E-commerce3 min read
Best LLC for a clothing brand: labelling, duty and returns
Apparel has the highest return rate in e-commerce and some of the highest import duty rates in the tariff schedule. Both are structural, both are predictable, and both are usually left out of the spreadsheet that made the business look viable.
The short answer
A single-member LLC and a margin model that assumes a real return rate and real duty. The entity takes an afternoon; the unit economics are what decide this one.
Published
Clothing is the easiest category to start a brand in and one of the hardest to make money in. The reasons are arithmetic rather than legal, but there is a compliance floor underneath them that catches new brands with surprising regularity.
The short answer
A single-member LLC, disregarded, in your home state. Product liability exposure is lower than for anything ingested or electrical, but it is not nil — children's sleepwear has flammability requirements, and drawstrings on children's outerwear have caused recalls.
Every garment has to carry three things
US labelling requirements for textiles are specific and enforced, and they apply to a first order of fifty units as much as to a national brand:
| Requirement | What it means |
|---|---|
| Fibre content | Generic fibre names by percentage, in descending order. "Cotton blend" is not a fibre content. |
| Country of origin | Where the garment was manufactured, disclosed on the label. |
| Manufacturer or dealer identity | Your company name, or a registered identification number issued for the purpose. |
| Care instructions | A care label with a full regular care procedure, permanently attached. |
The practical point: your manufacturer will produce whatever labels you specify, and will not tell you that your specification is non-compliant. Getting this right is your job, and it is much cheaper before the run than after.
Duty on apparel is higher than you expect
Apparel carries some of the highest rates in the US tariff schedule, and the rate varies sharply by fibre, construction and garment type — two similar-looking shirts can attract very different duty because one is knit and one is woven, or one is cotton and one is synthetic.
- Classify before you order, not after it ships. The rate is a real input to your landed cost and it can move a product from viable to not.
- You are the importer of record and responsible for correct classification and valuation, whatever your freight forwarder filled in.
- Trade agreements can reduce or eliminate duty for goods from certain countries, but only with the right documentation.
- Landed cost is goods, freight, duty and inbound handling. A brand that costs its products at the factory invoice is not costing them.
Returns are the margin, not a footnote
Fit-driven categories return at rates that would be catastrophic anywhere else. The revenue reverses, the outbound shipping does not come back, the return shipping is often yours, and the garment may or may not be resellable.
What actually reduces the rate: detailed size charts with real measurements, photography on more than one body, and honest fabric descriptions. Every one of those is cheaper than the returns it prevents.
Sales tax has an apparel quirk
Several states exempt clothing from sales tax entirely, or exempt it below a price threshold, or exempt everyday clothing while taxing accessories and formalwear. This is one of the few categories where the taxability answer varies by *item* within a state rather than just by state — which matters if you sell both t-shirts and jewellery.
If you are not a US person
- No S-corp election — Section 1361 bars non-resident alien shareholders.
- Form 5472 with a pro-forma Form 1120 annually, $25,000 penalty for failure to file.
- Importing as a foreign entity requires a customs bond and, practically, a US-based agent.
- US inventory is a strong US connection for the effectively-connected-income analysis.
When to revisit
| Trigger | What to reconsider |
|---|---|
| First production run | Labelling specification, and duty classification. |
| Children's ranges | Flammability and drawstring requirements, plus testing. |
| Return rate above your model | Sizing, photography and descriptions before discounting. |
| Net profit durably above ~$80,000 | Model the S-corp election. |
| Wholesale to retailers | Different terms, different liability, and chargebacks of a different kind. |
The unglamorous half, handled
Founders 8 holds the entity, the filings and the deadlines so your attention stays on the collection.
Build your workspaceFounders 8 tracks obligations and deadlines for your reference. It does not provide legal or tax advice — filings are prepared and reviewed by qualified partners.