1. Types of agribusinesses
Chapter 6

2. Objectives: Compare proprietorships, partnerships, and corporations.
Explain the characteristics of the single (sole) proprietorship
Explain the characteristics of partnerships.
Discuss the different types of corporations.
Explain the characteristics of limited liability companies.
Explain the characteristics and value of cooperatives.
Describe the characteristics of franchises

3. Agribusinesses 3 major types of business organizations:
Single (sole) proprietorship
Partnership
Corporation
3 types of corporations:
Subchapter C
regular corporations
Subchapter S
family farms and small businesses
Subchapter T
cooperatives

4. Business Organizations~
Sole proprietorship
organization that is owned by one person
most common form of business ownership
19.7 million in US
Partnership
two or more people make a legal agreement to become co-owners of business
2.5 million in US
Corporation
a legal entity with authority to act that has liability separate from that of its owners
2.8 million in US
87% of all sales volume

5. Sole Proprietorship~
Major type of legal structure in the agricultural industry
Simplest type of business
Easiest to organize
Closest to the American dream
Owner is in complete control
Figure 6-2

6. Advantages of Sole Proprietorship~
Simple to start
Few government regulations or restrictions
Only requirement is a license
Management and control are solely in the owner’s hands
No voting is necessary

7. Disadvantages of Sole Proprietorship~
Unlimited liability
Claim that creditors can make on the owner’s personal assets for payment of business debts
Can be difficult to accumulate the large amounts of capital required to begin and operate a successful business

8. Types of Partnerships~
General partnership:
Formalized agreement between 2 people specifying:
Resources contributed by each partner
Who has decision-making authority
How profits will be divided
Limited partnership:
Partners not completely liable for each others’ debt
Person invests in partnership
Does not participate in daily business management
Limited liability partnership:
Partners can protect their existing personal assets
Partners not responsible for the business’s debts beyond the amount of their investment

9. Written Partnership Agreements~
Wise for each partner to get the advice of a lawyer
Prepare yourself before calling the lawyer because of the expense
Be sure that your partnership agreement is put in writing
Model Business Corporation Act
Page 128

10. Corporations~ General Motors, Ford, IBM, FedEx, Exxon, and John Deere
Small businesses may incorporate as well
Characteristics:
legal entity separate from the people who own it
can own property, pay taxes, make contracts, sue, etc.
issue stock
new owners called stockholders
pay a set price for their shares
gets one vote for each share purchased

11. Types of Corporations~
Subchapter C
sells stock to investors
profit-making
Board of directors may pay dividends to stockholders
Subchapter S
primarily for small businesses
taxed like sole proprietorship
certain qualification requirements
Subchapter T
very popular in ag industry
non-profit
figure 6-5

12. Establishing a Corporation~
Articles of incorporation filed with the secretary of state’s office and include:
The name of the corporation
The names of the people who incorporated it
The purposes of the corporation
The duration of the corporation
The number of shares that can be issued
The voting rights attached to each type of stock
Other rights of the shareholders
The minimum capital of the corporation
The address of the corporate office
The name and address of the person responsible for legal service
The names and addresses of the first directors

13. Bylaws~ Corporations have bylaws in addition to
articles of incorporation
Describe how the firm is to be operated, from both legal and managerial points of view, and include:
How, when, and where shareholders’ and directors’ meetings are held
how long directors are to serve
Specifics as to each director’s authority
The duties and responsibilities of officers and the length of their service
How stock is issued
Other matters, including employment contracts
Figure 6-6

14. Limited Liability Companies (LLC)~
Legal entity that exists separate from it owners
Combines the corporate advantage of limited liability with the partnership advantage of single taxation
Advantages of LLC:
liability of member is limited
members are not liable for debts of the LLC unless they have given personal guarantees for those debts
Disadvantages of LLC:
work and expense involved in initial formation
post formation record-keeping requirements
Laws regarding LLCs are still developing

15. Cooperatives~
Corporation formed to provide goods and services to members either at cost or as near to cost as possible
Not formed to make profits
Serve the people who own shares in the organization
Agribusiness cooperatives are very popular
3 cooperative types:
Supply
Marketing
Service

16. Difference between Cooperatives:
Supply Cooperatives:
Buy supplies in quantity for resale to members
Members save money because items are bought in bulk
Can manufacture items rather than buying them to sell
Marketing Cooperatives:
find buyers who will pay the highest price for ag. products
Service Cooperatives:
provide members with specific service rather than a product
members probably could not afford services individually

17. Statistics on Cooperatives~
More than 21,000 cooperatives nationwide
Both business and individual members
Agricultural cooperatives are a multi-billion-dollar industry
Prime Example:
Farmland Industries, Inc
largest agricultural cooperative in 1999
annual revenues of $4.5 billion
1,800 member cooperatives
250,000 farmers in 19 states

18. Cooperatives and Membership~
Some co-ops serve the general public
Others serve members only
Major emphasis always on members
Voting stock and investment stock are separate
Only common (voting) stock gives a person the right to vote on business matters
Preferred (investment) stock only gives a person the opportunity to invest in the business and receive a reasonable return on investment

19. Cooperatives and Control~
Most cooperatives use a democratic system of control
each member has one vote only
no additional votes for owning extra stock
Critics often contend that co-ops are run by a few “elite” members
only because many members fail to exercise their right to vote during the annual stock-holders’ meetings

20. More About Co-ops~ 3 distinguishing characteristics:
Service at cost
any excess earnings are returned to patrons in the form of patronage dividends
Democratic control
one member, one vote
Limited returns on investment
Figure 6-7, Advantages and Disadvantages

21. Franchises~ Contract in which a franchisor sells to
another business the right to use its
name and sell its products
Franchisee (person purchasing the franchise) buys a system of operation that has proven successful
McDonald’s, Wendy’s, and Domino’s
600,000 franchised outlets in the United States
McDonald’s has more than 30,000 restaurants in 100 different countries
Franchising sales accounted for nearly 33% of all retail sales in the US in 2004
Figure 6-8, Advantages and Disadvantages

22. What Do YOU think?
Consider the pros and cons of each type of agribusiness.
Which style is best suited for you as an entrepreneur?