Hashtags for women entrepreneurs and female owned business are becoming more prominent. Tag lines such as “Mom-preneur” #girlpreneur #womenceo, #girlboss #solopreneur #entreprenuerher abound in social media posts in the fashion industry. It is not easy to be a female entrepreneur but with the rise of e-commerce more and more women are forming businesses and successfully selling their products. According to Visa’s 2020 State of Female Entrepreneurship report, though 79% of female entrepreneurs in the U.S. say they feel more empowered than they did five years ago, nearly 70% still report difficulty in obtaining the funding they need to succeed. In addition, many women want to take their business to the next level but simply do not know how.
Women like Kendra Scott, Sara Blakley (owner of Spanx) and Karen Noseff (owner of Rebel Athletics who was recently voted EY’s Entrepreneur of the Year in 2020) show the world that female entrepreneurs are reshaping the fashion industry and the business world. Many aspiring female entrepreneurs have the goals, the dreams, and the desire to launch big business. From startups to venture capital funding to protecting your copyright/trademark rights, having the right lawyer on your side from the beginning can provide the framework for success and allow you to build rapport with a trusted advisor who truly knows your business inside and out.
How you do know when to take your hobby or side hustle and turn it into a profitable business? Do you need to incorporate? What state should the business be formed in? What if your business takes off and you need venture capital funding? What about the legal implications of hiring employees and independent contractors?
A. Types of Business
Protecting yourself, your assets and your business are important first steps to building your dream. Tax considerations and liability protections are key topics to consider before starting a business. What starts out as a small hobby in a living room can easily and very quickly turn into a booming business especially with the right social media following. In the world of fast fashion, businesses and brands can quickly come into the spotlight with the right social media plug. Business owners should be prepared well in advance. Some basic types of business entities include:
- Sole Proprietorship- A sole proprietorship is not a legal entity and simply refers to the business owner. The owner is personally liable for all debts associated with the business and a sole proprietorship does not offer any tax benefits or liability protections to the owner.
- LLC- A limited liability company (LLC) is a legal entity which provides liability protection for the owner(s) but may be taxed as a partnership or corporation. An LLC can have a single member owner or have multiple members.
- Corporations (C Corp vs S. Corp.)- Corporations are great entities for larger business that intend to go public or operate internationally. However, in some cases forming a corporation is beneficial to smaller companies as well. Corporations offer significant liability protections but require a lot of administrative upkeep and legal documentation.
It is important to understand the difference between state law classifications of an entity may not always be the same as the tax classification of an entity. Selecting the appropriate business entity matters as does the state in which you choose to formalize the creation of your business.
Depending on where you live and your goals, forming your business in your home state may make the most sense. However, many business owners choose to form an entity in Delaware or Nevada for various reasons including the favorable corporate law statutes. If you are considering going public or obtaining venture capital funding, incorporating may be the most beneficial for the future of your company. Regardless of where your business is incorporated deciding on when, where and how to incorporate is a fundamental decision that affects the future of your business.
B. Protecting Your Creation
If you have spent time, money and energy developing your ideas you want to make sure the proper legal protections are in place to protect your idea from being stolen. While it may be necessary to register your copyright or trademark, your idea or product can (and should) be protected without formal registration. But, there are legal steps you need to and should take to protect your intellectual property designs and ideas before you start marketing your products. Also, if you are working with a partner or multiple partners contracts should be in place from the beginning to outline and define the legal ownership rights of any ideas, products and designs.
C. Equity Financing/Venture Capital
In addition to legal advice surrounding your decision to seek funding, a great introductory book Venture Deals by Brad Fed and Jason Mendelson provides a great perspective on insights and trends for all stages of financing (note: I do not have any business relations or dealings with the author I just personally found the book helpful for my business).
D. Advisory Board or Board of Directors
More and more resources exists to assist female entrepreneurs with launching their dreams and building a brand. If your company is not ready for a paid Board of Directors, forming an advisory board can help take a business to the next level. Nonprofit organizations such as The Fourth Floor have launched specifically to help women find board members and angel investors for blossoming companies or become board members in previously established entities.
E. Contract Review and Negotiations
Prior to signing any type of contract with partners, leasing agreements, manufactures, suppliers or distributors, business owners should always have an attorney review the contract to ensure the business owners personal and business interests are protected.
The bottom line is that there is a surge in female owned business in the fashion industry and many more in the works (so many individuals have spent quarantine working on pursuing passions and finding creative ways to launch business dreams and goals). Working with a lawyer may seem daunting for a startup company but may ultimately save the business thousands of dollars in the future if protections are put in place from the start.