1. Agriculture Business Organizations
Spencer Ag Business Curriculum
2013

2. Business Organizations:
When establishing a business, one must determine an organizational structure that the business can operate under in an efficient and effective manner.

3. Business Organization Principles:
When selecting an organizational structure, consider the following:
Simple as possible
Provide sufficient resources
Encourage planning for the future
Increase efficiency
Distribute benefits equally
Manage Land, Labor, Capital and Management effectively

4. Types of Business Organizations:
Sole Proprietorship
Partnership
Corporation
Cooperative
Franchise

5. Businesses in Society:
The business firm is responsible for all of the following in a capitalistic society:
production of products
decisions concerning what products to produce
methods of production
level of employment
product distribution
pricing decisions
The type of business structure will depend on how these decisions are carried out.

6. Make-up of Businesses in the U.S.
20.1 Million Businesses

7. Sole Proprietorships:
The most common type of business firm in agriculture and the business world.
Characterized by an individual owner who:
supplies the working capital
directs or manages the firm
receives all profits
bears all losses and risks (business and personal assets are liable)

8. Sole Proprietorships:
Advantages:
Low start up costs
Freedom from regulation
Owner in direct control
Minimal working capital requirements
Tax advantages to small owner
All Profits to the owner

9. Sole Proprietorships:
Disadvantages:
Unlimited liability (business and personal)
Lack of continuity
Difficult to raise additional capital (one source available)

10. Partnerships:
An association of two or more persons to carry on a business for profit as co-owners.
Provides access to more capital and allows the firm to be larger and more competitive.
Two basic types of partnerships:
general partnership
limited partnership

11. Partnerships: General Partnerships
Each partner is involved with both ownership and management of the business.
Each partner has unlimited liability for both his or her own business obligations plus those of the other partners.
All partners are liable to the extent of both their personal and business assets.

12. Partnerships: Limited Partnerships:
Two or more persons, with one of more general partners and one or more limited partners
Limited partners:
Contribute only a fixed amount of capital to the partnership
Are not liable for any thing above the amount of their contribution
Can contribute money and property, but do not contribute any personal services

13. Partnerships: Advantages: Ease of formation Low start up costs
Additional sources of risk capital
Broader management base
Possible tax advantages
Limited outside regulation

14. Partnerships: Disadvantages: Unlimited liability Lack of continuity
Divided authority
Hard to find suitable partners
Difficulty in raising large amounts of capital

15. Corporations:
Accumulation of large sums of money to finance massive business enterprises
Separate entities from the personal owners of the business
Personal owners are not liable for any debts of the corporation - no liability
Greater appeal to investors—can only lose what is invested

16. Corporations: Structure: Owners are referred to as stock holders
Stock holders elect a board of directors that are responsible for directing the corporation
Voting of stock holders determines major decisions.
Stock holders receive one vote for every share of stock owned
The more stock owned, the more power you can exert

17. Corporations: Establishment
Requests must be made to the state authorities and provide information on:
name of corporation
purpose of corporation
length of existence
names of board of directors
If this is satisfactory, a charter is granted giving the corporation power to act.

18. Corporations: Establishment
Next step is to adopt bylaws and a constitution that govern how business will be operated.
Elect the officers to operate the business..

19. Corporations: Subchapter S:
Developed to benefit small businesses, including those in agriculture.
Designed for the smaller of family owned business that does not wish to sell large volumes of stock or to remain as a privately owned business entity.

20. Corporation: Subchapter S Qualifications
Must have only one class on stock outstanding.
Must have no more than 35 initial stock holders, all of whom must be individuals or estates. (no businesses or corporations)
All stockholders must agree to become a Subchapter S corporation.

21. Corporations: Why Subchapter S:
Taxes are lower than normal corporations
Subchapter S corporations are taxed as partnerships.
Avoids double taxation
Still maintains limited liability for the owners

22. Corporations: Advantages: Limited Liability Specialized Management
Ownership transferable
Continuous existence
Legal entity
Possible tax savings
Easier to raise capital

23. Corporations: Disadvantages: Closely regulated by state authorities
More expensive to organize
Charter restrictions
Double taxation
Management more complicated

24. Cooperatives: A variation of a corporation
More democratic control than a corporation
One member = one vote regardless of size or type of business, EXCEPT…
Some states allow voting on a percentage of total patronage refunds.

25. Cooperatives:
Usually organized to provide goods and services for its own members—not the general public
Profits are returned to the members based on a percentage of business done at the cooperative
Patronage refund—the payment returned to members of a cooperative based on volume of business

26. Cooperatives:
Types:
Marketing
Purchasing
Service
Processing
Credit

27. Cooperatives: Marketing: Purchasing:
Members pool saleable products to gain more power and a better price when selling their products
Purchasing:
Producers pool the purchasing of inputs to secure a more favorable input price

28. Cooperatives: Service: Processing:
Members pool efforts to provide better or new services
Processing:
Members pool their efforts to process, package, and add value to their products to sell in alternative markets

29. Cooperatives: Credit:
Members pool their efforts to acquire funds at lower interest costs to be passed on to other members

30. Cooperatives: Advantages: Limited liability Specialized management
Continuous existence
Legal entity
Substantial tax advantages
Easier to raise capital
Antitrust and regulatory exemptions

31. Cooperatives: Disadvantages: Incorporating statutes quite restrictive
Cooperation among members is difficult
Slow in organizing and getting started
Members fail to recognize their ownership responsibilities
Business community resentment against the cooperative
Patronage refunds are not guaranteed

32. Franchise: What is a franchise?
Business arrangement in which the parent company (franchisor) sells to another business (franchisee) the right to use its name and sell its products.

33. Franchise Advantages of franchises
Nationally recognized name and reputation
Training for owners and staff
Personal ownership

34. Franchise: Disadvantages of Franchises:
Large start-up and franchise costs
Management regulations
Restrictions on selling

35. Chapter 10 Review: What are the four major types of businesses?
Which type of business is the most popular type of business in the U.S.?
Describe a sole proprietorship.
What are the advantages and disadvantages of a sole proprietorship?
What are the two types of partnerships?

36. Chapter 10 Review:
What are the advantages and disadvantages of a partnership?
Describe a corporation.
What are the advantages and disadvantages of a corporation?
What is a cooperative?
What are the five types of cooperatives?
What are the advantages and disadvantages of a cooperative?