Cosmetics have historically, mattered. Be that as it may, opening a cosmetics store involves preparation, planning and knowledge. If you would like to open a cosmetics store and need information on the kinds of legal issues you should consider, this article provides a legal checklist of six considerations to think carefully about before opening your doors.

1. Legal Structure

All businesses require a legal structure. As a future proprietor, you should consider what kind of structure would be best for you. That question has two aspects: what structure suits your needs and offers you commercial benefits given your circumstances.

Remember that there is no one answer. It is entirely contextual. Think about your needs. Some questions you might ask yourself include:

  • Are you someone who needs the kind of security that a limited liability company could offer? 
  • Are you dissuaded by the reporting obligations concomitant with a company?
  • How much am I willing to pay to start the business structure? How much am I willing to pay for ongoing administration?
  • What do you plan to do with your cosmetics store in the future? Do you plan to sell it or keep it going concern?

If you are unsure about which legal structure best suits your needs, have a look at this business structure infographic. The correct business structure will help manage your risk, liability, tax obligations, and protect your assets.

2. Location

Location! Location! Location! You will need to find the right location for your store. Opening your cosmetics store where you will gain no foot traffic can be detrimental to your business. At the same time, highly sought after areas will usually demand a much higher rent. You will also have to be weary of opening and closing hours if you intend on opening a cosmetics store in a shopping centre.

Irrespective of whether you plan on purchasing or leasing premises, it is important that you review your contract independently, and if required, seek the assistance of a professional lawyer. A professional will be able to explain the long and short term implications of clauses that may not have been apparent to you at first glance, and they may also be able to negotiate on your behalf.

3. Finance

All businesses require capital. You will need sufficient capital to open your store and pay your bills.  Adequate cash flow could be an issue in the short term as you work to build a customer base and goodwill.

As most business owners acquire finance through commercial loans, it is a good idea to research the different products on the market. Speak with various banks and institutions. Again, it is imperative that you thoroughly review your loan or financing agreements, and if in doubt, seek the assistance of a lawyer whom will be able to assist with your contract review.

4. Legal Requirements for Cosmetic Stores

In 2014, the Australian Competition and Consumer Commission (ACCC) estimated that approximately 30% of all consumer injuries involved cosmetics. Given these kinds of statistics, you have certain legal obligations as the proprietor of a cosmetics store.

You need to know the Mandatory Standards for Cosmetic Ingredient Labelling and ensure that the cosmetics you sell, meet these requirements. Labelling is a product safety issue. For example, a consumer with an allergy to a specific ingredient must be able to discern if a particular cosmetic contains it or risk an allergic reaction. These standards are freely available online. Visit the website for Product Safety Australia and follow the links.

The Australian Consumer Law (ACL) enforces these standards. The ACCC investigates breaches of it and proven instances of failure to uphold them attract substantial penalties. As mentioned above, incorrect labelling constitutes a safety defect for the ACL.

If you become aware of a product-related injury, illness or death, you are required to report it to the ACCC within two days.

The ACCC can always ask you to substantiate any claims made on the products you sell. The ACCC takes marketing and credence claims seriously – particularly about cosmetics – because consumers have no choice but to rely on the accuracy and truthfulness of these claims. These include assertions made concerning the origins or attributes of a product. If you cannot substantiate a claim, you may face penalties.

Of course, like all retail outlets, you are obliged to meet all the consumer guarantees and provide any of the appropriate remedies detailed in the ACL.

If you need further information, the websites for Product Safety Australia and the ACCC are an excellent general resource.

5. Employer

As a proprietor, you will also be an employer.

You need to make sure that your workplace is safe. Employees must also be able to work free from bullying and harassment.

You will need to be aware of any relevant awards and remunerate employees accordingly. You will also need to make any superannuation contributions due.

If you need information about your obligations in this regard, the website for the Fair Work Ombudsmen is an excellent resource.

6. Taxation

It is advisable that you apply for an Australian Business Number (ABN). While it is not compulsory, it is desirable because it will allow you to lodge a single Business Activity Statement and claim any relevant GST credits.

It is also open to you to register your business name and purchase an Australian domain.

Your business will require a Tax File Number and to make regular payments to the Australian Taxation Office (ATO) to pay owing Goods and Services Tax.

You may also need to forward amounts of withheld income tax (for an employee) to the ATO.

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Contact LegalVision’s qualified lawyers to assist you. Questions? Call us on 1300 544 755.

Carole Hemingway

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