2. Establishing A New Business in the U.S.
2.1 Types of Business Entities
When a new business is formed in the U.S., a legal structure must be selected
for tax purpose.
Currently, there are four types of business entities in the U.S., as follows:
A. Sole Proprietorship:
A sole proprietor is the sole owner of a business and he/she is personally
responsible for any debts,
taxes, and liabilities of the business. A sole proprietor must report any income or loss of the
business on his/her individual income tax each year and pay taxes accordingly. The formation and
operation of sole proprietorships are regulated by the state and local laws which are usually
applicable to all business operations. Depending on state law, a sole proprietor risks losing his or
her house, car, or other assets to negligence, malpractice, loss, injury or other claims.
A partnership is a business owned by two or more persons. Partnerships are
easy to form and
inexpensive to operate. For tax purpose, a partnership is not treated as a separate tax entity.
Each partner must report his/her share of the income or loss generated by the
on the individual tax return each year and pay tax accordingly.
The formation and operation of a partnership is primarily governed by the statutory law of the
state where the partnership is to be established. Partnership law is generally standard throughout
the U.S. The formal procedure of establishing a partnership is to record in the office of the county
clerk a statement of partnership that has been signed, acknowledged, and verified by two or more
partners. It is also strongly recommended that a formal partnership agreement be prepared to
specify the operating rules of the business and the obligations of each partner. A sound partnership
agreement should always cover three key issues: organization, operation, and dissolution.
There are two types of partnership as illustrated below:
1. General Partnership: In a general partnership, each partner is personally
liable for the debts and
taxes of the partnership. In other words, individual partner’s personal
assets may be subject to attachment and liquidation in the case of a creditor’s claim.
2. Limited Partnership: A limited partner is allowed to invest in a
partnership without the risk of
incurring personal liability for the debts of the business.
However, a limited partner is prohibited from participating in the management of the partnership.
If a limited partner is actively engaging in the management function of the business, he/she will lose the "limited liability" status.
The limited partnership allows investors, who are not actively involved in the partnership’s operations, to become partners
without being exposed to
Tips: "The Partnership Book" published by Nolo Press (Tel:
provides details on the formulation of the partnership agreement.
A corporation is a legal entity separate from any of the people who own or manage it. Business
income can be sheltered in the corporation and taxed at the corporate rates (1997 federal corporate
income rates are between 15% - 39% as compared to individual income rates 15% - 39.6%).
In most cases, creditors’ claims against a corporation can only reach as far as the corporate assets
and can’t touch the personal assets of the people who own or manage the corporation.
A corporation is organized in one state and recognized in all 50 states in the U.S.
Because incorporation laws vary in each state - from the requirements of incorporation to the
operation and dissolution of the entity - legal advice is recommended in selecting a state in which
to incorporate a business. The states that offer the most flexible and liberal incorporation laws -
including Delaware, New York, and Nevada - are among the investors’ favors.
Generally, the incorporation process takes one to two weeks, but may be longer in some states.
Typically, a state agency (usually the Secretary of State’s office) reviews/approves the name of the
incorporating business and the articles (or charter) of incorporation. Upon approval of the
incorporation from the state agency, stocks are then issued to the owners (shareholders) when the
capital is invested in the corporation. Incorporation may cost less than US$100 in some states and
more than US$1,000 in others.
There are four types of corporations - general, close, professional, and not-for-profit corporations:
1) General corporation (or C Corporation): A general corporation is the most common type. It’s a
profit-making venture which can have an unlimited number of stockholders. A stockholder’s
liability is usually limited to the amount of investment in the business.
2) Close corporation: A close corporation is limited to 30 to 50 stockholders - restrictions vary
from state to state.
3) Professional corporations: A professional corporation may be formed with a professional
license of certain occupation, such as doctors, lawyers, accountants, engineers, etc.
4) Not-for-profit corporations: Such corporations are formed for religious, social or fraternal
General, close or professional corporations have the option of electing S-corporation status, which
eliminates federal corporate income taxes and avoid double taxation problems. An S-corporation
can have up to 75 stockholders (or 150, including spouses) who must be U.S. citizens or residents.
Since most Chinese-owned business in the U.S. are located in California, the steps of establishing
a corporation in California are illustrated below:
1. Choose a corporate name: A corporate name must not be the same as, or confusingly similar to,
a name previously filed by another corporation with the Secretary of
State. The name of a person can not be used as a corporate name
unless it ends with a business ending such as "Inc.", "Corp", "Ltd.",
or "Co.". Example: "David Brown" is not acceptable as a corporate
name. However, "David Brown Inc. " or " David Brown Co" is O.K.
To find out whether the name has been used or not, contact the office
of Secretary of State or consult an incorporation service company.
2. Prepare "Articles of Incorporation": The standard form of "Articles of Incorporation" can
usually be obtained in a stationery store such as Office
Depot. (Ask for "Incorporation - Do It Yourself Kit").
3. File "Articles of Incorporation" with the Secretary of State - such filing is a legal requirement.
4. Start the Corporate Records Book: This includes preparation of Corporate Kit, Corporate Seal,
and the Stock Certificates where applicable. There are two
basic kinds of stock: common and preferred. Common
stockholders have voting rights to select directors and are
entitled to share in the profits of the company. In general,
preferred stockholders would give up voting rights in return
for preferred treatment in the distribution of dividends. A
corporate kit usually includes a corporate seal, stock
certificates and sample minutes/bylaws. Corporate kits are
available at many business supply outlets such as Staples.
5. Prepare Bylaws: Upon receipt of the certified copies of "Articles of Incorporation" from the
Secretary of State, Bylaws are to be outlined - such as provisions relating to the
duties and obligations of corporate directors, officers, and shareholders.
6. Prepare minutes of the first meeting of the Board of Directors, if applicable. The required
number of directors varies from state to state.
7. File "Notice of Stock Transaction" with the Department of Corporations, if applicable. Stocks
are issued to shareholders accordingly.
8. File "Statement by Domestic Stock Corporation" with the Secretary of State within 90 days
of the filing date of "Articles of Incorporation". The purpose of such filing is to provide the
public with current information of the corporation - such as the address of the corporation’s
principal executive office and the names of its directors and officers, etc.
Tips: 1. The costs of incorporation in California is at least US$900, which includes an initial
franchise tax of US$800 and a filing fee of US$100. After the corporation is established,
it must pay an annual franchise tax to maintain its legal status even the corporation is
inactive. The minimum annual franchise tax in California is US$800. In other words, a
corporation must pay a minimum franchise tax of US$800 each year in order to operate
legally in California, even the corporation is not making any profits. If a corporation (other
than banks and financial corporations) is making profits at the end of its fiscal year, it must
pay a 8.84% (1999 California corporate tax rate) state tax on its income, or $800, whichever
is greater. The 1999 California income rate for banks and financial corporations (calendar
year) is 10.84%. (Exception: The initial franchise tax is waived for Businesses incorporated
in Year 2000).
2. The California incorporation laws require that a corporation must have at least three officers:
chief executive officer (president), secretary, and chief financial officer (treasurer). Any of
these three offices may be held by the same person unless the articles of incorporation or
bylaws provide otherwise. In other words, a corporation may have only one shareholder who
owns 100% of the corporation, and this person can be the president, secretary and treasurer
of the corporation at the same time. Except for S-corporations, shareholders of a California
corporation are not required to be U.S. citizens or permanent residents. In addition, there is
no capital requirement to incorporate a business (i.e., a corporation’s capital may range from
several hundred dollars to millions or more).
3. In California, a corporation must file a new "Statement by Domestic Stock Corporation"
each year. In addition to the requirement of filing annual statement, a corporation must file a
new statement any time during the year when the information contained in the last annual
statement becomes inaccurate (e.g. new directors or officers are elected; office is relocated).
If a corporation fails to file the initial or annual "Statement by Domestic Stock Corporation"
by the due date, it may subject to a fine and a possible suspension of corporate privileges.
California laws require that domestic corporations designate an agent for service of process.
An agent for service of process is one who may accept papers in case of a lawsuit against the
corporation. The agent may be an individual who is an officer or director of the corporation,
or any person. The person named as agent must be a resident of California. Only one
individual may be named as agent for service of process. Or, the agent may be another
corporation. A corporation cannot be named as agent for service of process for itself.
4. Following are the fees charged in 2000 by The Company Corporation (Tel: 800-315-9420;
www.incorporate.com) for assisting business to incorporate in different states. (For
information only, publisher/editor does not endorse or guarantee any of the services or
prices.) Delaware-$164 Florida-$214 Illinois-$264 New Jersey-$254 New York-$269
5. Other incorporation service companies include:
- Corporate Extensions (Tel:800-474-6340; Fax:202-639-0999;www.cicorp.com/incorporate)
- Registered Agents, Ltd. (Tel: 800-441-5940; Fax: 302-421-5753; www.regagents.com)
D. Limited Liability Company (LLC):
Being a new type of business entity, a limited liability company (LLC) is a mix between a
corporation and a partnership. An LLC is generally taxed as a partnership, but it offers the
advantages of a corporation - limited liability. In addition, partners of an LLC can actively
participate in the management of the business and yet still maintain the "limited liability"
While most states tax an LLC as a partnership, a few states including Florida and Alaska,
impose a corporate income or franchise tax on LLCs. Most states with LLC laws require that
an LLC be terminated within 30 years or in the case of a partner’s death.. In addition, certain
states do not allow for professional service firms, such as attorneys, physicians, accountants, and
other professionals, to operate in the LLC form. As of October 1998, in California, the District of
Columbia, Massachusetts, New Jersey and Tennessee, an LLC must have at least two owners.
The establishment of an LLC can be more expensive than forming a partnership or a corporation.
In general, an LLC is formed by filing "Articles of Organization" with the Secretary of State’s
office, which issues public notice of certain information about the LLC, such as its name and
principal location of business. An "operating agreement", similar to the partnership agreement in
a partnership, is usually prepared which address issues such as individual partner’s duties,
obligations, and voting privileges. The ownership of an LLC can be divided into two categories:
"membership interest" (usually not transferable) and economic interest (transferable).
2.2 Official Formalities Required for the Operation of a New BusinessA. Business identification number (TAX-ID number):
Each new business must have a unique identification number for tax purpose, as follows:
1. For sole proprietorships: The business ID number is the same as the owner’s social security
2. For partnerships, corporations, and limited liability company (LLC):
An SS-4 Form must be completed and returned to the Internal Revenue Service (IRS) to
apply for an " Federal Employer Identification Number" (FEIN). The FEIN is the TAX-ID
of the business. A blank SS-4 Form may be obtained from local IRS offices, public libraries,
or by calling Tel: 800-TAX-FORM (800-829-3676).
B. Resale certificate or seller’s permit:
Every business that sells tangible goods or merchandise to end users must first obtain a seller’s
permit for each location of operation from the State Business Tax Agency, in order to collect
sales tax. In California, only officers of a corporation can file the application for resale
In general, manufacturers and wholesalers are not required to collect sales tax on goods sold to
resellers (e.g. exporters; retailers), provided the reseller hold a valid seller’s permit or resale
certificate. Upon request, a copy of the current seller’s permit must be furnished to the
manufacturer or wholesaler for such transactions.
C. Employer registration number:
If a business plans to pay wages or fees for services, registration with the state’s labor department
is usually required. An employer is generally required by state laws to purchase certain kind of
insurance coverage for employees, including worker’s compensation (covering work-related
injuries) and disability (covering pregnancy & non-occupational injuries).
D. Local business licenses:
In general, a business (including home-based business) is required to obtain local government
(e.g. city or county) business license in order to operate legally within the jurisdiction of the
local governments. A new business should consult with the local government’s business or
tax department before commencement of the business.
E. Fictitious business name:
A fictitious business name is any trade name used for a business which is neither the legal name
of the sole proprietor, a partnership or LLC, or name of the corporation. Often the fictitious name
is the name under which the business is publicly known. As a rule, entities must file fictitious
statements whenever the business name suggests the existence of additional owners, such as
" & Company", "& Associates", etc.
If the business plans to operate under a different name than its legal name, it is necessary to file
and publish a "Fictitious Business Name Statement". This statement must be filed with the
county’s clerk office within a specified period of time (different state may have different
requirements) from the commencement of business.
Following the filing with county clerk, the "Fictitious Business Name Statement" must be
published in a local legal newspaper within a specified period of time (usually 30 days). An
affidavit showing the publication of the Statement must be filed with the county clerk within 30
days, after the completion of the publication. The fictitious name is usually good for 5 years.
Tips: 1. Unless the Fictitious Business Name Statement has been executed, filed, and published
according to the Code, business cannot maintain any action upon or on account of any
contract made in the fictitious name in any California court.
2. Usually, for a nominal fee, a local newspaper would publish the "Fictitious Business Name
Statement" and file the affidavit with county clerk for a client.
2.3 Services Essential to the Operation of a New Business
A. Business banking accounts:
After a new business is legally established, it must set up a business banking account for financial
purpose. External documents are generally required to open a business account, as stated below:
1. Sole Proprietorship: A copy of the Fictitious Business Name Filing, if applicable.
2. Limited Partnership: a. A copy of the Fictitious Business Name Filing, if applicable;
b. A certified copy of the limited partnership certificate on file with
the Secretary of State.
3. Corporation: a. A copy of the Fictitious Business Name filing, if applicable;
b. A certified copy of the Articles of Incorporation on file with the
Secretary of State;
c. Proof of "Employer Identification Number", if applicable.
4. Limited Liability Company (LLC): a. A copy of the Fictitious Business Name Filing,
b. A certified copy of the Articles of Organization on
file with the Secretary of State.
Tips: 1. When opening business accounts, always inquire if there is a checking account that
earns interests. This is particularly important for business maintaining large deposits.
Many banks offer customers with the option of Business Money Market Accounts which
earn interests while a limited number of checks may be written per month without
incurring service charges.
B. Business financing:
Commercial banks in the U.S. can either be federally or state chartered - the words "National" or
"N.A." appeared in the bank’s title indicate it is federally chartered. Unless permitted by state
law, no national (federal) banks can establish branches.
Commercial banks, also known as full-service banks, are allowed to offer a wide range of banking
service including deposits and loans. However, it is difficult for a new business to secure financing
since banks usually require 3 years of business tax returns before they would consider commercial
lending. Although banks do lend at fixed rates to certain customers, most usually lend at floating
Besides banks, a wide range of nonbank financial institutions in the U.S. provide sources for
business financing. These include factoring and commercial lending entities, venture capital
firms, investment and insurance companies, and others.
Tips: A computer software "Financing Sources Databank" published by CyberLoan (Tel: 800-
580-1188, www.cyberloan.com) contains information on more than 10,000 most active
financing sources in the U.S. These include commercial banks, finance and factoring firms,
venture capital companies, IPO underwriters, SBA lenders, etc. Given the industry, location,
amount, and financing type (e. g., start-up capital), the database is capable of searching sources
for financing needs on a nationwide basis. The software prints reports and labels, and mail
merge with any word processor. Quarterly updates available. Financing Sources Databank is a
trademark of CyberLoan.
C. Long distance service:
Choosing the long distance carrier for telephone service can be a challenging and yet confusing
task. Despite the numerous promotional offers from the telephone companies, a business should
select a long distance carrier that best suits its needs. Sometimes an excellent deal may be reached
by signing a term plan with a long distance resellers (or wholesaler), rather than subscribing
the service directly from the major carriers.
D. Accounting/tax reporting:
U.S. tax laws are extremely complicated and there are numerous categories of taxes. The tax
collection procedures are tedious and regulations are almost amended each year. These tax
laws are not only difficult to understand, but may result in heavy penalty for a business if the
procedures are not properly followed. Different types of entities must use different forms to
report annual federal taxes on business income, as exemplified by the following:
1. Sole proprietorship: Forms 1040, Schedules C & SE;
2. Partnership or LLC: Form 1065 for the business and Form K-1 for each partner;
3. Corporation: Form 1120 or 1120-A
In addition, business must file state and local business tax returns as required by laws. For
example, a California corporation must periodically file the following returns:
1. U.S. Corporation Income Tax Return (Form 1120 or 1120-A) to be filed annually;
2. California Corporate Franchise or Income Tax Return (Form 100) - annually;
3. Corporation Estimated Tax (Form 100-ES) - to be filed quarterly (in Apr, Jun, Sept and Dec);
4. State, Local & District Sales & Use Tax Return - annually or else, depending on annual sales;
5. Income Tax Return from local county or city governments - usually annually; if applicable.
Many large corporations have in-house accounting departments which handle accounting and tax
matters. Small business usually contract professional accounting firms to facilitate functions such
as bookkeeping and income tax filing. Although corporate structures usually protect individuals’
assets from being seized or liquidated in the case of lawsuits or claims against a corporation,
inappropriate accounting practice, such as paying corporate debts with personal checks, may cause
corporate shareholders or officers to be personally liable for corporate financial obligations. For
this reason, the use of professional accounting service is strongly recommended. In addition, an
experienced Certified Public Account (CPA) could save a business large sum of money by offering
sound advice on tax and accounting issues. In the U.S., business are required by IRS to keep all
documents and records for a minimum of three years or more, for auditing purpose.
E. Payroll tax withholding:
When a business pays wages or salaries to its employees for services, it must withhold certain
taxes in accordance with federal and state regulations, as explained below:
1. Federal withholding taxes:
a. Social security & Medicare taxes:
Under the 2000 federal tax regulations, an employer must collect 6.2% of each employee’s
first $76,200 in income and contribute the same amount as withholding social security tax.
Likewise, an employer must collect 1.45% of each employee’s total income and match the
same as withholding Medicare tax.
b. Income tax:
To determine how much income tax to be withheld from an employee’s wages, an employer
should have a Form W-4, Employee’s Withholding Allowance Certificate, on file for each
employee. The amount of income tax to be withheld must be based on filing status and
withholding allowance indicated on Form W-4. If an employee did not complete the Form
W-4, the filing status for this employee will be treated as single with zero withholding
allowance. Depending on the type (i.e., weekly, biweekly, or monthly) of income, exact
amount of income tax withholding can be found in the tables contained in IRS publication 15,
- Circular E, Employer’s Tax Guide.
c. Depositing taxes:
In general, an employer must deposit income tax withheld (including social security &
Medicare taxes from both the employer and employees) by mailing/delivering a check
or cash to an authorized financial institution or Federal Reserve bank. Form 8109, Federal
Tax Deposit (FTD) Coupon, must be used to make such deposits. The IRS will automatically
send an FTD coupon book to a new employer 5 to 6 weeks after the employer receives an
employer identification number (EIN). The FTD coupons are preprinted with the employer’s
name, address, and EIN.
Electronic Federal Tax Payment System (EFTPS) allows business owners to make federal
payroll tax deposits and estimated corporate income tax payments electronically.
For more details on making deposits by EFTPS, call TAXLINK HELPLINE at Tel: 800-829-
5469, or 800-555-4477. Companies that reached $50,000 in payroll tax deposits in 1996 must
comply with EFTPS starting January, 1998. Companies that paid more than $20,000 in
payroll taxes in 1997 must comply with EFTPS by January 1, 1999. In addition, once a
business meets the threshold for paying payroll taxes electronically, it must file all federal
business tax payments through EFTPS, including Federal Corporate Income Tax, Quarterly
Federal Excise Tax and additional employment taxes.
d. Unemployment tax:
The Federal Unemployment Tax Act (FUTA), with state unemployment systems, provides
for payment of unemployment compensation to workers who have lost their jobs. Only the
employer pays FUTA tax; it is not deducted from the employee’s wages. For 1999,
the FUTA tax is 6.2% of base wages (i.e., sum of the first $7,000 paid to each employee)
paid during the year. FUTA tax is deposited quarterly. Form 940 or 940-EZ, Employer’s
Annual Federal Unemployment (FUTA) Tax Return, must be used to report FUTA tax.
e. Filing Form 941:
Each quarter, all employers who are subject to income tax withholding or social security and
Medicare taxes must file Form 941 - Employer’s Quarterly Federal Tax Return. Form 941
must be filed by the last day of the first month after the quarter ends. Late filing may result in
heavy penalty. However, business with quarterly payroll taxes less than $500 may be able to
file the tax return via telephone instead of mailing Form 941. To learn more, call Tel: 800-
f. Filing Forms W-2 & W-3:
Employers must file Form W-2, Wage and Tax Statement, for each employee from whom
income, social security, or Medicare taxes have been withheld. A complete Form W-2 has 6
copies (i.e., Copy A, B, C, D, 1, 2), as follows:
Copy A: For Social Security Administration (SSA)
Copy B: To be filed with employee’s Federal Tax Return
Copy C: For employee’s record
Copy D: For employer’s record
Copy 1: For state, city, or local tax department
Copy 2: To be filed with employee’s State, City, or Local Tax Return
Employers must file Form W-3, Transmittal of Wages and Tax Statement, and send Copy A of
Forms W-2 to the Social Security Administration (SSA) by February 28/29 of the following
calendar year. Employers are required to send Copy 1 of Forms W-2 to the state, city, or local
governments and furnish Copies B, C, and 2 of Forms W-2 to individual employees (generally
by January 31 of the following calendar year). Any undeliverable employee copies of Form
W-2 must be kept for 4 years.
g. Filing Form 1099-MISC:
Employers must file Form 1099-MISC for persons not treated as employees (e.g., independent
contractor, sales representative), if $600 or more is paid as fees, commissions, or other forms
of compensation for services rendered.
Tips: 1. Federal Employment Tax Forms and associated publications may be obtained at local IRS
offices or by calling Tel: 800-TAX-FORM (800-829-3676).
2. For employers who may have questions on tax issues, telephone assistance is available from
IRS (www.irs.ustreas.gov). The phone number to call for assistance is Tel: 800-829-1040.
For on-line tax filing, call (512)-460-8900 for details.
2. State and local withholding taxes:
State and local withholding taxes may vary from state to state. For example, some states do not
impose taxes on individual incomes. On the other hand, people who work in New York City but
reside elsewhere (e.g., New Jersey, or Long Island) are required to pay New York City Income
Tax. California’s state withholding taxes is illustrated by the following:
a. Personal Income Tax (PIT):
The exact amount of PIT to be withheld from an employee can be found in the tables
contained in California Employer’s Guide (publication DE44). Employers who are required
to withhold PIT must register with the Employment Development Department (EDD). The
registration form and publication DE44 may be obtained by calling Tel: 213-669-7670 in Los
Angeles area or by calling Tel: 415-929-5700 in San Francisco area. Upon registration, an
eight-digit employer account number will be assigned and reporting forms will be mailed
to registered employers or their designated agents.
b. State Disability Insurance (SDI):
The SDI tax rate for 2000 is 0.7% and the taxable wage limit is $46,327 for each employee.
c. Employee payroll withholding deposits:
Although employer contributions are due quarterly, withholding taken from employee’s wages
(PIT and SDI) may need to be deposited more frequently. State deposit due dates are generally
the same as Federal deposit due dates. Penalty and interest are charged on late deposits.
d. Unemployment Insurance (UI) and Employment Training Tax (ETT):
All tax rated employers are required to pay contributions to the Unemployment Insurance (UI)
Fund. The UI taxable limit for 1999 is $7,000 for each employee per calendar year. New
employers pay UI contributions at 3.4% for the first 3 years after which the contribution rate
will be recalculated based on the employer’s employment history. A Notice of Contribution
Rates and Statement of UI Reserve Account (DE2088) is sent each December to all tax rated
employers. The DE2088 notifies the employer of the UI & SDI rates, and taxable wage limits
for the next year. The Employment Train Tax (ETT) is 0.1% of the first $7,000 for each
employee. Both UI and ETT are paid by employers only.
Tips: 1. An employer-employee relationship exists when a person who hires an individual to perform
services has the right to exercise control over the manner and means by which the individual
perform his or her services. The right of control, whether or not exercised, is the most
important factor in determining the relationship.
In an employer-employee relationship, the employer is responsible for withholding PIT and
SDI taxes from employees and paying employer and employee contributions. If a business
owner hires a worker as an independent contractor and at a later date it is determined the
worker is an employee, the business owner may be financially responsible for the following:
- employee withholding of social security, Medicare, and federal income taxes;
- employer’s contribution of social security and Medicare taxes;
- employee withholding of PIT and SDI in California;
- employer’s Unemployment Insurance (UI) contributions on both federal and state levels;
- any associated penalty and interests.
2. Payroll and payroll-related tax processing is a tedious and time-consuming task. A number of
banks and companies such as Automatic Data Processing, Inc. (ADP), provides a wide
range of payroll service including the following:
- Issue paychecks and collect withholding taxes from a designated account of a business;
- Prepare and file quarterly/annual payroll tax returns and W-2s;
- Respond to tax agency inquiries and comply with regulatory changes;
- Assume responsibility for filing payroll-related taxes accurately and on-time.
For more details on payroll service, contact ADP at Tel: 800-ADP-EASY (800-237-3279).
F. Commercial insurance:
- Personal Property: Covers personal property of employees, such as cell phones, beepers, etc.
- General Liability: Covers product liability and litigation expenses.
- Modified General Liability: Coverage includes claims not covered by the general liability.
- Garage Policy: Covers all vehicles used in the operation of business.
- Worker’s Compensation: Covers medical/wage compensations of employees due to work injuries.
- Umbrella Policy: Covers unusual claims or claims not covered by the general liability.
- Crime Policy: Covers claims due to criminal activities such as robbery, assault and battery, etc.
- Transit Insurance: Covers claims of property loss/damage due to transit of goods by trucking, etc.
Tips: Insurance coverage are usually offered through the following: (1) Agencies; (2) Brokers;
(3) Sales Representatives; (4) Trade Associations; (5) Licensed Independent Agents. For more
information on insurance coverage, contact the local U.S. Small Business Administration of
G. Collection service:
Based on statistics, more than 25% of 90-day-old bills never get paid. If a business has a number
of accounts receivable that are over 90 days old, it may need to consider contracting a reputable
collection agency to collect payments. For more information on services provided by the collection
agency, contact Alden, Curtis & Michaels, Ltd. (Tel: 212-532-7180, Fax: 212-213-6736), or
Dun & Bradstreet Receivable Management at Tel: 800-333-6497. (It usually costs $75 for a full
report and $45 for an abbreviated version).
Tips: 1. Before offering credit to a customer, it may be worthwhile obtaining a credit report of the
customer and review the payment history and other relevant matters such as lawsuits and
liens. For more information on credit reporting, visit www.businesscreditusa.com for free
credit information for over 10 million businesses, or contact Dun & Bradstreet
Information Services at Tel: 800-234-3867.
2. Bankruptcy threatens all types of small business. Federal law provides for four types of
bankruptcy: (1) Chapter 7 filings require the assets of debtors to be liquidated and used
as partial payment on the debts; (2) Chapter 11 filings allow the business to reorganize
and continue operating instead of shutting down; (3) Chapter 12 filings are mainly
reserved for family farmers; (4) Chapter 13 filings allow business to pay in installments.
Mandarin Lessons for Corporate America