How to Start a Clothing Line

Legal and other considerations to think about before starting a clothing business.

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Opening a clothing store has its own set of legal considerations. These include choosing the proper business entity, naming the business, leasing space, getting adequate insurance, reviewing franchising issues, and dealing with employees.

Choosing the Business Entity

While you could operate your clothing store as a sole proprietorship or partnership, you should consider using a legal form that protects you from personal liability, such as a corporation or a limited liability company. A clothing store is not the most dangerous business, but you will have a significant number of customers coming through every day, and in many cases employees engaged in at least some physical activity. Consequently, there is some possibility that a person could be injured, or his or her property damaged, on the premises—in which case you would want the business, not you personally, to be responsible for any liability.

Learn more about choosing a business structure.

Naming the Business

In naming your business it is important not to violate trademark laws. This means not naming your store in a way that might create a “likelihood of confusion” with a preexisting commercial enterprise in the same field. Such confusion might arise if the name you choose is identical or very similar to the name of another business or product.

In a pre-Internet age it was easier for people starting small, local businesses to investigate the uniqueness of the names they wanted to use because it was assumed that there were certain geographic limitations on business names. Now, however, you need to be concerned about trademarks and trade names that may be in use by just about anyone just about anywhere in the country. If you name your Tallahassee-based pajama store Jeri’s Jammies and there is already a popular store in Tacoma that also sells online named Jerry Jammies, you may well find yourself looking at a trademark infringement suit. You should not expect the geographic separation to protect you.

The best approach to avoiding trademark issues is to try to make a thorough search of existing business names before settling on a name for your own business. This may include:

  • a basic Internet using a search engine such as Google
  • searching the federal trademark register of the United States Patent and Trademark Office (USPTO) which is available online at uspto.gov, and
  • looking at filings for corporations, limited liability companies, and similar entities registered with state and local government offices, such as your Secretary of State’s office; state-level listings are usually available online.

In addition, if you want greater certainty you can hire a professional service to do a more thorough investigation of the name in which you are interested; the cost is usually a few hundred dollars.

To learn more, see Choosing a Business Name FAQ, Make Sure Your Proposed Business Name Is Available, and How to Register Your Business Name.

Leasing Space

For retail businesses, location is an important consideration, as you want to be convenient to customers and thus maximize customer traffic. It is sometimes worthwhile to spend time physically in areas you think might work for your store; you can observe how many people shop in the area, and talk to businesses currently located there to find out about possible open spaces. Online searches, through real estate-specific websites, as well as sites like craigslist, are also potentially useful.

If you find a location you’re interested in, try to investigate the space as thoroughly as possible. Look for things like indications of past water leakage. Try to get a sense of how responsive the landlord will be to requests for repairs—perhaps by talking with other of the landlord’s tenants.

When reaching the point of signing a commercial lease, several key elements to keep in mind are:

  • exactly what space is covered by the lease
  • how long a time period it will cover
  • what are the starting and ending dates
  • what are the renewal options
  • is there any right to expand

Learn more from the Nolo article Commercial Leases: Negotiate the Best Terms.

Insurance

As the operator of a clothing store, at a minimum you need to be concerned about at least two areas of risk:

  • injuries to customers or damages to their property while they are on the premises, and
  • damage to business property through fire, theft, or other causes.

For potential injuries to customers, you should obtain a good general liability policy that will protect you from customers who slip and fall or suffer other personal injuries at your place of business.

For potential damage to your business property, make sure that you have coverage for all property of any importance, such as building fixtures, furniture, equipment, personal property used in the business like books and computer discs, and—certainly important in a retail store—inventory.

The list of coverage areas could easily be extended over what is briefly described here. Try to work with an insurance agent who has previous experience writing policies for clothing stores.

For more information, see Nolo's article on Obtaining Business Insurance.

Franchising

If you’re thinking of opening a clothing store that is part of a franchise, keep in mind that you will have to operate under far more restrictions than if you opened your own independent store. You will be subject to a franchise contract which you should expect to favor the franchisor, and which likely will give the franchisor rights to:

  • decide where other competing stores will be located
  • block sale of your franchise to a particular prospective buyer
  • choose the geographic location where any disputes will be resolved, and
  • require you to buy all of your goods and services from the franchisor.

Along with the restrictions contained in the franchise contract, you should keep in mind the additional financial costs of a franchise. In exchange for being given a preexisting business plan, getting certain help as needed when running the restaurant, and benefitting from group marketing, you will be required to pay out a substantial amount of your profit to the franchisor. More specifically, apart from a large initial franchise fee, expect to be required to pay the franchisor:

  • a percentage of your profits as a royalty
  • an above-market cost for equipment, goods, and supplies purchased from the franchisor
  • finance charges on those same purchases
  • training fees for you and your employees, and
  • contributions to a fund for group advertising.

If you are considering starting a clothing store as part of a franchise, investigate the franchise as thoroughly as you can, including reviewing closely the federally-required franchise disclosure statement.

To learn more about the risks involved, see Nolo's article, Want to Buy a Franchise? Ten Reasons Not to Do It.

Employees

Most clothing stores have employees and, in many cases, there can be relatively frequent turnover, particularly among the sales staff. You should inform yourself about basic employment law issues such as illegal discrimination, workers compensation, and how to handle the hiring process. With regard to hiring in particular, learn how to:

  • create a useful job application that does not include illegal questions
  • check references or make other preemployment inquiries -- again without violating privacy laws or otherwise seeking illegal information, and
  • ask interview questions that are both useful and legally permissible.

A good resource for general employment issues is The Employer’s Legal Handbook, by Fred Steingold (Nolo). Also, many key employment laws are administered through the Department of Labor, and there are a variety of informative webpages within the Department of Labor website.

Additional Information

For more thorough information about opening a clothing store or similar small business, including issues not covered here, a excellent resource is Legal Guide for Starting & Running a Small Business, by Fred Steingold (Nolo). You can also learn more from other Nolo articles like this one, such as Shipping and Refund Rules for Businesses.

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