1. Business Structures, Markets, and Risk Management
Lesson 2: Using Business Structures in a Market Simulation
Sarah McKay, Graduate Student, Department of Agricultural and Applied Economics, Virginia Tech
Kristin Carr, Agriculture Teacher, Riverheads High School, Augusta County Public Schools
Marie Rothwell, Virginia Cooperative Extension Agent, 4-H Youth Development, Augusta County
Shannon Wiley, Graduate Student, Agricultural, Leadership, and Community Education, Virginia Tech
Hannah Scherer, Assistant Professor and Extension Specialist, Agricultural, Leadership, and Community Education, Virginia Tech

2. Overview of Today Recap from last lesson Business organization
Simulation
Group discussion on findings
Group presentations
Recap
Questions
Take-home

3. recap

4. Review of Business Structures
What are the five business structures?
1. Sole proprietorship
2. Partnership
3. LLC
4. Cooperative
5. Corporation
What are the three types of partnerships?
1. General − profits, liability, and management duties divided equally
2. Limited − varying investment percentage and liability; short-term projects
3. Joint ventures − general partnership for limited time or single project; may continue as filed partnership

5. Review What are key characteristics of an LLC?
Hybrid of partnership and corporation
Members vs. owners
Members not personally responsible for debts/liabilities (unless negligent)
What business structure is owned and operated by members using its services?
Cooperative
How can you tell if a corporation is public or private?
Whether or not you can buy stock in the company

6. Review
What are the key characteristics you might look for when trying to figure out what type of structure a business has?
Owners
History
LLC vs. Inc.
Public offering/stocks
Taxation
Organization

7. Sole Proprietorship Advantages Disadvantages
Easy and inexpensive to form
Unlimited personal liability
Complete control
Hard to raise $$$
Easy tax prep
Heavy burden

8. Partnership Advantages Disadvantages Easy Full, shared liability
Inexpensive
Disagreements/shared decisions
Shared financial commitment
Shared profits
Complementary skills

9. LLC Advantages Disadvantages Limited liability Limited life
Operational ease
Self-employment tax
Sharing of profits (as see fit)

10. Cooperative Advantages Disadvantages Less taxation Raising capital
Funding opportunities
Lack of membership/participation
Reduced costs
Improved products and services
Perpetual
Democratic

11. Corporation Advantages Disadvantages Limited liability Costly
Capital generation
Time-consuming
Corporate tax separate from owners’
Double taxation
Paperwork/record-keeping burdens
Competitive benefits

12. Business simulation Game

13. Game Objectives and Rules
Market simulation with card-drawn scenarios.
Goal is to make as much money as an individual at the end of the last round.
Class will divide into three types of businesses:
Sole proprietorship (1 owner)
Partnership (2 owners)
Private corporation (3-4 owners)
In groups, decide the following before beginning the game:
If you are a partnership, are you a general or limited partnership?
If you a private corporation, how will decisions be made? Will there be a CEO or a democratic vote?
Will you raise cattle or corn?

14. Live cattle prices are $134.225/cwt.
Example of a Scenario
Beginning assets
Scenario
Action
(Expense)/Revenue
Balance
Ending assets
50 cattle at 1,200 lbs.
Example: Beginning balance
----
$100,000
Example: Whether to feed a supplement that will add 50 lbs. per head but costs $55 per head
Feed supplement because cattle prices are $ per cwt or $1.40 per lb., which means I would get $70 per head ($ extra profit if prices stay the same).
$55/head
Farm has 50 cattle.
Expense = $55 × 50 = ($2,750)
$100,000 − 2,750
= $97,250
50 cattle at 1,250 lbs.
Example: Market day
Live cattle prices are $ /cwt.
1,250 lbs. × 50 = 62,500 lbs.
62,500 lbs./100 = 625 cwt
625 cwt × $ /cwt = $83,890.63
= $97, , = $181,140.63
$181, cash

15. Prices
Corn May: July: August: September: Market day: (October) Cattle June: August: October: December: Market day: (March)

16. In groups based on Round 2 business structure:
Answer the following using the large sticky paper.
What business structure were you?
What were the best and worst parts of the simulation?
How did your business structure make this easier or harder?
How did you make your decisions?
What is your remaining balance?

17. Group Presentations

18. Questions?

19. Take-Home for Next Time
Consider the following questions:
What risks did your business face?
How might you manage this risk?
If you could do the simulation again, would you change your business structure?