1. Describe the pros and cons of each of the following forms of business ownership in relation to your business idea:
This business model is relatively easy and inexpensive to start. The profits belong to only the owners, which is another advantage. However, the owners take on all the losses, risks and liabilities. Taxes would also be higher, because the company would be taxed as if it was paying personal taxes. This model would make it difficult to raise capital, though the capital is already raised for ICM. This option is too risky because there is no legal difference between the owners and the business and that is taking on too much risk.
Like the sole proprietorship, a partnership is relatively easy and inexpensive to start. The profits also belong only to the owners in this model. Like the sole proprietorship, this form is also prone to designating all the losses, risks and liabilities to the owners. This is the model that ICM would choose if the owners were willing to stake their personal belongings as collateral in starting the business. The model is attractive to ICM in a way, because it is looking to pool the financial resources of several stakeholders who have an even interest in the company. The start-up costs at ICM would be held evenly with the company.
The incorporation ownership model places some of the risk on the people who owns shares of the company. This is a shield from some of the liabilities. In this model, the company is considered a separate legal entity from the owners. A major advantage to this model is that if the business owes another company money, the assets of the company can’t be seized to pay the debt. However, there is a lot of paperwork needed in this model, which can require more expenses, as there could be a greater need for staff to handle the extra work. There are also many fees that are involved in establishing and maintaining the firm and the rules are very complex when it comes to filing income tax. This is a structure that the company may choose further down the road. However, at this time, there is no need to attract additional capital from other investors because there is currently enough investment to start the business. As the company grows, more capital could be needed, and this form would also provide a way to spread out liability in case of default on a loan or other payment.
Specialized forms – co-ops and joint ventures
The co-op can be a good structure to follow because it has limited liability among people who have similar interests in the firm. However, all of the owners in the company share in the profits. This wouldn’t be attractive for ICM, because we want to keep our Chinese business connections to ourselves. The joint venture form has a specified time period, which doesn’t make it attractive for ICM because it requires too much limitation. ICM will need more flexibility in the amount of time that it needs to conduct its business because there are too many unknowns at this point. The structure would also not be very attractive because it would require sharing profits will another company. However, the expertise of other companies could be useful in this joint venture structure.\
The franchising model doesn’t look very attractive to ICM at this point. There isn’t really the need to franchise a company such as this, because everything we do is essentially done remotely and it only really involves co-ordinating efforts among logging companies, lumber mills and transport companies. However, ICM is interested in owning its own transport vehicles at some point, at which time an office would need to be established. If the company were to expand to different areas, there would be the need to set up different options, and this is where franchising could be an attractive option.
Mergers and acquisitions
Mergers and acquisitions could come into play after a while of being in business. In fact, there may be transportation companies that could prove useful if acquired. This would cut costs substantially, but the current budget doesn’t allows for any takeovers. There may be opportunity for merger with a Chinese company so that goods are also being transported from China to Canada, possible with the same freight system.
2. Describe the preferred form of business ownership for your business idea.
The incorporation is the preferred form of ownership at the company. Being incorporated will include the sale of stock in the corporation, which is a separate legal entity from the owners.
Explain the advantages and disadvantages of this form of business ownership and discuss how you will maximize the advantages and minimize the disadvantages. Give rationale for your decision.
My business idea would best be suited to an incorporation because it is too risky to have my personal possessions as collateral for loans that the company has secured. This system will allow ICM to secure additional capital for its projects by using money that is invested by other stakeholders. Having others invested in the project is also a detriment because shares of the company will also go to those stakeholders who have invested. These people will also have a say in the direction that the company takes, which means there could be bad decisions made because the shareholders need to be included in the conversation. There is also many fees and paperwork with this method, but the advantage of not having personal possessions at steak far outweigh the disadvantages that are posed by taking the incorporated route.
While there is more complication in formation, the incorporation method is the best way to open a business because this is a legal entity on its own. Separating personal ownership from that of the corporation protects the owners from having to put their personal possessions on the line. This method is also more attractive than the partnership method. The is because the partnership allows the partner to make a decision without the other partner`s notification. This means that one of the people in the partnership want to make a decision, and the decision is a bad one, it could result in either of the partners being sued, (Should, 2005).
Another reason the incorporation method is the most attractive for ICM, is because there is lot of expansion that the company would like to pursue in the future. Having the extra capital from shareholders allows the company to do that. While the current amount of capital available to the company is only enough to pay for the start-ups, having additional money will ensure the ability to develop in a way that will allow for the expansion into the future. This extra capital also provides a greater cushion in case the company needs a longer time to earn profits.
While becoming a corporation is more complicated than having a sole proprietorship or a partnership, the process is still relatively easy. There are essentially only five steps that need to be pursued in order to have a corporation:
1. The company name needs to be selected. This would include searching the current company names that are in existence and ensuring this company name isn’t already taken.
2. There are articles that need to be filled out and filed with a government office.
3. The required fees and taxes need to be paid.
4. An organizational meeting needs to be held.
5. The company needs to adopt bylaws, pass the first operating resolution and elect directors, (Althouse, 2008).
This process is relatively easy, which makes it an attractive fit for ICM. However, this list of items isn’t all inclusive, as it is only a representation of the main steps that need to be taken by the company. But some of the steps will help bring into focus the goals of the company. They will also provide an opportunity for the company owners to develop the firm’s image and to get to know each other. The corporate charter is an important component that is a necessity when becoming incorporated. Items such as the bylaws and operating resolutions can be more focused when there is the requirement to have this information in order to become incorporated. This combined effort in developing the specifics of the company also shows that not just one person in the company is able to make the decisions. The disadvantage is that it could take a long time for anything to gain approval, but it also provides the opportunity for full thought on each matter.
Part B: Canadian Business Laws and Regulations
1. Detail the Canadian business laws and regulations that govern your industry and your business. Include both Canadian and provincial laws and regulations.
Wood packaging that is used needs to be taken into account when transporting wood from Canada to China. The International Plant Protection Convention is the governing body that mandates the wood packaging that is used in international trade. This wood must be treated in a way that guards it against the distribution of pests that aren’t wanted. This means that shipping products to any country, other than the United States, needs to go through this regulatory body. The wood must be heat treated to reach a core temperature of 56 C for at least 30 minutes. This could be either before or after manufacturing.
Several repercussions ensue if the wood isn’t packaged at an ISPM 15 certification. There is the requirement for a quarantine and the wood is returned to the shipper on the next available transporting ship. The company could instead be charged a cost for dock space rental. The company is also charged for treatment of the non-certified wood packaging, at the estimated cost of $5,000, and this fee includes the charge for the task of opening the container and storing the wood. There is also the option of cross-docking the product from a non-certified to a certified wood packaging, and this cost isn’t known, but it is considerable, (Yu, 2005).
Once the wood is treated, ICM will be given a license number that comes in the form of a stamp that is located on two sides of the packaging. In order for it to receive the stamp, there are only several places that can treat the wood. This includes a company that is licensed to manufacture the wood packaging. The wood is usually treated in a heat treatment chamber or kiln. The material used to support the package, also called the dunnage, needs to have a separate stamp that is located on each of the two sides of each dunnage piece. Anything that is repaired or recycled from a different country and has the stamp on it can be deemed to be heat treated and approved for reuse if it isn’t repaired. Heat treatment would be applied to it if it is repaired.
While these regulations are in place when transporting wood from Canada many other markets, it isn’t required when transporting it to the United States. This is because there is a bilateral agreement that was come to between the U.S. and Canada. This agreement allows the packaging to be exempt from the requirement, (Yu, 2005).
Wood packaging is considered by the Canadian government to be essential for trade and the movement of any cargo and container goods. The wood packaging is designated as to include the following types of cargo: pallets, boxes, dunnage, crating, drums, packaging blocks, load boards, cases, pallet collars and skids. These wood products are traditionally produced from wood that isn’t processed, and it doesn’t possess a sufficient amount of manufacturing or treatment needed to remove the pests that are present in the wood. The national pest interception records indicate there is a large number of pests that could be transported with the wood, and these pests are often able to survive. This is why there has been put into place a pest risk assessment through the Canadian government. The packaging materials are a major pathway where quarantine insects and also diseases are moved along with the plants and trees. Even though there has been the development of an assortment of import requirements for the wood packaging materials, the pests are still on the move throughout the world. For example, some pests, such as the Asian Long-horned beetle, the Emerald Ash Borer , the Brown Spruce Longhorn Beetle and the Pine Shoot Beetle have been transported into North America because of wood transport from throughout the world. As the trend for trading globally continues to rise, the risks associated with these pests also rises, which makes strict enforcement a top priority, and it makes regulations for companies such as ICM much more stringent, (Canadian Wood, 2011).
A wood packaging standard was set out in 2002 by the International Plant Protection Convention. At the time, the IPPC adopted a packaging standard for wood. This standard set out that the regulation of Wood Packaging Material in International Trade, International Standards for Phytosanitary Measures was in place. This acknowledges that the plant’s health risks that are linked to wood packaging takes a look at the phytosanitary measures. This is to target the plant health risk that is linked to the wood packaging, which is the standard recommendation that the wood packaging should be treated before it is distributed. This will approve it for trade, but this treated wood must also be marked so that it can be identified in the approved treatment and to give a traceable element to the country of origin and the facility that it was produced in. Each registered facility has its own number, which allows it to be stamped, (Canadian Wood, 2011). The certificate system lets the Canadian wood packaging facilities as well as the treatment facilities to manufacture wood that is consistent with the provisions set out in the regulations. The program is not only used by exporters such as ICM, but also by packaging facilities, freight forwarders, custom brokers, inspection staff and service providers. The regulation sets out the registration and the phytosanitary requirements that are needed for the production of the ISPM.
There are also fees involved with the process. For example, when there is wood packaging facility that wants to participate in the CWPCP, that location has to pay money to the Service Provider for it to be included in a registry. The service provider is considered to be an organization, firm or a person who is in a Service Contract with the Canadian Food Inspection Agency, which governs the export of wood. There is a registration payment for $400 that has to go to the Receiver General of Canada.
The regulated commodities that are included are the loose wood dunnage that is created from the softwood and hardwood, as well non-processed wood packaging. A combination of softwood and hardwood are also regulated. The county to which ICM would want access (China), can result in enforcement being taken. That would be from the foreign country to the non-compliant shipper. This could result in delays at the location of the port of entry. A refusal of entry is also an option. The products that are not allowed to enter the country because they don’t meet the regulation may also be subject to enforcement by the CFIA, because it is in violation of a Canadian Law. This is specifically in violation of the Plant Protection Act and Regulations. The vaneer peeler cores are also subject to these restrictions.
But there are commodities that are exempt from this regulation. For example, wood packaging materials or wood that is designated as loose wood dunnage that comes from the processed wood aren’t part of the requirements for the initiative. Plywood, oriented strand board, vaneer and particle board that was made with glue, pressure or heat (or a combination), aren’t required to be part of the regulation, (Canadian Wood, 2011).
2. Discuss any legal and regulatory restraints affecting this industry and your business idea.
Anyone who is importing or exporting to China needs to register with the country’s Customs authorities in order for there to be an exporter or importer registration code. Another opportunity exists if the company that is importing goods is engaged with an agent who is registered with the Customs Registration code. This wouldn’t be the case for ICM, however, as this company would register with the country itself, rather than going through a middle person for registration. The code needs to be included on a customs declaration form for all of the shipments to China. The urgency of these codes should be relayed to the trading partners who are located in China. Without these, the items being imported could be put on hold by the Customs authority until all the information is available.
There are also Harmonized System Codes that need to be taken into consideration. This is usually indicated on the customs declaration form. This HS code, when taken together with the goods description in the other documentation that needs to be included, helps make the HS classification quicker and it leads to the clearance of all the goods.
Also included in the regulations in China is the Duty Exemption Withdrawal for Smaples and Advertising Materials. This is a new regulation that became necessary on Jan. 1, 2011. It could impact the Customs clearance that is used for the shipments that are coming in and out of China. There could be potential delays in the delivery of goods with this transition to the new method of importing goods to China, (Guide, 2012).
Part C: Your Role as an Entrepreneur or Small-Business Owner
1. What are your strengths and weaknesses as a business owner?
As the company’s CEO, I am a key visionary in the industry. I was key in bringing the organization overseas from national distribution. As the key visionary, I am vital in the logistics of delivering ICM products to China via ports, rail and truck.
I have managed to organize the rest of the company’s staff has been structured to meet the needs of each aspect of product delivery. For example, the two directors of trade with China (Mr. Dong Zhongshu and Mr. Wang Fu) have already worked as directors of trade with the two primary companies with which ICM is in distribution discussions. My skills to bring these people together is a key component to this business and operations would have been possible without that skill.
My experience is also a major asset to this business. I have worked closely with two directors of international relations with China, Mr. Dong Zhongshu and Mr. Wang Fu. These men comprise the company’s management and they are key in meeting with Chinese managers and coming to terms over trade agreements. They must also ensure legal practices are met and governments on both sides of the ocean are satisfied. I was able to identify their importance, which has led to the company coming together in this capacity.
My skill to identify the talents of people will be vital to organizing relationships with others. There are many stakeholders involved in the company, from the mills that process the wood to the port authorities in China. It is important that I know how to work with these people and identify the best among them in order to bring the team together.
Weaknesses that I possess include a lack of patience. There is a lot of paperwork that will need to be done in order to ensure that the shipment is made in a coordinated fashion. From the time the wood is processed at a mill, to the time it arrives in China, there are many locations where it need to be transported and this makes it very challenging to do without some patience, as lag times will be inevitable when transporting this wood. Instead of paying close attention to where all shipments are all the time, it is important to realize that there will be delays and I should get stressed about the fact that there could be problems along the way.
In this business, there is a lot that is out of the owners’ control. The best that we will be able to do is to stay patient and to learn which companies are the best fit to do business with. While the shipments may take some time, the process will become smoother as operations continue to become more refined.
2. What will you do to maximize your strengths and minimize your weaknesses?
In maximizing my strengths, it is important to continue to build business relationships and to recognize those who aren’t contributing as much as they could be to the process. This means that while I am good at building relationships, I need to focus on building relationships with those who will be a positive influence to the company. The relationships that I may build with others are not a factor in the discovery of the business.
When the best team players and the most efficient people to do business with are on the team, that should help with my main weakness, which is a lack of patience. The transition to a company that is running smoothly with all of its affiliates will take some time, but it will be the ability to create an environment where all stakeholders in the company, and all the affiliates, are operating at a level that is conducive to the quick delivery of goods.
The experience factor is something that can also be cultivated. I will gradually gain more experience in the market of international export over the years. While I have a considerable amount of business experience, it won’t necessarily translate into being valuable in the industry of shipping wood internationally. However, there are several aspects to the process that will be valuable and the others will come as time goes by.
Canadian Wood Packaging Certification Program. (2011, March 28). Canadian Food Inspection
“Guide for DHL Express Dutiable Shipments to China.” (2012). DHL.
“Should I incorporate my business?” (2005, Apr. 28). YouTube.
Yu, T. (2005, November). Certified Wood Packaging For Export. International Plant Protection