jimenez and Barbara Kolsun (Fairchild Books, 2010).
Choosing the right business structure involves many legal considerations. Chapter 5 discusses the issues involved in forming a legal entity and the various decisions that must be made when determining how and where the business should be formed.
Many businesses start without forming a legal entity. However, those that do establish themselves as legal entities often do so as corporations or limited liability companies. There are many advantages to forming a legal entity. For example, forming an entity generally limits an owner's liability to the amount of capital he or she has invested. Potential investors and customers also view a legal entity as more stable and secure, and the process for financing is easier.
There are many issues to consider when launching and expanding a business such as branding, establishing solid manufacturing agreements, and ensuring that any distribution agreements contain strict terms and conditions. A business owner may also want to consider licensing its brand. Licensing is explored in greater depth in Chapter 3.
Franchising is one method of growing a brand, and of financing and establishing distribution. Other sales arrangements which may be beneficial to growing your brand include consignment, hiring sales representatives to find buyers for your product, and leasing spaces in department stores to sell your branded products.
There are multiple ways to expand a business internationally. They include: finding an importer in a foreign country; hiring sales representatives or agents in a particular country; establishing an office in different countries; and franchising. Trademark protection must be established in the countries in which business in conducted. A thorough discussion on international trademark considerations can be found in Chapter 2. In addition, any agreements among parties in different countries must take into consideration the laws of each region.
Understanding the legal framework and benefits of establishing each type of entity is only one aspect of building a successful business. Choosing an entity structure, brand and legal protection and the right advisors, board members and officers can all greatly affect the outcome of any company.
Author details:
Thomas M. Pitegoff
Pitegoff Law Office PLLC
White Plains, New York
Summary by: Lara Corchado
