1. UNDERSTANDING COOPERATIVES UNIT 1 - The American Business Enterprise System Business Form Characteristics Slides for Unit 1

2. Our Business System Principles: Freedom of choice Private property rights Profit motives of owners Owner control S 1.1

3. Individually Owned (Proprietorship) A business enterprise where the individual owns, operates, manages, and receives the earnings of the business (The oldest and most common method of doing business.) S 1.2

4. Partnership A business enterprise owned and controlled by two or more people who have agreed to operate on a partnership basis. (Family partnerships are common in farming.) S 1.3

5. Corporation: Investor-Oriented A (State-chartered) business that has the right to buy and sell goods and services. (Operated as a profit-making enterprise for its investors.) S 1.4

6. Corporation: Cooperative A user-owned and user controlled (State- chartered) business in which benefits are received in proportion to use. (Commonly used in agriculture to buy, sell, and service individual farm businesses.) S 1.5

7. Hybrid: Limited Liability Company A business structure that combines characteristics of both a partnership and a corporation. It combines the single-tax treatment of a partnership with the limited personal liability of a corporation. As in a cooperative, LLC owners are called members. (Becoming increasingly common in agricultural business today.) S 1.6

8. Comparison of Methods of Doing Business FeaturesIndividual-OwnedPartnershipInvestor-OrientedCooperative Corporate Form Hybrid Limited Liability Who uses the Nonowner Generally Generally Generally the Generally services? customers nonowner nonowner members nonowner customers customers customers ---------------------------------------------------------------------------------------------------------------------------------- Who owns the The individual The partners The stockholders The members The members business? ---------------------------------------------------------------------------------------------------------------------------------- Who votes? Not applicable The partners Common stockholders The members The member ---------------------------------------------------------------------------------------------------------------------------------- How is voting Not applicable Usually by By shares of One-member, Usually by conducted? Partners’ share common stock one-vote or members’ in capital proportional share in capital ----------------------------------------------------------------------------------------------------------------------------------- S 1.7

9. Free Enterprise Systems Ownership Profit incentive S 1.8 Two major differences: ownership and profit incentive Individually owned The individual Profit for the individual owner ----------------------------------------------------------------------------------------------------------------- Partnerships Two or more individuals Profit for the two or more partners ----------------------------------------------------------------------------------------------------------------- Investor-oriented The stockholders Profit (dividends) for stockholders ------------------------------------------------------------------------------------------------------------------ Cooperative corporations The members Profit for members (higher income) ------------------------------------------------------------------------------------------------------------------ Limited-liability corporation The member investors Profit for member investors ------------------------------------------------------------------------------------------------------------------ Public business The public Least cost to taxpayers