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Starting a business can be a daunting task, especially if you have never done it before. It is best practice to make sure that you understand all the relevant information and are not afraid to ask questions if you are unsure. This is especially true for legal matters. One industry that is continuing to grow in New Zealand is cosmetics. With a growing emphasis on sustainability and organic products, there is an opportunity for cosmetic retailers with a competitive advantage to enter the market. However, it is important that you follow all regulations before you open up your store. This article will outline three legal considerations that you should take into account before opening a cosmetics store in New Zealand.

Structure of Your Business

The first thing you should think about when opening a cosmetic store is the structure of your business. The structure of your business can drastically change how your business operates. 

The most common business type is a sole trader. This is an easy structure to set up and is not very expensive. Starting your business as a sole trader also means that you are fully in control of business decisions and will receive all the profits you make. However, you are personally liable if your business becomes insolvent. 

Another common type of business structure is a company. A company is a separate legal entity that you create by registering it on the companies register. It is a popular structure as it formally recognises your business and comes with limited liability. This means that you are not liable for any money owing to creditors if the business goes into liquidation. Since a company is a separate legal entity, it can be easier to sell or publicly list if you get to that point.

However, setting up a company can be expensive and you will have to pay company tax on any profits you make. You are also obliged to follow strict regulations such as company law. 

Taxation

Depending on what business structure you choose, your tax obligations will differ. As a sole trader, you will have to pay income tax on any profit you distribute to yourself. Your income tax rate will depend on how much you are making. For a company, you will have to pay 28% company tax no matter how much profit you make. If you pay yourself a salary as well, you will be taxed on this too. 

EPA Regulations

The Environmental Protection Authority sets guidelines that cosmetic stores must follow when selling their products. 

Hazardous Substances

The first thing you should make sure of is that your products do not contain any hazardous substances. These hazardous substances are defined in the Hazardous Substances and New Organisms Act. If you find that one of your products contains a hazardous ingredient, you should immediately stop selling the product. 

Labelling

It is also important that you properly label any products that you are selling. There should be warnings for any substances that could irritate eyes, and you should make it clear where the product is meant to be applied. The EPA has a set of guidelines for labelling products. They must:

  • be in English and easy to read;
  • list hazards and how the product can be used safely;
  • provide information for contacting the manufacturer; and
  • provide a batch code.

Nanomaterials

It is becoming more popular for cosmetic products to contain nanomaterials. These nanomaterials are micro-plastics that can be harmful to the environment. Therefore, if there are nanomaterials in your products, you must clearly label them on the packaging.

Key Takeaways

Cosmetics have been around for a long time, and the industry is only continuing to grow with new innovations and a renewed focus on organic products. If you are considering starting a cosmetics store, there are a few legal considerations that you need to think about. The first one is to make sure you know what business structure to use as this can influence your tax obligations. Secondly, always follow EPA regulations to makes sure you are not liable. Finally, you must label your packaging clearly, especially if your product contains nanomaterials.

If you need any legal assistance with the business structures, contact LegalVision’s business lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What happens if I don’t follow EPA regulations?

You could be fined or your store could be shut down for continued breaches.

Does a sole trader structure have to be registered?

No, but you have to inform Inland Revenue to get an IRD number. 

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