DINSMORE & SHOHL

Regional and National Law Firm

Offices: Ohio, Kentucky, Pennsylvania and West Virginia

300 Lawyers (40 in Intellectual Property, 160 in Litigation, 100 in Business/Tax/Real Estate/Banking, etc.)

Clients: 60 Foreign clients with offices in the USA

Clients: 60 Non-U.S. clients who do business in the USA without official offices

Harvey Jay Cohen, Esq.

harvey.cohen@dinslaw.com

Telephone 1-513-977-8144Facsimile 1-513-977-8423

At Dinsmore & Shohl for more than 18 years

Georgetown University A.B. Cum Laude 1982

Columbia University, Master International Affairs, Magna Cum Laude 1984

University of Cincinnati, Juris Doctor, Order of the Coif 1987

Please do not hesitate to ask questions during out presentation and afterwards by e-mail or telephone

FUNDAMENTALS OF BUILDING YOUR BUSINESS:Principal Questions for Chinese/Non U.S. companies doing business

in the USA

Many services provided are faster, easier and cheaper in the USA . . .

Lawyers

Accountants

Banks

Registrations with the Government

Regulation of products is less stringent in many areas. This laxity varies greatly depending on the type of products and whether they are for sale to consumers or

businesses

Distribution of products, even across and into a vast market

Taxes, unemployment insurance

Entry into US, Initial Advice

Always use a top-notch lawyer, not just a Los Angeles or New York, etc.

A Delaware Corporation is not necessary

For example, Procter & Gamble, large oil companies and other U.S. large companies are Ohio corporations. The vast majority of public corporations are

not Delaware corporations

Do not double your expenses and administrative burden

First Steps

Hire an Accountant/Tax advisor, register patents and trademarks and fulfill immigration formalities

Create a PRC or offshore subsidiary to make U.S. sales or to own the U.S. entities, isolate the mother company from liability from the USA

State vs. Federal (Washington, D.C.) Law

Uniform Commercial Code (state law on sales)

Each state has its own Corporation/Business Code

Each state is different in some ways, some important and some insignificant

Competition

Competition/Anti-trust laws and enforcement are lax

It is illegal for competitors to agree on purchase or sales prices

A principal may not require a reseller to sell at a specified price. A principal also may not establish resale price floors and ceilings in most cases

Typically, a seller may not require that other goods be purchased along with a desired product

Credit

It is difficult to recover lent money or accounts receivable, as federal and state laws favor the debtor, especially in bankruptcy

Protect Yourselves

Retain a Security Interest for sales of inventory and equipment (you cannot retain title)

Consider credit insurance

Do not give liberal credit terms

Be careful on all payment terms or else operate at your peril

Do not continue to ship goods if past invoices are not paid

Use well-drafted sales documentation, security interests and safe payment structures

You can charge interest on past due invoices. Typically 18%, depending on state law

Product Liability

It is often said that this is a problem in the USA, and it is true

Lawyers for victims are not paid by the hour, but take 33% of all awards

Product liability insurance is essential

Again, it is key to operate in an affiliated structure, reducing risk to the parent

Sales Laws

The UN convention on the International Sales of Goods (CISG) applies in the USA. Pay attention. If a governing law clause in a contract designates a State (UCC) or PRC law, without specifically opting out of the CISG, the CISG will control and apply as the CISG automatically substitutes for state and PRC law.

Pay attention to these clauses and opt out of the CISG if you wish.

Jurisdiction/Courts

In contracts, it is possible:

To be silent on venue

Or to designate a PRC tribunal, i.e., Peoples Court of Beijing

Or to choose a State/County court in the U.S.

Or to choose mediation

Or to choose arbitration

Or to require business executives escalation between parties before commencing litigation

Forms of Contracts

Insist that all contracts be complete and signed. Avoid verbal contracts or those on “scrap paper”/“cocktail napkins”

In the USA you can choose the law to apply

Conclusion: Freedom of contract is the rule in the U.S. You should use this freedom to your advantage

Contract Clauses

You can limit damages to the value of the products or services sold

You can limit warranties, e.g., the only warranty is performance to specifications for 90 days

You can limit types of damages, e.g., eliminate consequential, indirect and punitive damages

You can have an internal statute of limitations, e.g., after one year an aggrieved party cannot sue the other party

It is possible to exclude all other guarantees/warranties, sometimes, it is even possible to sell “as is” without a warranty

Contracts for services are similar

Shipping/Transportation

We recommend using Incoterms shipping terms defined by the International Chamber of Commerce. For example ExWorks, Seller dock (I.C.C. Incoterms 2000). The Seller is only responsible until the goods sold cross over his dock,

and then title and all risk of loss transfer to the Buyer

Customs

Country of Origin must be clearly indicated on each product or its container

You may not artificially reduce the value of imported or exported goods to pay lower duties

Distributors/Re-Sellers and Sales Representatives

Use a carefully written-contract

Keep the term short

No automatic renewals

Register al marks, URLs, Patents, etc.

Non-competition clauses are essential and may continue after expiration/termination

Minimum sales levels to retain exclusivity

Use a list of objective standards, which if breached, leads to termination

You can terminate a Distributor or Sales Representative Agreement more simply than in other countries with less fear of damages. This

result, depends on state law.

Entities

Corporation

Limited Liability Company (LLC)

General Partnership (Partnership)

Branch office of foreign entity (Branch)

Articles of a Company filed with State Government

All forms of entity are granted/governed on receipt by states. No application process, approvals, financial statements, feasibility studies, etc. In Ohio, this

happens on same day service. US state laws in general are more liberal, less regulatory and less rigid, especially

the LLC (you can almost do anything from a governance standpoint

Little or no required capitalization

No requirements for an annual audit or filing of financial statements

The identity of offices and director is secret

Financial results are secret

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Conclusion

In general, it is more simple, fast, easy, less regulated and cheaper to do business in the USA

If you need assistance in the USA, please call us early in the process to use us to your maximum advantage

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