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
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
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
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
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
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
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
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
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
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 profit-making taxed like sole proprietorship certain qualification requirements
Subchapter T very popular in ag industry non-profit figure 6-5
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
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
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
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
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
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
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
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
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
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