In the next few months, I will be publishing a series of articles on the process of starting and managing a business in California.  It is designed for the small business owner who may not be familiar with California law or procedures.  I will attempt to provide the reader with a step-by step guide through the primary tasks necessary to legally register your business and start operations in this state.

First Step: Choosing a Proper Business Form and Registering Your Business.

One of the most important and sometimes most difficult decisions is the proper legal form for your business. There are four basic legal forms, each described below: the sole proprietorship, the partnership, the corporation and the limited liability corporation (LLC).

Generally, the decision should be made with reference to several factors: simplicity and cost of organization; control and decision-making; taxes; and responsibility for the debts and other potential liabilities of the business.  In another article, I deal in depth with the differences between each, but I will describe the basic differences here. 

A sole proprietorship has the advantage of simplicity, requiring less registration and paperwork.  Also, the income of the business is treated as income of individual for tax purposes, which makes tax return preparation a bit easier.  However, there is no protection from personal liability for the owner.  The debts of the business are treated as debts of individual, including liability due to accident or injury.  

A partnership also does not require formal registration or continuous meetings and minutes, as with a corporation.  However, a written agreement between partners is strongly advisable.  Like a sole proprietorship, the income of the partnership are not separately taxed.  But, again, the partners are not shielded from liability.  There are now limited liability partnerships (LLPs) which do provide limited protection for liability, although not as complete as with a corporation or LLC.

Corporations and Limited Liability Corporations are very similar.  Both require corporate documents to be drawn up, usually by a lawyer.   Both require registration with the state described below. 

With corporations, certain legal documents must be kept on an ongoing basis, such as shareholders meeting minutes, records of stock transactions. Formation of an S corporation requires an additional filing with the IRS.  With LLCs, the ongoing paperwork is not as demanding. 

With both LLCs and S corporations (used by most small businesses), income is treated as the  income of its shareholders just like a sole proprietorship.  With larger C corporations, income of business is not treated as  income of individual for the tax purposes. Only dividends paid to shareholders [or salary paid to employees] is treated as income. On the case of payment of dividends, this can subject the company to double taxation under certain circumstances.

One of the principal advantages of LLCs and S corporations is that the debts of the business are not treated as the debts of individual partners. A corporation can go bankrupt even while its shareholders remain solvent.  Most importantly, the shareholders are shielded from the liability of the corporation as long as the corporate formalities are followed.

Once you have decided which business form you will use, it may be necessary to register your business with the state of California.  Corporations or LLCs need to file special registration papers with the California Secretary of State.  For corporations, the necessary papers are called Articles of Organization.  Limited liability partnerships file a Limited Liability Partnership Registration form. 

The Secretary of State must approve all names before they can be registered.   The main criteria that the Secretary of State’s office applies is that they ensure that your proposed name is not already taken by another entity of the same type.  A business entity in California may not use a name that is already registered to another existing business entity of the same type.   Before you file your registration documents with the Secretary of State, it is worth it to check your potential names to see if they are available.  If they are, you can immediately reserve one of them.  You can do so through the Secretary of State’s office in person or at the telephone numbers or websites listed below. 

This is the second in a series of articles written for the purpose of assisting persons who intend to start a business in California.  It is designed for the small business owner who may not be familiar with California law or procedures.  In the last article, I discussed choosing the proper business form and registering one’s business.  In this article, I will describe the process of registering a trade name associated with your business or as it is known, filing a “fictitious business statement”. 

Second Step: Registering your trade name or “fictitious business name”. 

Once you’ve set up a business and named it, you may wish to open a bank account and start making money.  Opening a bank account itself  is a simple process in California; essentially, you go to the bank, spend an hour or less with an account officer of the bank, and fill out some forms required, and in a few days, your first set of checks come in the mail.  However, there are several steps required before the bank will allow you to open an account.

 One is you need to let the government know what name you are using.    That is, if you are not using your own name in the business, but rather a trade name or “fictitious name”, it may be necessary to register that name with the County in which you do business.  Sole proprietors and general partnerships are not registered with the state, and so it is necessary for them to file “fictitious business statements” with the County to inform the public of the owners or “principals” of the company.  If corporations and limited liability corporations are only using their actual registered name, then they do not need to file fictitious business statements but those using a different name in the course of their business also must file.

 So, for example, if your name is Bill Gates and you open a sole proprietorship known as “Bill’s Software”  in San Francisco, you need to file a fictitious business statement in City Hall, San Francisco, which lets the government and the public know that Bill’s Software belongs to you.   Likewise, if one is a corporation named, say, “Microsoft”, but it wants to do business using the name “Bill’s Software”, then it must file a fictitious business statement telling the world that this corporation is using that trade name.

 This name is then referred to by the phrase “doing business as”; for example, Bill Gates doing business as Bill’s Software, or in the case of a corporation, “Microsoft dba Bill’s Software”. 

 There are very specific rules for when you need to file a fictitious business statement and when you do not.  If you use your entire first and last name, “Bill Gates’ Software”, then you do not need to file.  If you use only your first name or initials, like “B.G. Software” , then you have to file.  If you have a partnership using the last names of the partners, let’s say “Gates and Jobs Computer Equipment”, there’s no need to file.  However, if it’s any other partnership name, even one using the first names – such as “Bill and Steve’s Computers” -- then it will be required to file. 

 Of course, every business owner believes their business name is original and unique.  However, if it is not, when one attempts to file the fictitious business statement, the county will not allow use of the name.  Before a business owner can register a fictitious business name, a search of the county database of registered names will be done to make sure the name is not already taken.  If your name is Bill Gates and you get the idea to do business in California as “Apple Computers”, you can be pretty sure that you won’t be allowed to do so.

             After filing it with the County, you need to publish your fictitious business statement in a “newspaper of general circulation”.  The County office gives you an approved list.   There are certain legal or specialty newspapers who do this more cheaply than the big newspapers.  The purpose of this is to give formal notice to the world, or at least the subscribers of that newspaper, that you have started your business using the name chosen.

             These county fictitious business records are important for many purposes.  They give consumers a way of making complaints about business owners that may not be otherwise identified.   Certainly if a lawsuit against a business needs to be filed, especially if that business is not a corporation and does not use the owner’s name, one needs to know who the owner is and where to serve him the legal papers.  Lastly it serves to ensure that two or more businesses are not using the same name in the same county for their business.

             It is necessary for small business owners to go through this formality.  For one, business owners break the law by not registering their trade names, and theoretically risk being closed down by the County (at least temporarily).  But there is also the risk that after one has invested time, money and hard work in building up the reputation of a name, if it is not registered, the name may be taken and used by someone else who may benefit from all of your hard work and effort.

The federal employer identification number (EIN) is a 9-digit number assigned to corporations, partnerships, sole proprietorships estates, trusts and other entities for tax filing and other purposes. As a business, an EIN is necessary before you can hire employees, pay taxes and even open a bank account. Moreover, the federal employer identification number is often easier to get than a social security number and some foreign nationals use it instead of a social security number. Although not approved by the government, it is sometimes used as a way around the difficulty that non-citizens who are self-employed and cannot obtain social security numbers.

The federal employer identification number is your business’ form of identification with the government. It is the number listed on the federal tax return for your business. It is also listed on the employee payroll reports the business files with the federal government, if you have employees. And you may wish to give this number – rather than your social security number – to the bank to associate with your business bank accounts.

A business entity needs only one EIN, no matter how matter different types of business it does or locations it has. However, if a sole proprietor or partnership incorporates, it needs to obtain a new EIN.

Contrary to many mistaken beliefs about employer identification numbers, they do not result in higher taxes or any special fees for businesses who obtain them. The process of getting one is free and does not require a lawyer. Moreover, they are required by law for most businesses. Partnerships, LLCs, and corporations need employer identification numbers whether they have employees or not. Only sole proprietors with no employees do not need employer id numbers because they can use their own Social Security number instead.

The federal employer identification number is obtained through the Internal Revenue Service (IRS). There are three ways to get the EIN: on line, by fax or by mail.

To get the number on line, simply go to www.irs.gov/businesses. Click “Employer ID Numbers” under “Topics”. Follow the easy instructions stated there. You can obtain a EIN immediately.

The IRS has also set up an easy system whereby you can get your employer identification number the same day by phone. You simply call the special IRS telephone number set up for this purpose. You need to prepare the application form in advance – it is IRS Form SS-4. The person calling must be authorized to sign the form or be an authorized designee of that person. When you call the IRS, you simply provide the pertinent information from the IRS form and you will get your federal employer identification number immediately, over the phone. Then you simply send in the completed SS-4 form or fax it to the IRS Service Center with the employer identification number filled in on the form.

For California residents, the relevant IRS phone number is: 800-829-4933

The hours of operation are 7 am until 10 pm.

The address where you mail in the form is: Attn: EIN Operations, Philadelphia, Pennsylvania 19255.

The fax number you should use is: 215-516-3990.

As mentioned above, the federal employer identification number is sometimes used by immigrants in business here who cannot obtain a social security number. As most foreign nationals know, the U.S. Social Security Administration has greatly limited the ability of non-citizens to get a social security number now. Permanent residents can get them, as can persons on temporary visas which provide the right to work in the U.S. during the pendency of the visa. But for persons on temporary visas, the card states: “Valid Only with work authorization”. Persons here on tourist visas, business visas and most student visas cannot get a social security card, as of course, those persons who are here without status.

The EIN can be obtained by persons who have a business here in lieu of a social security number. This is often used by persons without a social security number to open a business, open a bank account and pay taxes. While the government does not condone this behavior, it is widely done.

In short, the federal employer identification number is an easy-to-obtain, useful and even necessary tool for any business in California. It should be one of the first steps you take when starting your business.

1. Simplicity It requires no formal action to set it up.
2. No Registration with State Required However, registration as "dba" is recommended if fictitious name is used. Requires filing of fictitious business statement with the County.
3. Business Income is Personal income. Income of business is treated as income of individual for tax purposes
4. Business Debts are Personal debts Debts of business are treated as debts of individual.
5. Personal liability. Owner is not shielded from liability from lawsuits.

1. Written Agreement is Advisable It requires no formal action to set it up as a partnership. However, a written agreement between between partners is strongly advisable.
2. No Registration is necessary.
3. Business Income is Personal. Income of business is treated as income of the individual for tax purposes.
4. Business Debts are Personal debts. Debts of business are treated as debts of partners.
5. Personal liability. Partners are not shielded from liability.

1. Written Agreement is necessary. A rather long, complicated partnership agreement and offering documents must be drafted, usually by an attorney.
2. Registration is necessary. Registration with the Department of Corporations is necessary for most limited partnerships.
3. Business Income is Personal. Partnership Income as paid to general and limited partners is income of those partners for tax purposes.
4. Business Debts are Personal debts. Limited partners are insulated from the debts of the limited partnership in most cases. Debts of partnerships are treated as debts of general partners.
5. Personal Liability General Partners are not shielded from liability. Limited partners are protected.

1. Requires Legal Filing. It requires corporate documents to do drawn up, generally by a lawyer. Articles of Incorporation are filed with State Secretary of State. Corporation formalities must be followed. This means that certain legal must be kept on an ongoing basis, such as shareholder meeting minutes, directors' meeting minutes, records of stock transactions.
2. Registation is necessary. Registration with the Department of Corporations is necessary. Formation of an S corporation requires an additional declaration to that effect to the IRS.
3. Business Income is not treated as Personal. In a normal corporation, income of business is not treated as income of the individual for tax purposes. Only dividends paid to shareholders [or salary paid to employees] is treated as income. In the case of payment of dividends, this can subject the company to double taxation under certain circumstances. Unlike other corporations, an S corporation's income is treated as the income its shareholders just like a sole proprietorship.
4. Business Debts are not Personal debts. Debts of business are not treated as debts of individual partners. For example, corporation can go bankrupt even while shareholders are solvent.
5. No Personal liability. shareholder(s) shielded from liability as long as the corporate formalities are followed.

California requires a host of different permits for those doing business in the state. Many new business owners are confronted with a vast array of licenses, permits and regulations that can be intimidating and confusing to anyone. But there are resources available, especially on the internet, to help you through this process.

The most common permit required is a seller’s permit, obtained from the California Board of Equalization (BOE). This permit allows you to do sales of goods in the state and requires your business to collect sales taxes from customers to cover any sales tax owed to the state. The taxes are paid annually, quarterly, or monthly, depending on the business sales volume. If you sell goods to the public, you will need a seller’s permit whether or not those goods will be taxable. This would include any grocery stores, department stores, gift shops, convenience stores, shops of any kind with products for sale. It also includes on-line sales located in California.

On the other hand, services are not taxable in California and therefore businesses that only provide services are not required to obtain a seller’s permit. This would include most architectural firms, engineers, lawyers, doctors, computer repairmen, etc. Construction contractors who actually sell products such as custom furniture or windows and doors must charge a sales tax.

One obtains a seller’s permit by submitting the appropriate application to the Board of Equalization. A sole proprietor or partnership use Form BOE-400-MIP; LLCs and corporations use Form BOE-400-MCO. You can use one application to obtain a seller’s permit for all of your locations where you sell goods.

Many businesses require additional permits from the state. For example, the state of California regulates many businesses. Obviously many service occupations such as doctors, nurses, physical therapists, lawyers, engineers, architects and construction contractors are licensed occupations requiring certain qualifications and usually passing an examination to get a license. Other examples of businesses which require state permits are bars and nightclubs, auto repair shops, locksmiths and waste management companies. The federal government requires permits for such things as operating a trucking company, operating a radio or television station, manufacturing food, alcohol or drugs, or making or selling firearms.

Local governments often regulate businesses as well. City zoning laws dictate which activities are allowed in particular locations. If your type of business is not consistent with the zoning for the location, you will either need to get a permit known as a conditional use permit, or be granted a variance allowing you to be exempted from the zoning rules. You should contact your city or county planning department to determine whether your business complies with local zoning.

There is one website in California which provides a comprehensive list of all the government requirements for specific businesses. This site is a good starting place for any business to determine which permits and licenses are necessary for your type of business. The website address is www.calgold.ca.gov.

If you are considering starting a business, I advise you to go to this site, enter your business type and location, you will be find a list (often a long list) of the licenses and permits you will need from the federal, state and local government. The bureaucratic requirements can be somewhat overwhelming, but with some persistence, it can be done.

As an example, according to this website, someone wishing to operate an auto body repair shop in San Francisco needs to consider the following requirements, among others:

Building Inspection and Alteration Permits : Permits for modifying the physical space of your business, contact City/County of San Francisco Department of Building Inspection

Business Property Statement : Businesses may be required to report all equipment, fixtures, supplies, and leasehold improvements held for business use based on at cost and/or value,

contact City of San Francisco San Francisco Assessors Office

Business Tax Registration: All businesses are required to register for a Business Tax Registration Certificate, Contact City/County of San Francisco Treasurer Tax Collector

Fictitious Business Name:  You must file a fictitious business name, unless you use your own personal name for the business, contact City of San Francisco San Francisco County Clerk's Office, Treasurer-Tax Collector

Fire Department Permit:  For public assemblies, garages, storage, service stations, theaters, hazardous chemicals or gases, contact City/County of San Francisco Fire Department

Hazardous Materials/Waste Program :  Subject to business plan and/or accidental release program through local CUPA or designated city/county agency if handling any hazardous materials, generating or treating hazardous waste, storing in above ground or underground storage tanks, contact City of San Francisco, San Francisco City & County Public Health Department

Industrial Wastewater Discharge Permit:  May be required if a facility discharges a hazardous material into the sewer , contact City/County of San Francisco, Public Utilities Commission, Bureau of Environmental Regulations and Management

Licenses:  Contact each of the following departments to determine if you need a city business license. No license will be issued until a permit is granted by the appropriate regulatory Permit Agency, contact City/County of San Francisco Tax Collector License Department

Zoning and Planning:  Your business location must be checked to determine if it is zoned for your type of business. This also applies to businesses operating from a residence, contact City of San Francisco Planning and Zoning

Authority to Construct/Permit to Operate:  Situations for which a permit application must be submitted include but are not limited to: construction or installation of new equipment that may cause air pollution; modification of existing permitted equipment; transfer of equipment from one location to another; installation of abatement equipment used to control emissions, contact
Bay Area Air Quality Management District Permit Services

Air Tanks Permit:  Required of all businesses using (1) pressurized tanks with a volume greater than 1.5 cubic feet and containing greater than 150 PSI (pounds per square inch) of air; (2) Steam boilers over 15 PSI; or (3) retail stationary propane tanks, contact Department of Industrial Relations Pressure Vessel Unit-North

Automobile Repair Dealer Registration:  Required of any person or entity that performs automotive repairs, including mobile mechanics, contact Department of Consumer Affairs Bureau of Automotive Repair

Industrial Activities Storm Water General Permit:  National Pollutant Discharge Elimination System (NPDES) General Permit No. CAS000001 includes waste discharge requirements for discharges of storm water associated with industrial activities, excluding construction activities, contact Cal/EPA Water Resources Control Board

Occupational Safety and Health Information:  Businesses with employees must prepare an Injury and Illness Prevention Plan. The state provides a no-fee consultation service to assist employers with preventing unsafe working conditions and workplace hazards, contact

Department of Industrial Relations Cal/OSHA

Registration Form for Employers:  Required to file a registration form within 15 days after paying more than $100.00 in wages to one or more employees. No distinction is made between full-time and part-time or permanent and temporary employees in meeting this requirement, contact Employment Development Department Employment Tax Customer Service Office

State EPA Identification Number:  Required of businesses that generate, surrender to be transported, transport, treat, or dispose of hazardous waste, contact Department of Toxic Substances Control Generator Information Services

Wage/Hour Laws:  Businesses with employees must comply with laws establishing minimum standards for wages, hours and working conditions, contact Department of Industrial Relations Labor Standards Enforcement

Waste Discharge Requirements (WDR's):  Any facility or activity that discharges, or proposes to discharge, waste that may affect groundwater quality or from which waste may be discharged in a diffused manner (e.g., erosion from soil disturbance) must first obtain waste discharge requirements, contact Cal/EPA Water Resources Control Board

Workers' Compensation Information:  Businesses with employees must maintain Workers' Compensation Insurance coverage on either a self-insured basis, or provided through a commercial carrier, or the State Workers' Compensation Insurance Fund, contact Department of Industrial Relations Division of Workers' Compensation

One of the most important decisions you will make as a business person is choosing the proper business location. Some of the factors to consider are a matter of common sense. It is important to have a business location that is appropriate for the business, easy for one’s customers to get to, and within one’s price range.

However, equally important are the terms of one’s lease – that is, the contract between the tenant and the landlord. You must choose between a short term or long term lease. You must consider an option to renew the lease at the end of its term. You must negotiate the terms of renovation of the rented space, if any renovation is necessary. You must consider issues like the right to sublease, the acceptable uses for the premises, and a myriad of other issues addressed by the lease.

Too many clients merely sign the lease given to them by the landlord without either reading it or negotiating over some of its terms. This can turn out to be very disadvantageous and even fatal to your business if you are not careful.

Below I address a few of the most important issues to consider when choosing a location and negotiating a lease.

Short-term vs. Long-term leases.

 The length of leases vary greatly; they can be as short as one month or as long as ten years.

The simplest, shortest alternative is the month-to-month lease. Often these short-term leases are not even reduced to writing. Oral leases are dangerous because they lead to disputes by not specifying the terms of the relationship between the landlord and the tenant, and the terms of the tenant’s use of the property. All leases should be written, even month-to-month leases. The month-to-month lease gives the tenant flexibility and the option to choose another location or renegotiate the terms, if it doesn’t work out. Conversely, the problem with month-to-month leases it that it subjects to the tenant to raises in the rent and even eviction at the whim of the landlord. If you are going to be investing time and money in promoting your business at a certain location, short-term leases are very risky in that much of this investment can be lost if the landlord chooses to evict you. A long-term lease offers you the protection that your investment in time and money will not be lost in this way.

If circumstances allow, some businesses will try to sign long-term leases when the rental market is weak – meaning rental rates are low, and avoid signing such leases when the rates are high. In downtown San Francisco, for example, the rates for high-end commercial offices can vary from $2 to $5 per square foot, depending upon the current rental market.

Renovations and Signage.

One item that it also subject to negotiation in a lease is who will cover all necessary modifications of the rental space. If the space you are renting will require renovation, then you can attempt to get the landlord to cover some or all of these costs. In any case, the lease should state what improvements are to be allowed by the landlord and who will pay for improvements. If you are intending to make improvements to the space, it is best to have the written permission of the landlord in the lease.

Another related issue is what signage the landlord will allow. Again, the need for signs for your business can differ greatly depending upon the type of business involved. Make sure the lease provides for your right to post whatever signage you need for your business. It is a good idea to specify the size permissible and even include a drawing or representation as an exhibit so as to avoid any disputes later about what is allowed.

Option to renew or expand.

 Another item for negotiation is whether the lease includes an option for the tenant to renew the lease and on what terms. If there is a chance you will be expanding the business, you may also wish to negotiate an option to lease any adjoining or additional space in the building. Often times a landlord will agree to promise you a “right of first refusal”.

 Insurance Required.

 It is almost always required by landlords that tenants to carry liability insurance – that is, insurance to cover injuries suffered by customers and other visitors on the premises. But the amount is negotiable. Typically you will want to have insurance protecting your business anyway and the landlord can be added as an “additional insured” at no additional cost.

Acceptable uses of the property.

The standard lease should set forth the accepted uses that can be made of the rental space. This must clearly allow all required activities of your business and any that may be necessary in the foreseeable future. A preliminary question is whether zoning laws permit your business at this location and this, of course, should be determined at the start. But you should also make the language of the lease pertaining to allowable uses of the premises to be as broad as possible.

Subletting.

The standard landlord’s lease restricts a tenant’s ability to sublet space. If you intend to sublet part of your rental space, you should make this explicit in the lease. You should try to negotiate language that removes all restrictions on the right to sublet space. At a minimum, a landlord’s right to reject your subtenants should be limited by a clause stating that approval of subtenants “must not be unreasonably withheld”.

Arbitration Clauses.

I strongly recommend that you include an arbitration clause in your lease. If you do have a dispute with your landlord, the last thing you want is a long, expensive court case. Arbitration is a procedure whereby disputes are resolved out of court, by an arbitrator who acts as a judge. This is usually faster, cheaper and less stressful than a court case. The lease should call for disputes to be resolved by arbitration with one arbitrator selected by the American Arbitration Association or similar organization.

Conclusion.

Most business owners are often so consumed in the preparation to open a business that they ignore the details of their lease. Often they feel helpless to try to negotiate over their landlord’s standard lease. Do not hesitate to assert your interests in your dealings you’re your landlord, right from the beginning. Knowing the key lease terms and their importance to your business is the first step to getting the type of lease provisions that will help, not inhibit, your business success.

When buying insurance, start by setting up some priorities that are most important for your company. First, check what coverage is required by state law and by your landlord (if you rent) and then tailor your coverage to these requirements. You also need to identify what your other business insurance needs will be. An insurance agent can help advice you. You and your insurance agent can discuss the best way to get the coverage you need, at the lowest cost. Keeping your cost low is important at the outset of your business since there will probably be many cash demands and few sources of cash inflow. Another way to keep the cost of insurance low is to purchase it through group plans that are often available through trade associations or other similar business organizations. Many trade associations and business groups such as the Chamber of Commerce provide members the benefit of purchasing insurance at group rates. Explore alternative trade associations for lower rates and a possible fit with your business.

To gain a better perspective on the amount of coverage your small business needs, take a look at your industry. Review the recent legal actions and settlements in your field. Talk to peers and find their level of coverage. Using your peer feedback and industry research, determine the average legal costs and settlement to set your coverage limits. If you find out what amount of coverage is enough for your business you can lower the premium by increasing the amount of your deductibles. The difference if you decide to choose $1000 instead of $250 as a deductible might save you 10-15% from your premium.

Another good way to lower your insurance costs is to find out what safety or security features serve to lower the rate. Sometimes even installing deadbolt locks or a sprinkler system may lower your rate significantly.

Before deciding on which insurance to buy, shop around, ask your business partners or even friends if they can recommend something. It is not a good idea to buy the first insurance that you have been offered. You might be able to buy comprehensive package which is specially tailored for your type of business.

Some firms choose to self-insure. This means that you don’t buy insurance but just maintain a special fund to cover likely loses or liabilities. Although it may seem like a good idea this could be a risky solution.

II. Types of insurance.

• Property coverage.

This type of insurance covers the property where you run your business. If you own the building where your company is located than you definitely need such coverage. The insurance can cover not only the building itself but also additions, furniture, machinery, equipment, outdoor fixtures and work in progress. Most property insurance is written on an all-risks basis, as opposed to a named peril basis. The latter offers coverage for specific perils spelled out in the policy. If your loss comes from a peril not named, then it isn't covered.

Make sure you get all-risks coverage. Then carefully review the policy's exclusions. All policies cover loss by fire, but what about such eventualities as hailstorms and explosions? Depending on your geographic location and the nature of your business, you may want to buy coverage for all these risks.

Typically property insurance is written in one of three forms:

• Basic Form- this includes losses by lightning, explosion, windstorm, smoke, etc.
• Broad Form- coverage contains everything that’s on Basic Form and adds protection from other perils like falling objects or breakage of glass.
• Special Form- this is the most common form and affords the best protection. Instead of listing specific perils this type of policy simply covers all risks of physical loss unless the policy specifically excludes or limits loss.

When choosing the amount of coverage, remember that you only need coverage for the building and not for the land so you don’t need to insure the total value of your real property. Especially in California where land value is extremely high this might save you a lot of money.

Another two options that you can get with your insurance are: “ Replacement Cost Coverage and “Ordinance or Law Coverage”. Replacement cost insurance will pay you enough to replace your property at today's prices, regardless of the cost when you bought the items. It's protection from inflation. (Be sure your total replacements do not exceed the policy cap.)

Ordinance on law coverage requires the insurance company to not only replace the building but also pay for legally required upgrades when you own an older building and it will require some special renovation to fulfill building codes or other legal requirements.

Make sure the full value of an item is insured and check the terms for reimbursement. Just because you may have $1 million in coverage doesn't necessarily mean the whole amount is going to be applied in a given category of property. Also, if your company has a variable growth pattern, you may want to adjust your coverage annually.

• Liability Insurance.

This type of insurance protects you against liability from lawsuits or other claims up to the amount of the policy limit plus usually the cost of defending lawsuit. The price you'll have to pay for liability insurance depends on the size of your business and the specific risks involved. The good news is that liability insurance isn't priced on a dollar-for-dollar basis, so twice the coverage won't be twice the price.

There are few different types of Liability Policies:

• Product Liability Insurance- covers liability for any injuries caused by products you design, manufacture or sell. Product Liability Insurance covers you against unforeseen circumstances. Bad workmanship or defective products are not covered.
• Comprehensive General Liability (CGL) Insurance- coverage insures a business against accidents and injury that might happen on its premises, as well as exposures related to its products. For example, one of your clients slips on wet floor while visiting your office and breaks his leg. A CGL policy covers his claim against you. But let's assume that your company is a window manufacturer, with hundreds of thousands of its windows installed in many homes and businesses. If something goes wrong with them, general liability covers any claims related to the damage that results. CGL policies tend to have a lot of exclusions. Make sure you understand exactly what your policy covers and what it doesn't. You may want to purchase additional liability policies to cover specific concerns. For example…
• Errors and Omissions Liability (E&O) - this type of policy protects you in case you are sued for damages resulting from a mistake in their work. So if you are designing windows and for example the window leaks because of your design you may be protected by this type of insurance.
• Vehicle Insurance- this type of policy should cover cars and trucks you own but also employees’ cars and trucks when those vehicles are used for business purposes. Many states set minimum liability coverage, which may be well below what you need. Make sure you get enough coverage. If you don't have enough coverage, the courts can take everything you have, and then attach your future corporate income, thus possibly causing the company severe financial hardship or even bankruptcy.
• Workers’ Compensation Insurance- workers' compensation, which covers medical and rehabilitation costs and lost wages for employees injured on the job, is required by law in all 50 states. Each state has a law setting out what an employer must provide for workers’ compensation benefits. This type of policy is only required for employees, not for independent contractors.

When talking about Liability Insurance it’s important to mention the insurance company’s Duty to Defend. Most policies state that the insurer has an obligation to defend the insured in a suit brought by a third party. For occurrences covered by the policy, a defense must be provided even if a suit is found to be groundless or false. Make sure the insurance you purchase contains this duty to defend.

• Other Types of Insurance.

There are also other types of insurance and depending on your location and other factors you might consider choosing one of these:

• Coverage Against Employees’ Theft- covers you if your employee steals from you.
• Crime Coverage- protects your company against burglary and robbery but also other thefts and loss or disappearance of property.
• Business Interruption Insurance- When your business property is damaged or destroyed this coverage will pay lost income while your business is closed as well as expenses you incur in order to keep your business going.
• Disability Insurance- sometimes called "income insurance," can guarantee a fixed amount of income, usually 60 percent of your average earned income, while you're receiving treatment or are recuperating and unable to work. Because you are your business's most vital asset, many experts recommend buying disability insurance for yourself and key employees from day one.

III. Making a Claim.

When one buys insurance, one hopes that it will never have to be used. However, frequently the need to make a claim arises and there are many important things to remember about. To make a claim you need to:

• Notify your insurance company immediately when you experience a loss, or have a lawsuit filed against you or your business. You should also notify the police of a theft or accident immediately.
• Read your insurance policy to make sure what your responsibilities to the insurance company are.
• Make a list of damages and any items lost, stolen or destroyed.
• If possible, find receipts or proof of ownership for all your lost, stolen or destroyed items.
• When facing a lawsuit from a third party, gather any information you may have on the incident or reason for the lawsuit.
• Send written notice by certified mail to have verifiable proof of the date that you notified your insurance provider regarding a claim

When you have filed a claim, be prepared to do battle with your insurance company. If you feel your settlement offer is not fair, schedule a time to talk with the claims adjustor and contact the customer service division of the insurance provider. Negotiating with your insurance company is always a good start to reaching a better settlement. Although, if you are completely dissatisfied with the final result, you may hire an attorney to help you with the negotiations, and if necessary to pursue a lawsuit or arbitration against insurance company.