TYPES OF AGRIBUSINESSES

Chapter 6

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 family farms and small businesses cooperatives Subchapter S Subchapter T .

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     .

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

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  .

from both legal and managerial points of view. and include:        How. 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. when.Bylaws~  Corporations have bylaws in addition to articles of incorporation Describe how the firm is to be operated. 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 .

products  Service Cooperatives:  provide members with specific service rather than a product .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.

Inc  largest agricultural cooperative in 1999    annual revenues of $4.5 billion 1.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.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 .

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

Wendy’s. 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.000 franchised outlets in the United States  McDonald’s has more than 30. and Domino’s  600.000 restaurants in 100 different countries  Franchising sales accounted for nearly 33% of all retail sales in the US in 2004  Figure 6-8.

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

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