Understanding Canadian Business Canadian 8th Edition Nickels Solutions Manual Download

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Understanding Canadian Business Canadian

8th Edition Nickels Solutions Manual
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CHAPTER 6
Forms of Business Ownership
BRIEF CHAPTER OUTLINE AND LEARNING GOALS
Opening Profile: Getting To Know: Brian Scudamore, Founder of 1-800-GOT-JUNK?
I STARTING A SMALL BUSINESS
6-1 Nickels, UNDERSTANDING CANADIAN BUSINESS, 8th Canadian Edition ©McGraw-Hill Ryerson, 2013
➢ Learning Objective 1
List the advantages and disadvantages of sole proprietorships.
I SOLE PROPRIETORSHIPS
A. Advantages of sole proprietorships

B. Disadvantages of sole proprietorships
Describe the advantages and disadvantages of partnerships. Include the
differences between general and limited partners.
I PARTNERSHIPS
A. Advantages of Partnerships
B. Disadvantages of Partnerships
Discuss the advantages and disadvantages of corporations.
I CORPORATIONS
A. Advantages of Corporations
B. Disadvantages of Corporations
C. Corporate Governance
D. Business Regulations
Define and give examples of three types of corporate mergers, and explain the role
of leveraged buyouts and taking a firm private.
I CORPORATE EXPANSIONS: MERGERS AND ACQUISITIONS
Outline the advantages and disadvantages of franchises, and discuss the
challenges of global franchising.
I FRANCHISING
A. Advantages of Franchises
B. Disadvantages of Franchises
C. E-Commerce in Franchising
D. Franchising in International Markets
Describe the role of co-operatives in Canada.
I CO-OPERATIVES
II WHICH FORM OF OWNERSHIP IS BEST FOR YOU?
Key Terms
acquisition franchisor limited partnership

articles of incorporation general partner merger
conglomerate merger general partnership partnership
co-operative horizontal
Resource mergerChecklist partnership agreement
corporate governance
FIGURES FROM TEXT leveraged buyout (LBO) private corporation
corporation liability public corporation
franchise
Fig. 6.1 Partnership Agreementlimited liability
Provisions sole proprietorship
franchise
Fig. 6.2agreement limited liability partnership (LLP)
Some Corporation Categories unlimited liability
franchisee limited
Fig. 6.3 Canada’s Largest Publicly partner
Traded Corporations vertical merger
Fig. 6.4 How Owners Affect Management
Fig. 6.5 Comparison of Forms of Business Ownership
Fig. 6.6 Types of Mergers
Fig. 6.7 Benefits of Co-operatives
Fig. 6.8 Distribution of Non-financial Co-operatives by Sector of Activity
EXERCISES AND BOXED FEATURES FROM TEXT
Spotlight on Small Business, p. 176

- Bags That Travel
Making Ethical Decisions, p. 177

- Outsourcing or Outsmarting?
Greenbox, p. 187
- Root, Root, Root for the Green Team
End of Chapter Content

- Critical Thinking
- Developing Workplace Skills
- Analyzing Management Decisions: Going Public (See p. 15 of this manual for
answers)
SUPPLEMENTARY EXERCISES IN THIS MANUAL
LECTURE LINKS
Lecture Link 6-1
Really Big! Business
Lecture Link 6-2
Merck: Finding the next big one
CRITICIAL THINKING EXERCISES

Critical Thinking Exercise 6-1
Picking Partners
Critical Thinking Exercise 6-2
Choosing a form of business ownership
Supplemental Case 6-1

Building CompuDyne
Lecture Outline
Outline Supplements
The PROFILE at the beginning of the chapter focuses on Brian
Scudamore, Founder of 1-800-GOT-JUNK? His success story lies
in how he expanded his self-started junk hauling business –
through franchises, with over $100 million in annual revenues. He
believes an important aspect of starting a business is to realize
which form of business best suits the owner(s).
I STARTING A SMALL BUSINESS
There are three major forms of business ownership.
A sole proprietorship is a business that is owned, and usually

managed, by one person.
A partnership is a legal form of business with two or more parties.
A corporation is a legal entity with authority to act and have

liability separate from its owners
Each form of business ownership has its advantages and

disadvantages.
Many companies start out in one form, then add (or drop) a
partner or two, and eventually may become corporations.
Liability for a business includes the responsibility to pay all

normal debts and to pay because of a court order or law, for
performance under a contract, or payment of damages to a person
or property in an accident.
List the advantages and disadvantages of sole
proprietorships
II SOLE PROPRIETORSHIPS
A. Advantages of Sole Proprietorships
In addition to setting your own hours, advantages of starting a sole

proprietorship include the following:
1. ease of starting and ending the business;

2. being your own boss;
3. pride of ownership;
4. retention of company profit;
5. no special taxes; and
6. less regulation.
B. Disadvantages of Sole Proprietorships
Disadvantages include the following:
1. unlimited liability – the risk of personal losses;

2. limited financial resources;
3. management difficulties;
4. overwhelming time commitment;
5. few fringe benefits;
6. limited growth;
7. limited lifespan; and
8. possibly pay higher taxes
Unlimited liability is the responsibility of business owners for all

of the debts of the business.
Describe the advantages and disadvantages of
partnerships. Include the differences between
general and limited partners.
III PARTNERSHIPS Fig. 6.1 (p. 178)
The business can be a partnership of individuals, corporations,

trusts, other partnerships, or a combination of these.
A general partnership is a partnership in which all owners share

in operating the business and in assuming liability for the business’
debts.
A limited partnership is a partnership with one or more general Spotlight on Small

partners and one or more limited partners. Business (p.176)
A general partner is a partner who has unlimited liability and is

active in managing the firm.
Every partnership must have at least one general partner.

Making Ethical
A limited partner is an owner who invests money in the business Decisions (p. 177)
but does not have any management responsibility or liability for
losses beyond the investment.
Limited liability means that limited partners are not responsible
for the debts of the business beyond the amount of their
investment.
A. Advantages of Partnerships
Partnerships usually have the following advantages:
1. more financial resources;

2. shared management and pooled/complementary skills and
knowledge;
3. longer survival;
4. shared risk;
5. no special taxes; and
6. less regulation.
B. Disadvantages of Partnerships
Disadvantages of partnerships include the following:
1. unlimited liability;
2. division of profits;
3. disagreements among partners;
4. difficulty of termination; and
5. possibly pay higher taxes.
A partnership agreement is a legal document that specifies the

rights and responsibilities of each partner.
➢ Learning Objective 3 Fig. 6.2 (p.180)

Discuss the advantages and disadvantages of
corporations
IV CORPORATIONS
A legal entity with authority to act and have liability separate from
its owners is called a corporation. It can be federally or
provincially mandated. The corporation’s owners (called
stockholders/shareholders, as they hold stock/shared of ownership Fig. 6.3 (p.181)
in the company) are not liable for the debts or any other problem
of the corporation beyond the money they invest.
A public corporation has the right to issue shares to the public,

so its shares may be listed on a stock exchange.
A private corporation is not allowed to issue stock to the public,

so its shares are not listed on stock exchanges; so it is limited to
50 or fewer shareholders.
Most small corporations are private corporations. Fig. 6.4 (p.182)
There are several advantages that Canadian-owned private

corporations have over public corporations, especially from a
taxation perspective. For example, a Canadian controlled private
corporation pays a lower rate of federal tax (small-business rate)
on the first $500,000 of active business income than would be paid
by an unincorporated business, due to the small-business
deduction. For private corporations claiming the small-business
deduction, the net tax rate is 11 percent, while the net tax rate for
other types of corporations is 15 percent. Another important
advantage for the owner of a private corporation is that he or she
can issue stock to a child, or a spouse, making them co-owners of
the company. This procedure is not available to a sole proprietor.
It is a simple and useful way of recognizing the contribution of
these or other family members, or employees, to the company.
This procedure may also be a good way for the owner to prepare
for retirement by gradually transferring ownership and
responsibility to those who will be inheriting the business.
A. Advantages of Corporations
Advantages of corporations include the following:
1. limited liability;
2. more money for investment;
3. size;
4. perpetual life;
5. ease of ownership change;
6. ease of attracting talented employees; and
7. separation of ownership from management.
B. Disadvantages of Corporations
Disadvantages of corporations include the following:
1. initial cost
2. extensive paperwork;
3. double taxation;
4. two tax returns;
5. size;
6. difficulty of termination; Fig. 6.5 (p. 183)
7. possible conflict with shareholders and Board of Directors;
C. Other Types of Corporations
1. Professional Corporations
Professional Corporations are a Canadian-controlled private

corporation engaged in providing professional services. The
member must be part of a profession that is governed by a
professional body that allows its members to practice through a
corporation, as opposed to a sole proprietorship or partnership.
The major benefit of professional corporations is tax advantages:

professional corporations can benefit from the Small Business
deduction, income splitting with family members, and the capital
gains exemption for qualifying small business corporation shares.
Each province has different rules for it.
2. Non-Resident Corporations
A non-resident corporation conducts business in Canada but has

its head office outside Canada.
3. Non-Profit Corporations
A non-profit corporation is formed for charitable or socially

beneficial purposes. It has many features of business
corporations, but it pays no income taxes and it does not issue
shares.
4. Crown Corporations
Crown corporations are companies that only the federal or a

provincial government can set up.
D. Corporate Governance
Corporate governance is the process and policies that determine

how an organization interacts with its stakeholders, both internal
and external.
Rules outline how the organization is to be managed by the board

of directors and the officers.
The board of directors has the responsibility of representing the

best interests of the shareholders.
On behalf of its stockholders, the directors hire the officers of the

corporation and they oversee major policy issues. Board members
are often chosen based on their business experience and level of
expertise.
A trend reveals that Canadian companies are giving shareholders

a growing volume of information about their executive
compensation and their boards of directors as shareholders have
particularly demanded greater information to explain and justify
growing executive pay packages.
E. Business Regulations
Companies that wish to operate in Canada must follow federal and

provincial laws and regulations.
1. Registration
Every company must register its business.
Articles of incorporation are a legal authorization from the

federal or provincial/territorial government for a company to use
the corporate format.
The main advantage of being federally incorporated company is

that incorporation gives the company name added protection and
guarantees its usage across Canada.
2. Reporting and Information
Businesses receive many documents from governments during

the year.
All public corporations must file annual reports containing basic

data about themselves.
Define and give examples of three types of
corporate mergers, and explain the role of
leveraged buyouts and taking a firm private
V CORPORATE EXPANSION: MERGERS AND ACQUISITIONS
A merger is the result of two firms forming one company. Fig. 6.6 (p.185)
An acquisition is one company’s purchase of the property and

obligations of another company.
There are three major types of corporate mergers:
1. A vertical merger is the joining of two companies involved

in different stages of related businesses.
2. A horizontal merger is the joining of two firms in the same

industry.
3. A conglomerate merger is the joining of firms in
completely unrelated industries. The Primary purpose of a
conglomerate merger is to diversity business operations
and investments.
Taking a firm private involves the efforts of a group of stockholders

or management to obtain all of the firm's stock for themselves
A leveraged buyout (LBO) is an attempt by employees,

management, or a group of investors to purchase an organization
primarily through borrowing.
Outline the advantages and disadvantages of
franchises and discuss the challenges of global
franchising.
VI FRANCHISING
A franchise agreement is an arrangement whereby someone

with a good idea for a business sells the rights to use the business
name and sells its products in a given territory.
A franchisor is a company that develops a product concept and Greenbox (p. 187)
sells others the rights to make and sell the products.
A franchisee is a person who buys a franchise.
A franchise is the right to use a specific business’s name and sell

its goods or services in a given territory.
A. Advantages of Franchises
Some advantages of franchising are:
1. management and marketing assistance;

2. personal ownership;
3. a nationally recognized name;
4. financial advice and assistance; and
5. a lower failure rate.
B. Disadvantages of Franchises
Some disadvantages of franchising are:

1. large start-up costs;
2. shared profit;
3. management regulation;
4. coattail effects;
5. restrictions on selling; and
6. fraudulent franchisors.
C. E-Commerce in Franchising
Internet users are able to open online retail stores.
Like any business, potential business owners need to check out all
the facts before they buy. Some franchisor's prohibit franchisee-
sponsored websites.
D. Franchising in International Markets
Based on language and proximity, the U.S. is by far the most

popular target for Canadian-based franchises.
What makes franchising successful in international markets is

what makes it successful domestically: convenience and a
predictable level of service.
Explain the role of co-operatives in Canada.
VII CO-OPERATIVES
Fig. 6.7 (p. 191)
A co-operative is an organization that is owned by members and
customers, who pay an annual membership fee and share in any
profits.
Fig. 6.8 (p.191)
Co-operatives can be found in many sectors of the economy,
including the finance, insurance and service sectors.
Co-operatives differ from other businesses in that they have a

different purpose, control structure, and allocation of profit.
Because co-ops distribute their profits to members as a reduction

in members’ costs, these profits are not subject to income tax.
VIII WHICH FORM OF OWNERSHIP IS FOR YOU?
There are advantages and disadvantages to each form of

ownership. You need to evaluate the alternatives of each before
you can make a decision of which one is best for you.
TEXTBOOK CASE
ANALYZING MANAGEMENT DECISIONS QUESTIONS AND ANSWERS
GOING PUBLIC
1. Do they have any other options besides going public? Is the franchise route a viable
option? Explain?
They might consider going to the Business Development Bank of Canada (BDC),
which might give them the loan or invest in the company. They would then have the right to
buy these shares back at some convenient time in the future. Or, they have the option of
contacting a venture capital company that would also take an equity position in the company.
Finally, in view of their good track record, they might bet a long-term loan from their financial
institution.
2. Do you think they should try to limit their growth to a manageable size, to avoid
going public, even if it means foregoing profits now? Why?
This is a personal decision rather than a business decision. From the business point
of view, one should never stand in the way of success. It depends on their personal values.
Do they want to have a small manageable company or would they prefer continued growth
in sales and profits?
3. Would you advise them to sell their business now if they can get a good price, and
then start a new operation? Explain.
This would depend on the answer to Question 3 above. If they want to remain small and
informal, they can sell the business at a good profit and start small again. Many people have
gone through a succession of starting, developing, and then selling to realize substantial
profits, only to start over again. Their decision would probably depend on how old they are
and how energetic they feel.
LECTURE LINK 6-1

REALLY BIG! BUSINESS
When we talk about “big business,” it is easy to generalize that the company is, well,
big. Recently Fast Company magazine compared the size of some large corporations
(based on 2008 annual revenues) with countries, and came up with some interesting
comparisons:
• General Electric’s $172.7B revenue is larger than Kazakhstan
• General Motors, even battered as it has been lately, is approximately the size of
Finland ($182B)
• Chevron matches up with Vietnam ($221.3B)
• Toyota ($262.3B) is slightly larger than Algeria
• Wal-Mart ($378.8) is larger than Greece
• And the largest company in the world, ExxonMobil ($404.6B) is larger than Egypt
($403.9B)
Source: “Count: Really Big Business,” Fast Company, December 2008/January 2009.
LECTURE LINK 6-2

MERCK: FINDING THE NEXT BIG ONE
One reason why companies seek to merge with competitors is to obtain a key product
that a competitor can make more efficiently. The product might also be patented, making it
impossible for another company to capitalize on its sale.
The drug-giant Merck owns patents for some of the world’s most successful drugs,
such as Singulair, Zocor, Actonel, and Gardasil vaccine. However, the success rate for
developing a marketable drug is less than 10%, meaning that Merck scientists can work
years on a product that will never be marketed. While the company continues to search for
the next cancer cure or AIDS vaccine, Merck also hires market-minded scientists assigned
to find new drugs from someone else’s labs.
About 25% of the drugs that go into human testing by the ten biggest drugmakers
were discovered by outside researchers. In 2007, Merck scouts and their teams searched
5,000 biotech companies and medical schools, and their finds led to 53 licensing deals,
winning Merck rights to discoveries that could lead to new vaccines and antibiotics, as well
as treatments for blindness and Alzheimer’s.
Idera Pharmaceuticals, a small biotech company in Cambridge, Massachusetts, was
one of their finds. Its scientific team, led by Sudhir Agrawal, had struggled for years to find
a drug using antisense technology, which seeks to prevent the cell’s genetic machinery from
making harmful proteins. But it had little luck until it switched to a different strategy focused
on proteins called “toll-like receptors” (TLR). When Merck was notified that the research was
going well, it quickly negotiated a deal. Within six months, Merck purchased the company to
extend its line of vaccines. Idera walked away with $30 million up front and $165 million in
“milestone payments.”
Such small company purchases extend Merck’s product line. But the company does
not limit itself to biotech startups. In 2009, Merck announced it was buying Schering-Plough
Corporation for $41 billion in stock and cash. The deal gives both companies more firepower
to compete. It unites the maker of the asthma drug Singulair with the maker of allergy
medicine Nasonex. Merck and Schering were already partners in a pair of popular
cholesterol fighters, Vytorin and Zetia. Schering also makes the biotech arthritis drug
Remicade, plus a host of popular consumer products such as the Coppertone suntan line
and Dr. Scholl’s foot products.
The transaction was structured as a reverse merger. As a result, Schering-Plough
was the surviving corporation, but took the name Merck. Both companies were
headquartered in New Jersey, and their workforces were merged. The combined company
will be a dominant player in treatment areas including cholesterol, respiratory infectious
disease, and women’s drugs, as well as vaccines.
Sources: Michelle Fay Cortez and Shannon Pettypiece, “Schering-Plough May Help
Before Merck Loses Patents,” Bloomberg.com, 10 March 10 2009; “Merck, Schering-
Plough Plan 41.1 B Merger,” The Associated Press, 9 March 2009; and Tinker Ready, “Not
Invented Here,” Fast Company, April 2007.
Name_________________________
Date_________________________
CRITICAL THINKING EXERCISE 6-1
PICKING PARTNERS
Did you ever think you might like to go into business for yourself? What kind of business
would you like to start? What resources (both personal skills and capital) would you need to
make your business a success? Sometimes it helps to have a partner to share the burdens
of starting a business. What skills would you need to look for in your partner?
Use the space below to list the personal skills and capital needed for your proposed
business. Put your initials next to the skills and capital you would bring to the business. Think
of a friend who might be interested in joining you as a partner. Put your friend’s initials next
to the skills and capital he or she can offer. What capital or skills are missing?
Type of Business: _______________________________________________________
Proposed Partner: _______________________________________________________
Personal Skills Needed: Capital Needed:
__________________________________ ________________________________
__________________________________ ________________________________
__________________________________ ________________________________
__________________________________ ________________________________
__________________________________ ________________________________
What skills and/or capital are missing? ______________________________________
_______________________________________________________________________
What can you do to get what is needed? _____________________________________
_______________________________________________________________________
Name_________________________
Date_________________________
CRITICAL THINKING EXERCISE 6-2
CHOOSING A FORM OF BUSINESS
The needs of the businessperson starting a new business are a major consideration when
deciding the best form of business ownership. The kind of business being started is also
important to consider when deciding to make your new business a sole proprietorship,
partnership, or corporation. Look at the list of new businesses below. Indicate the form of
ownership you think would be best for each business. Give the reason for your selection.
BUSINESS FORM REASON

Swimming pool
repair
Flower shop
Internet-based
specialty store
Termite control
service
Textbook publishing
company
Law firm
Underwear
manufacturer
ANSWERS TO CRITICAL THINKING EXERCISE 6-2
SWIMMING POOL REPAIR

A swimming pool repair company would probably operate best as a sole proprietorship or
partnership at first. There is no great need for capital at first, so a partner may not be needed.
A good way to start would be to hire a few good people and begin work. If many jobs came
in, you could hire more workers. If the managerial task became too much, you could hire an
accountant or office manager. A partner would be good if you wanted an expert in marketing
or some other assistant. Also, it is often fun to have a partner to share ideas and successes
with.
FLOWER SHOP
A flower shop would likely do best as a partnership. The reason for that is that retail stores
demand that someone be there all the time. Since stores are open as much as seven days
a week, 12 hours a day, it helps to have a partner to share the managerial responsibilities.
A partner is also helpful in raising the initial capital. A sole proprietor could succeed if he or
she found an excellent manager or two to help.
INTERNET-BASED SPECIALTY STORE

The answer to this would depend on the size envisioned for the specialty store. A small
seller of a few specialty products could operate as a sole proprietorship, if the owner had
the necessary skills. Orders could be taken without human assistance. Initial investment,
excluding inventory, would be low.
If the store were larger and carried more extensive product lines, the owner would need
assistance, perhaps from a partner. Maybe the best choice would be the limited liability
partnership. Without limited liability, the owner(s) would be liable for all the business’s debts,
and their personal assets would be at risk.
TERMITE CONTROL
A termite control service is much like the swimming pool company, a consumer service. One
can start out small with little capital and build as the business builds. A sole proprietor can
do fine with some good employees. A partner can be of much assistance in marketing and
sharing the burden if the business grows rapidly. A partner is good for sharing thoughts and
worries and joys, but not necessary.
TEXTBOOK PUBLISHING
A textbook publishing company calls for a corporate-type of structure because the costs of
publishing a text are so high. The cost of publishing this text plus all the supplements—
teachers manual, study guide, test bank, videos, computer projects, and so on—comes to a
million dollars or so. It is very difficult for a sole proprietor or a partnership to raise such
funds. The production facilities and other physical spaces are subject to accidents that could
lead to lawsuits. A corporation protects its owners from losses beyond what they invest. All
in all, a corporate form is probably best in this situation.
LAW FIRM
Law firms can be sole proprietorships, but the growth would be severely limited. Besides,
there would be no one to cover when the owner gets sick or goes on vacations. In this case,
it is best to have a partner or several partners. In fact, that is what most law firms do. Whether
or not the partners decide to incorporate has much to do with taxes and liability. The need
for capital is not that great.
UNDERWEAR MANUFACTURER
An underwear manufacturer would likely need buildings and equipment that could not be
obtained without much capital. That calls for incorporating and raising those funds through
the sale of stock. This is much like the publishing case.
SUPPLEMENTAL CASE 6-1

BUILDING COMPUDYNE
The global security firm CompuDyne is one of the biggest and most successful
security companies in the world, which produces prison equipment and surveillance gear
and it helps protect government buildings against terrorism. After the 1998 bombings of two
U.S. embassies in Africa, CompuDyne’s business supplying blast-resistant windows and
doors to most of the embassies around the world doubled. After the terrorist attack on the
U.S.S. Cole in 2000, the company was hired to provide shoreline protection for the U.S.
Navy and Air Force. And following the attacks on the World Trade Center and the Pentagon
on September 11, 2001, CompuDyne started fielding calls from federal and state
government agencies around the country asking for help in protecting “at-risk assets” like
nuclear power plants.
Security companies are doing very well right now, but CompuDyne is doing better
than most. It has posted consistent growth over the last five years. Considered the industry
leader in the market for physical and electronic security, the company took in $141 million
in revenues in 2005, compared to $127 million in revenues in 2001. That performance
becomes even more impressive when you consider that the company was near bankruptcy
in 1995. CompuDyne was founded as a defense contractor back in the early 1950s. For
decades, it stuck mostly to security projects, but in the 1980s, when big conglomerates like
Gulf & Western were popular, the company’s management made an ill-fated attempt to
branch off into new businesses. Some of the choices weren’t entirely inane, like a home-
improvement division, but others were, billboards and plastic extrusion. The diversification
strategy turned out to be a disaster. By 1995, the loss of focus had combined with some
management missteps had driven revenues down to just $12 million, and book value was
literally zero.
In large part, the credit for CompuDyne’s resurgence goes to Marty Roenigk. A former
investment executive at Travelers, he took over the company that year, streamlined its
operations, made a series of strategic acquisitions, and encouraged the discovery of new
technologies that could fight new threats. Some of the company’s recent success is
undoubtedly due to being in the right business at the right time, but the better part goes to
Roenigk’s ability to figure out a simple strategy and execute it extremely well.
Roenigk owned a private manufacturer called MicroAssembly Systems, which made
tiny screws originally used to assemble cameras. Roenigk had built the company to about
$1.6 million in revenues and had deals with AT&T and Hewlett-Packard when a stockbroker
told him about CompuDyne. Roenigk saw an opportunity to fold his small company into
something much bigger. MicroAssembly had a core strategy and a good balance sheet,
while CompuDyne was an ugly collection of assets that didn’t belong together. In a reverse
merger—a deal in which a bigger company buys a smaller one but the smaller company
retains control—Roenigk took over. He immediately got rid of the management team and
sold off everything not related to security (including his old company.)
After he sold off all the unrelated pieces, Roenigk started shopping for new ones that
would fit better. CompuDyne’s first purchase was a firm that sold electronic security systems
for prisons. Roenigk also wanted to buy Norment Industries, a company that made bullet-
and blast-resistant products as well as prison locks and doors. He spent about two years
lobbying for the deal, finally closing it in late 1998. After each deal, Roenigk was smart
enough to leave the new divisions mostly intact.
With lingering terrorism fears, CompuDyne enjoyed a surging demand for its security
products. In January 2004 the firm secured Army and Navy orders for security bollards and
pop-up barriers that sent its stock up 14%. But the company’s financial position has recently
deteriorated. CompuDyne reported a “sharp curtailment” of prison and jail construction
contracts. For 2005 the company reported a loss of $8.2 million.
Although most of its business is still in the nuts and bolts of security, such as blast-
proof doors and pop-up barriers, the company has continued to bolster its work in security
software. It recently acquired 90 Degrees and its emergency medical information software
for public safety agencies.
Sources: Carlye Adler, “Safe and Sound,” Fortune Small Business, July/August 2002, 46-
49; “CompuDyne Corporation,” Washington Post Company, 2005,
www.washingtonpost.com; and and “DefenseWeb’s Strong Q2 Results Driven by New
Contract Wins, Partnership Agreements with Industry Leaders,” Freshnews.com/San
Diego/Orange County, 17 July 2006.
DISCUSSION QUESTIONS AND ANSWERS FOR SUPPLEMENTAL CASE 6-1:
1. What does this case teach you about finding opportunities for forming your own
business?
The world is constantly creating new challenges and opportunities. Some people are
just overwhelmed by it all and tend to stick to what they are doing no matter what. Others
seek new challenges and profit from them. You may be running a successful company when
you see a new opportunity. Will you seize that opportunity when it comes or stay where you
are safe and secure? The biggest successes are often based on taking risks and getting out
of the safe and secure path. That is what this case illustrates. You can even buy a bigger
business than you are. Who would have thought it?
2. Is being at the right place at the right time an accident, or are some people cleverer
than others at being in the right place at the right time?
Being at the right place at the right time is sometimes an accident. But, more often
than not, people create opportunities so it just looks like they were at the right place at the
right time. There were probably a couple of dozen other people in the same place at the
same time that did not seize the opportunity. So being there is not enough. You have to act!!
It’s often uncomfortable reaching out to grab an opportunity, but it’s very rewarding when it
works, but it doesn’t always work. You may be at the right place at the wrong time.
3. What does this case teach you about making the most of a bad thing?
Most people pulled back from their activities when they heard about terrorist attacks
around the world and in the United States. Terrorist attacks were a bad thing. But they did
call for new ways of stopping such attacks. And this case shows that one man can really
make a difference. You not only solve the problems as best you can, but you search for
other synergistic ways of solving problems such that you grow and grow.

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INSTRUCTOR’S MANUAL

Understanding Canadian Business Canadian

Full download at link:

Solution Manual: https://testbankpack.com/

BRIEF CHAPTER OUTLINE AND LEARNING GOALS

Opening Profile: Getting To Know: Brian Scudamore, Founder of 1-800-GOT-JUNK?

I STARTING A SMALL BUSINESS

A. Advantages of sole proprietorships

I CORPORATE EXPANSIONS: MERGERS AND ACQUISITIONS

II WHICH FORM OF OWNERSHIP IS BEST FOR YOU?

acquisition franchisor limited partnership

EXERCISES AND BOXED FEATURES FROM TEXT

Spotlight on Small Business, p. 176

Making Ethical Decisions, p. 177

End of Chapter Content

SUPPLEMENTARY EXERCISES IN THIS MANUAL

CRITICIAL THINKING EXERCISES

Supplemental Case 6-1

There are three major forms of business ownership.

A sole proprietorship is a business that is owned, and usually

A partnership is a legal form of business with two or more parties.

A corporation is a legal entity with authority to act and have

Each form of business ownership has its advantages and

Liability for a business includes the responsibility to pay all

A. Advantages of Sole Proprietorships

In addition to setting your own hours, advantages of starting a sole

1. ease of starting and ending the business;

B. Disadvantages of Sole Proprietorships

Disadvantages include the following:

1. unlimited liability – the risk of personal losses;

Unlimited liability is the responsibility of business owners for all

III PARTNERSHIPS Fig. 6.1 (p. 178)

The business can be a partnership of individuals, corporations,

A general partnership is a partnership in which all owners share

A limited partnership is a partnership with one or more general Spotlight on Small

A general partner is a partner who has unlimited liability and is

Every partnership must have at least one general partner.

Partnerships usually have the following advantages:

1. more financial resources;

Disadvantages of partnerships include the following:

A partnership agreement is a legal document that specifies the

➢ Learning Objective 3 Fig. 6.2 (p.180)

A public corporation has the right to issue shares to the public,

A private corporation is not allowed to issue stock to the public,

Most small corporations are private corporations. Fig. 6.4 (p.182)

There are several advantages that Canadian-owned private

Advantages of corporations include the following:

Disadvantages of corporations include the following:

C. Other Types of Corporations

Professional Corporations are a Canadian-controlled private

The major benefit of professional corporations is tax advantages:

Each province has different rules for it.

A non-resident corporation conducts business in Canada but has

A non-profit corporation is formed for charitable or socially

Crown corporations are companies that only the federal or a

Corporate governance is the process and policies that determine

Rules outline how the organization is to be managed by the board

The board of directors has the responsibility of representing the

On behalf of its stockholders, the directors hire the officers of the

A trend reveals that Canadian companies are giving shareholders

Companies that wish to operate in Canada must follow federal and

Every company must register its business.

Articles of incorporation are a legal authorization from the

The main advantage of being federally incorporated company is