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This is a question I received and here is my answer.
In terms of retail legal requirements, here’s what comes to mind:
- Do you need to or should you file any relevant trademark/wordmark/copyri
ght filings with USPTO to protect your works? Check with an attorney about this. Retailer’s won’t care, but should you be trying to protect your works?
- You will need to incorporate, as retailers purchase from corporate entities, not individuals, unless it’s very small retailers (single locations or small chains), or are willing to purchase from a sole proprietor.
- Do you need any product liability insurance? Besides a standard general liability policy, you might need to add product liability, and the retailer will also be named as the insured on your policy, which is another reason why you need to incorporate, as insurance companies insure corporations/partnerships
, not sole proprietor. Check with a business broker about insurance.
- Does the retailer have vendor documents that you need to sign? Do they have a routing/shipping and logistics policy that you must adhere to? They may also require guaranteed sale, which means if the product does not sell, you agree to purchase it back. What are there other terms – especially payment? Is it the standard 30 net 2? Do they have any other tradespend requirements (like damage or marketing requirements – additional percentages off your wholesale price to them for these kinds of terms)? You want to analyze all this carefully because these “tradespend” requirements can really eat into your profitability. On average, across all retail, tradespend ends up being 13.5% of your wholesale price, so it can add up. Drug stores are 20% +, especially in year 1.
- Are there any FTC requirements/standards regarding your product category? My guess is not, but check anyway. If it is food, check with the FDA/USDA. Are you subject to providing a material safety data sheet (MSDS) to the retailer about your product? My guess is not, but check anyway. Do you need Prop 65 overlabeling for selling in California? My guess is not, but check anyway. If food, you will need a COA (certificate of analysis).
- Do you need to use distributors? A retailer may prefer to order product through a distributor. Ask them when you are selling to them. Or, you might want to use a distributor who can help sell your product to a wider retail base. What are their legal requirements?
- Make sure when you do business with a retailer that you obtain a W9 from them so that you have legal record of where to send any relevant tax documents to them. Also get a copy of the resale certificate so you have proof that you are selling for wholesale purposes, and thus you do not need to collect or pay sales taxes.
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