Legal hurdles in the handmade sector

Nähmaschine on table in living room

Various platforms on the Internet promise fast money with homemade things. Sewing, knitting, handicrafts, candle making, pottery – the trend to handmade products does not seem to stop.

So the temptation is great to turn your hobby into a source of income. Especially since the scene makes quite a homey, maybe even cozy impression: With a lot of attention to detail, the pieces are often made in your own apartment, while the cup of tea stands next to it and soft music is playing in the background. At least that’s the idea. However, the reality is somewhat different: Handmade stores are warned just as often as other companies. Many do-it-yourselfers run their business as small entrepreneurs and are lone fighters. In some areas, the legislator has made things easier, but on the whole, small entrepreneurs are faced with the same labyrinth of legal texts, rulings and applications.

Interview with Coach Anne Heisig:
"One out of ten female founders really rocks"

If you look around on social networks in groups, you very often stumble across people who are considering starting their own business with their hobby. Especially in the field of sewing, it is mainly women who want to reconcile family and career with self-employment, or who want to earn something in addition to their main income.

anne heisig

This makes the beginning difficult, Anne Heisig confirms to us. Anne is not only active herself as a trader in the handmade sector. Under her label AnneSvea, she supports people in turning their creative hobby into a profession. So she can tell us quite a bit about starting her own business and gave us a little insight.

How well prepared are aspiring male and female entrepreneurs when they start their business?

Anne: Unfortunately, founders are usually not well prepared. Many mistakes happen and often the future entrepreneurs put obstacles in their way.

Especially in the handmade sector, many women start during parental leave and try to gain a foothold on the side. How do you assess the situation? How many are taking the step out of small business ownership and into "full-fledged" business ownership?

Anne: Oh, that’s pretty exciting to watch! At the beginning, certainly ten out of ten founders are fully at the start. Some of them then remain active for many years in the course of the small business regulation. Sometimes these wonderful women then return to their old jobs. But I would say: One out of ten founders really rocks! For women, it always depends on an infinite number of factors where the professional journey of self-employment will take them. Unfortunately, I have not often experienced that z.B. the family situation is such that the ladies had enough support and backing. Not infrequently, I have seen entire families broken up because the mothers did not want to give up their self-employment.

Are people deterred from starting a business because of the legal hurdles?

I would agree with that, yes. Founders should be provided with more tools, mentors and possibly financial support. This would help.

In your experience, what are the most common reasons for the failure of the project??

I see here quite clearly the grossest mistakes in the own controlling of the founders and foundresses. Often very bad calculations are made or the wrong products and marketplaces are used. More correct calculations need to be made, especially in the handmade sector. The founders often sell their products far too cheaply. This is not good for the market and does not last long for the individual stores. In the end, nothing is left except stress and bare nerves

In my opinion, this could be avoided if the founders and foundresses could be better supported from the beginning.

We would like to thank Anne Heisig for the informative interview.

Tax trap Handmade

Most do-it-yourselfers come to their business like Mary to a child: They discover a new hobby, practice it with passion, and after being asked several times by friends whether the treasures can also be purchased, the step into business is dared. Especially at the beginning, it is tempting to simply offer the products on marketplaces on the web to see if there is any demand at all. However, the future entrepreneurs and businesswomen should already pay attention here.

According to § 14 of the Trade, Commerce and Industry Regulation Act (Gewerbeordnung), registration must already be made as soon as a commercial activity has been commenced. Any regular activity that is aimed at generating a profit is considered commercial. It does not matter whether a profit is actually made. The only decisive factor is that this objective is pursued. But: From when is the registration necessary?

Strictly speaking, the commercial activity begins as soon as the first raw material is purchased, from which a product is to be created. The background to this assessment is the fact that any activity that is necessary for carrying out the trade is already classified as commercial.

In any case, the business registration should take place before the first sale. Depending on the type of business, a person may also have various other obligations that must be fulfilled before the business can be carried out. Those who practice a craft, such as sewing, must also be registered in accordance with the Crafts Code in the Crafts Register.

Those who take their duties lightly here may face legal consequences: On the one hand, warnings from competitors may be threatened, because anyone who appears as a private person, although the activity is commercial, commits a violation of competition law. On the other hand, the state will also have to ask itself the legitimate question of why no proper business registration was made. The suspicion of (attempted) tax evasion is close here and so the first step into the trade can also have criminal consequences.

ATTENTION: It can often be read in various groups on Facebook that homemade goods are offered "only on a very small scale" and also "only now and then" at weekly, Christmas and festival markets. The sellers are under the misapprehension that this cannot be a trade, after all "one does not make a profit and offers the products extra cheaply". But that is not the bottom line. It is a fact that anyone who produces things in order to resell them must register a business.

The rented apartment as a workshop

Precisely because many do-it-yourselfers start so small, the apartment becomes a workshop, office and warehouse all in one. This does not necessarily have to become a problem. However, there are also a few things to consider here.

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Agreement with the house owner

There should be an agreement with the landlord. This is due to the fact that the lease agreement usually stipulates that the property is to be used for residential purposes. Commercial (co-)use of the apartment is usually not covered by the contract. Here it is worthwhile to consult with the landlord. The tenant can make his consent dependent on whether the trade can have an adverse effect on the other tenants. As a rule, this is not the case if no constant public traffic is to be expected. In addition, there is the assessment of whether noise, dirt or odors emanate from the activity.

Addressing the building authority

The agreement with the building authority is similar to the agreement with the house owner. In the development plans, it is not uncommon for areas on which residential houses are located to be designated as purely residential areas. This means that commercial activities are not allowed to be carried out there, unless they do not affect the character of the residential area. Businesses that do not cause any pollution are therefore usually unproblematic, but must at least be coordinated with the building authority.

Commercial waste

When carrying out a trade, so-called commercial municipal waste is also generated. As a rule, the trader must pay for the disposal of this commercial waste, i.e. an extra garbage can is set up for this waste. Although citizens also pay for normal household garbage, this usually only includes the garbage that usually accumulates in a private household. The free yellow and blue garbage cans, on the other hand, are by definition intended only for consumer waste. However, the law, specifically the Commercial Waste Ordinance, also provides for exceptions here. If the commercial waste generated is minor, nothing extra has to be paid and no extra garbage can has to be set up either.

Suddenly entrepreneur: Bye, bye consumer rights

Another realization usually hits do-it-yourselfers quite quickly: as soon as a business activity is taken up, that’s it – at least in the context of practicing a trade – with the much-loved consumer rights. If the fabric ordered on the Internet does not correspond to one’s own ideas, the entrepreneur must live with it. Instead, he "suddenly" has to perform duties himself.

The realization that the right of withdrawal is not even that good from the entrepreneur’s point of view is particularly harsh. Often do-it-yourselfers are under the misapprehension that they can simply undermine this right of withdrawal by making purely individualized goods at the customer’s request. The basic idea is not wrong at all: In the case of individualized goods, the right of withdrawal can be excluded according to § 312g paragraph 2 number 1 BGB. However, the purpose of this exception is that individualized goods may no longer be resold after a revocation has been made. The entrepreneur simply sits on it. Therefore, a simple individualization, such as the self-selected color of the product is not enough. It must be so individualized that the goods can not be resold. This is the case, for example, with tailor-made clothing. If, on the other hand, a bag is sold with an attached name tag that the customer has previously selected from the inventory, this exclusion does not apply because the individualization can be easily reversed.

Commercial use of patterns, building instructions, etc.

As mentioned above, the activity in the handmade sector usually arises from the hobby. But be careful: simply using the crochet, sewing or building instructions that were used for the hobby can be fatal. The same applies to plotter and embroidery templates. As a rule, such instructions and templates are protected by copyright. This means that you need a license to use them. Consumer use is usually unproblematic, because: The instructions were mostly purchased in a B2C store, such as Makerist. With this purchase, the consumer acquires, even without it being explicitly mentioned, the license for private use. However, this often does not include commercial use. This is usually also concretely stated. If you want to use these instructions commercially, you have to ask the author for a license. This is usually associated with costs and limited to a certain number of manufactured products. Anyone who uses instructions for the commercial manufacture of products without having the necessary license commits a copyright infringement.

Labels: They are everywhere!

What consumers may not notice are the many labels that such a product can have. To illustrate what all can be relevant, here are explained labeling obligations that arise when a soft toy is to be sold.

Textile labeling

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Good news first. Toys do not require textile labeling. However, it would not be on this list if there were no buts about it. Besides stuffed animals, other things can be sewn, such as carnival costumes and play disguises for children. Even if these can be gladly sorted in the store under the category of games, they are not considered as such in the sense of the textile labeling regulation. The purpose of the obligation to label there is that the buyer wants to know what he/she is wearing on the skin. Therefore, such costumes are also subject to labeling requirements. In such cases, in addition to a textile label, it is also necessary to provide information about the fiber composition in the online store.

Manufacturer information

According to § 6 of the Product Safety Act must be indicated on the product, who is the manufacturer and at what address he can be contacted. If this is not possible on the product itself, the information must be provided on the packaging. In the case of a soft toy, it is easily possible to put the information on a label.

Warning notice

Also in the Product Safety Act, or more precisely in its second regulation, special information obligations for toys are regulated. If the toy is particularly small, there may need to be a warning informing that the product is not suitable for children under three years of age. This can be the case with soft toys, for example, if they are decorated with strings of beads or similar.

CE mark

One issue that every toy manufacturer has to deal with is CE marking. This is required by law for toys. But also do-it-yourselfers who manufacture products that are not toys at first sight should inform themselves about this, because: "Toys are all products that are designed or obviously intended to be used by children up to the age of 14 years" (Directive 2009/48/EC). This means that even products that a child might mistake for toys are considered to be toys. This applies, for example, to door decorations in the shape of cuddly animals or backpacks in the shape of animals. In such cases, the manufacturer must test whether the product meets the strict requirements of the EU. He can do this test himself.

However, since in the case of toys, for example, it is also a matter of checking whether harmful substance levels have been exceeded, it is often advisable to commission an external body, such as TuV or Dekra, to carry out the test. If the product meets the legal requirements, the CE mark must be affixed. If the toy does not pass the test, it must not be given a label and – this is particularly important – must not be put on the market either.

Whether handmade or not: an entrepreneur is an entrepreneur

This article is only a brief overview of possible legal hurdles in the handmade sector. From a "simple Draufloswerkeln" is therefore strongly discouraged. The handmade sector may seem "homey" to many; in reality, however, the law makes no difference here. Anyone who wants to be active in this area should therefore inform themselves sufficiently in advance.

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