LA gets a lot of fashion buzz these days and the debate of it becoming a fashion capital of the United States seems to always be a topic. It’s the place where A-listers take the clothes from the runway to the red carpet, is the denim capital of the United States, is the recipient of a mass migration of fashion creatives to its sunny shores, including Tom Ford, and is home to beloved contemporary brands like Frame Denim and The Mighty Company.
There’s a lot to consider when opening an apparel or fashion business in California, as the red tape is not as golden as the state’s nickname might suggest. To help with comprehensive insights on how to set up an apparel business in California, this writer reached out to Yuri Vanetik.
Vanetik is an attorney, investor, UC Hastings Trustee, and Lincoln Fellow at the Claremont Institute who has been heavily involved in leadership in the State of California. He’s had multiple appointments by former Governor Schwarzenegger such as Criminal Justice Commissioner, California Lottery Commissioner, and Economic Strategy Commission. Through these experiences, he has gained a deep understanding of what makes California unique and what the priorities are in state government.
“Apparel in California is an expression of style from gritty streetwear to sustainable clothing, to tactical and sport apparel, to super edgy Hollywood clothing and beachwear,” he says in an interview. “Only California could spawn brands lik Chrome Hearts and Reformation.”
“California offers unparalleled value to companies seeking the optimal business location. Our critical mass of business services, intellectual capital, financial acumen, transportation systems and market access enhance the corporate mission and make California the most efficient place to do business in the world,” continues Vanetik.
In the following, Vanetik outlines the pros and cons of creating an apparel business in California, as well as the top points to consider when launching a business in the Golden State.
“Apparel industry draws talent to California. It is part of our state’s drive to innovate. Creative people not only build brands in the apparel industry, they draw other innovators. The industry augments our technology industry, and draws investors to choose California despite high taxes and expensive lifestyle.”
“Apparel companies can draw on a huge and dynamic pool of creative people that come to California. They can build alliances with athletes and Hollywood personalities, and tech influencers. They can be perceived as trend setters by being in LA. They can raise venture capital money in California for creative and edgy apparel lines faster because there is incredible wealth here in the state.”
“California is less institutional. Fashion hubs in Europe, Asia, and East Coast are less accessible and more formulaic than California. Ergo, you draw more attention to your brand by being in California, and you have more access to capital than many other places in the world.”
“California leads the nation in research and development (R&D) and benefits from receiving half of the nation’s venture capital investment. In 2009, California companies received more than $8.8billion or 50% of all VC dollars invested in the U.S.”
“California’s culture embraced technology as part of its founding DNA. Technological innovation powers the California economy. We’re home to over 930,000 high-tech workers, larger than any other state, and 16% of all U.S. high-tech workers. High-tech exports totaled $48 billion, ranked first nationwide, and high-tech goods represent nearly 44% of the state’s annual exports.”
“California has a strong tie to Asia, and Asia is a huge consumer of new, cutting edge lifestyle products.”
“The downside is that California is a more bureaucratic state operationally. It is more expensive to run a business here—any business—and apparel is no exception.”
“Similarly, California is not an inexpensive place to launch a business. It’s important to pay attention to details and follow the rules to avoid getting regulators on your back.”
“Fines are high, and dealing with the bureaucracy in the state can be daunting.”
HOW TO OPEN AN APPAREL BUSINESS IN CALIFORNIA
1. Choose Your Business Entity
“First, you’ll need to choose what type of business entity to be. Options range from a sole proprietor, a partnership (general or limited), a limited liability company, to a corporation. All have pros and cons, and different fees and tax consequences. It’s best to speak with an experienced professional to help you decide which is the best fit.”
2. File the Appropriate Papers for The Business Entity
“The type of entity you choose will determine where you file the appropriate papers—at the county or state level. It’s important to note, Sole Proprietors Need Not Register. Generally, most states, like California and New York, do not require sole proprietors to register with the county or state. However, in California, any business (e.g., sole proprietor, general partnership, or formed entity), who does business under a different trade name must submit a Fictitious Business Name Statement in the county in which it does business. Once that Statement is filed, it must be published in a local newspaper for four successive weeks. Requirements vary slightly county to county, so check the various requirements for these California counties: San Francisco County, Santa Clara County, LA County., sole proprietors must register with the county if they do business under a different name.”
3. Licenses and Permits
“To start a clothing line business, you will need to acquire licenses and permits from your state, country, or city when applicable. Depending on the business entity, it’s required to file “Articles of Incorporation” for a corporation or “Articles of Organization” for a limited liability company. For a general partnership, the owners only have to file a Form GP-1 or partnership authority statement with the Secretary of State. If you are a corporation or partnership or have employees, you will need a Federal Employer ID Number (FEIN). You can apply for an employer identification number for free in various ways. For example, in California, you will need a state employer ID number from the EDD department.”
– Permit to Sell and Collect Tax: “Apparel is taxable goods, so to run a clothing brand, a license to sell clothes is required called a “Seller’s Permit,” as well as a “Certificate of Authority.” It enables business owners to buy raw materials to make fabric without paying sales tax. Moreover, they can collect sales tax from their customers on clothing items sold and paid to the government.”
– Apparel Registration Certificate: “The manufacturing process includes cutting fabric, sewing, assembling, pressing, and other business processes, so this certificate is likely first need before starting the business. This registration is also required if the company or brand hires contractors to manufacture the apparel. Along with California, it might be necessary to register with other states where the contractors operate. This registration requires an EID number, proof of worker’s compensation ready, among other things.”
– Safety Permits: “When a company has a retail shop or space for manufacturing, a fire department permit is required which meets the strict guidelines for the employee’s and neighbors’ safety, and insurance. Moreover, if a company does have its own retail space, other permits such as an occupational permit, alarm permit, building permit, worker’s compensation insurance, etc. are required. Insurance will be a large part of the business’s legal requirements and will also be the most expensive of the lot. To start with, there’s health insurance, disability insurance, business overhead expense disability insurance, general liability insurance, and others. The business will also beed an RN number, which is an identification number issued by the Federal Trade Commission, for the business that engages in importing, distributing, or selling wool and fur products.”
1.Board of Equalization–(Partial) Sales Tax Exemption
“This law allows manufacturers to obtain a partial exemption of sales and use tax on certain manufacturing and research and development equipment purchases. To be eligible under this law, these three conditions must be met”:
A. Be engaged in certain types of business, also known as a “qualified person.”
B. Purchase “qualified property.”
C. Use that qualified property for the uses allowed by this law.
2.Governor’s Office of Business and Economic Development – California Competes Credit
“The Governor’s Office of Business and Economic Development (GO-Biz) administers the California Competes Tax Credit. It is an income tax credit available to businesses that want to come to California or stay and grow in California.”