Questions for Chinese/Non US companies

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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.
[email protected]
Telephone 1-513-977-8144
Facsimile 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
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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