April 7, 2018

3 Big Legal Mistakes Crafters Make

Most handmade businesses owners don’t check or follow the legal steps they must take when they start selling their crafts. It begins as a hobby, sewing bags, making some jewelry, knitting a few scarves, etc. and then the idea comes along that money can be made selling these crafts. The crafter signs up for their first craft show and starts building stock.

 

But craft show organizers typically don’t check that each vendor has followed the legal steps to set up their business properly, so who’s governing your new business and ensuring you’re following all the laws?

 

Usually no one.

 

That is, until:

 

  • An inspector visits a craft show you’re selling at or stumbles upon your online shop
  • A disgruntled customer complains about your business
  • A competitor turns you in
  • A neighbor gets annoyed with customers visiting your home and parking in front of their house and calls the city
  • Etc.

 

There are legal hoops every business must jump through but typically no one forcing you to jump through them.

 

Which is all fine and dandy until you get caught and have big fines to pay or limited time to jump through hoops that normally require a lot of time to jump through.

 

If you’re a business owner, it’s your responsibility to understand and stay up to date with the laws in the jurisdiction(s) you operate your business.

 

Pleading ignorance and claiming you didn’t know about the laws you’re breaking will not suffice.

 

*DISCLAIMER

The information contained in this article is given as general legal information, and does not consist of legal advice. The information herein is provided by non-lawyers without any legal representations; it is not an alternative to obtaining legal advice, and should not be treated as such. If you have specific questions regarding a legal matter, you are urged to contact an attorney or other professional legal service provider. Nothing contained in this article will act to limit our liability in any way.

 

Continue reading for the three common legal mistakes handmade businesses make…

 

Many small handmade business owners wonder if they need to register their business, obtain a business license or permits, etc. Most handmade businesses start selling their products before they're legally set up. These are 3 legal mistakes many handmade business owners are making.
 
 

LEGAL MISTAKE #1 – Not following registration and regulation laws

When I started my handmade business selling handbags, I dove right in without doing my research. I didn’t register my business’ trade name at first and when I finally got around to it, I realized another business had the same name.

 

Some jurisdictions will allow sole proprietors using a trade name (also known as a DBA, Doing Business As, Fictitious Name) to operate without registration but in most cases, you must register your business or your business name.

 

You must decide on a business structure, which will determine how you pay your taxes, whether you’ll be personally liable in the case of a lawsuit and if and how you register your business.

 

If you’re not sure what type of business structure to choose and need guidance on making sure you’re operating your business legally, check out LAWS FOR SELLING HANDMADE. It covers all the laws you must follow as a handmade business (not just the top 3 being broken) in a simple language and easy to follow steps.

 

If you’re selling an item that has a higher risk of attracting a lawsuit, you may want to choose a business structure with limited liability.

 

For example, if you sell handmade lotion or baby teething necklaces and the lotion causes a rash that racks up doctor bills or the necklace causes a choking hazard, a customer may sue your business.

 

If your business is set up as a sole proprietorship or general partnership, it has unlimited liability. Which means your personal assets (e.g. car, house, etc.) may be at risk and used to pay damages.

 

Speaking of bath & body products and children’s products, there are strict regulations that must be followed, which are in place to protect the consumer.

 

Most products have some type of regulation to follow from the labels you put on textiles and how you package your boxes of cards, to safety regulations that must be followed for children’s products, soap, food & drink, etc.

 

These regulations can be complex and vary by location. If you’re importing your products to another country, you also must be aware of their laws and ensure your products follow them.

 

 

 

LEGAL MISTAKE #2 – Infringing on intellectual property

Intellectual property relates to the creations of the mind and is protected by trademarks, copyrights and patents.

 

  • Trademark applies to creative works such as your business name, tagline, logo, etc.
  • Copyright applies to the creative works you make and sell such as jewelry, pictures you paint, blog posts you write, etc.
  • Patent applies to inventions, new processes you come up with for manufacturing, etc.

 

As soon as someone creates something in a tangible form, it’s protected and doesn’t require registration. But registering a trademark, copyright or patent makes it easier to prove ownership and provides better protection.

 

It’s also protected on a first-come, first-served basis.

 

That means; you can’t just pick a business name out of a hat.

 

Sure, it may not be registered as a trade name, LLC or corporation in your state/province but if it’s trademarked federally, you’re likely not allowed to use it. A registry office doesn’t always check federally registered trademarks or trademarks that are registered in other countries. So if you plan to sell to customers outside of your country, you must do a thorough search.

 

Need help? I’ll walk you through how to conduct a thorough search in LAWS FOR SELLING HANDMADE.

 

That also means team logos, Disney characters, quotes, photos taken by someone else, etc. can’t be used in your products (unless they fall under “fair use”, “public domain” or you’ve purchased a licensing agreement).

 

But why are there so many shops on Etsy selling Disney, Hello Kitty, Game of Thrones, New York Yankees themed products or “inspired by” Pandora, etc.?

 

It does NOT necessarily mean it’s legal. It likely means they haven’t been caught yet. A part time crafter selling crocheted Disney characters likely hasn’t purchased the expensive licensing agreement required to legally recreate the character.

 

For more information on intellectual property and what else you must register for when it comes to your handmade business, check out LAWS FOR SELLING HANDMADE.

 

 

LEGAL MISTAKE #3 – Improperly following tax laws

Your business may or may not be required to charge sales tax but every business is required to pay income tax.

 

Even if you take a loss (i.e. you spend more on your business than your business makes), in most cases, you’re still required to report your losses on your income tax report.

 

How you structure your business will determine whether you file that income with your personal taxes or using a corporation tax form.

 

A lot of business owners don’t properly track expenses or income and those numbers aren’t something you can roughly calculate for tax forms. The more business expenses you track the more you can lower the income total you must pay taxes on.

 

You’re also responsible for charging the proper sales tax (if required to charge sales tax on your goods). US sellers shipping products outside their state must be aware of whether they’re in a origin-based state or destination-based state, which determines whether they charge the sales tax rate of the business’ state or the customers’. As well as whether their business has a nexus in another state.

 

It’s also important to be aware of tax laws in jurisdictions you sell your goods.

 

For example, if you live in the US but a large portion of your sales come from Australia, you may be required to register for GST with the Australian Taxation Office, charge GST on low value imported goods and lodge and pay GST to the ATO.

 

 


 

There are many other areas that require your attention in order to be compliant with laws and have the proper protection.

 

If these 3 mistakes have got you wondering if you’ve taken the proper steps to legally set up your business, you may be interested in LAWS FOR SELLING HANDMADE. It covers the legal steps handmade businesses must take and covers each point listed here in more detail.

 

Almost every business requires some type of business license or permit to operate legally, yet so many handmade business owners skip that step.

 

Yes, even sole proprietors, running their business out of their home, selling at small craft fairs must have certain licenses and permits.

 

It’s not too late to ensure you’re set up properly….well, unless you get caught operating your business unlawfully then I guess it is too late and you’ll have to pay the fines.

 

*DISCLAIMER

The information contained in this article is given as general legal information, and does not consist of legal advice. The information herein is provided by non-lawyers without any legal representations; it is not an alternative to obtaining legal advice, and should not be treated as such. If you have specific questions regarding a legal matter, you are urged to contact an attorney or other professional legal service provider. Nothing contained in this article will act to limit our liability in any way.

 

 





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