agribusiness planning & analysis: selecting a business structure selecting a business...

Agribusiness Planning & Analysis AP3 Selecting a Business Structure

Agribusiness Planning & Analysis: Selecting a Business Structure Notes Page

Date _______________Topic___________________________________

----------------------------------------------------Summary of Main Ideas-------------------------------------------------------

-------

-----------------------------------------Notes--------------------------------------

----

----

----

----

----

----

----

----

----

----

---M

ain

Idea

s, K

ey P

oin

ts, F

orm

ula

s---

----

----

----

----

----

----

----

----

----

----

----

-

----

----

----

Sole Proprietorship Partnership Cooperative Corporation


Agribusiness Planning & Analysis: Selecting a Business Structure AP3.1

Let’s Start a Business…But What Kind?

Grain Elevator Floral Shop

Greenhouse Landscaping Business

Lawn Mowing Service Seed Company

Fertilizer Company Artificial Insemination

Service

Row Crop, Cattle,

Hogs, and Sheep

Production

Hay Business – Small

Square Bales and Large

Round Bales



Outdoor Photography

Business Bee Production

Fruit Trees and

Vegetable Gardens Orchard

Soy Candle Company Fruit Preserves, Jams,

and Jellies

Agriculture Awareness

Website Business

Agricultural Issues

Quarterly Newsletter

Publications

Poultry Production Tractor Restoration

Business






Fertilizer Company Artificial Insemination

Service

Row Crop, Cattle,

Hogs, and Sheep

Production

Hay Business – Small

Square Bales and Large

Round Bales



Outdoor Photography

Business Bee Production

Fruit Trees and

Vegetable Gardens Orchard

Soy Candle Company Fruit Preserves, Jams,

and Jellies

Agriculture Awareness

Website Business

Agricultural Issues

Quarterly Newsletter

Publications

Poultry Production Tractor Restoration

Business



Business Structures

Sole Proprietorship or Individual

In this type of organizational structure, an individual owns the business and has complete control

of policy decisions. The individual receives any profit earned from the business, which may

provide extra incentive for the owner to do a good job in managing and operating the business.

These profits are also taxed only once when they are received by the owner. However, the

owner may also be held liable for everything he or she owns including home, savings, and non-

business investments. The individual is responsible for filing and paying incomes taxes. The

sole proprietorship is the simplest type of organizational structure to form, and the individual

who owns the business is his or her own boss. There are also few government regulations or

restrictions. Management and control are solely in the owner’s hands. Therefore, no voting is

necessary. This allows owners to make quick decisions without waiting to talk with others. A

sole proprietorship is easy to establish since it does not involve drawing up partnership

agreements, issuing certificates of stock, or finding stockholders. Management of income tax

and estate planning is more limited than with other forms of organizational structure, which is

often a major consideration in changing business structures. The owner is also limited to the

capital he or she has or can borrow. Other business structures bring together more than one

person’s capital resources. Finally, in a sole proprietorship, the owner has to bear the burden of

responsibility for overseeing the operation of the business. If the sole proprietor becomes sick or

has personal problems, no one else may be able to run the business.



Partnership

There are two types of partnerships, general and limited. A limited partnership is an

association between the main owner of the business and investors outside the business. Limited

partners have no voice in management decisions. The limited partner’s name cannot even appear

in the partnership name, but are for investment purposes only. A general partnership is an

association of two or more people who, as owners, manage a business together. General

partnerships contain certain recognizable factors: There should be an agreement explaining the

terms of the partnership and outlining who is to contribute what, how decisions are to be made,

and how profits are to be split. A general partnership is dissolved by death, agreement, or

bankruptcy. Generally, voting and profit sharing are based on the amount each partner

contributes to the partnership. Each partner is fully liable for the partnership’s activities. The

partnership must file tax returns, but it pays no taxes. The partnership’s tax return provides

information so that each partner can file individual returns. Any profit earned by the partnership

is divided between the partners based on previous agreements. These partnerships are fairly

easy to establish with few government regulations or restrictions. Having one or more partners

can also add financial resources and management expertise. There are some potential problems

that may be avoided through planning and understanding. Partners must have a high level of

tolerance and understanding. Most disagreements concern trivial matters, and the partners need

to be able to deal with them. Effective communication is very important to avoid

misunderstanding and disagreements. Unless a limited partnership has been established, all

parties in the partnership share equally the burden of loss and debt. Since partnerships have

unlimited liability, if one partner goes bankrupt, the other partners are still responsible for the

debt. Also, each partner can enter into a contract without the permission of the other partner or

partners, yet all partners are equally responsibly for fulfilling the contract.



Corporation

A corporation is a separate legal entity owned by other people. Corporation laws, which

establish the requirements for the entity that may incorporate, are set forth by each state.

Corporations are established by raising capital from the sale of certificates of stock. Persons

who invest in a corporation by buying its stock are called shareholders. Shareholder elects the

board of directors and can exert a degree of control over policy decisions based on the number of

shares they own. Voting is done by those owning common shares of stock with each share of

stock worth one vote. Policy decisions are made by the stockholders and board of directors. The

corporation is financially liable. They received their portion of the profits through dividends

determined by their percentage of the total stock. Corporations have a different management

structure as there is continuity of management because stockholders select the manager; the

organization can keep going by selecting a new manager if the old manager should leave or

become unable to work. Liability is also limited for each stockholder to the amount the

stockholder has invested. If the corporation is doing well, getting loans from financial

institutions is easier than for a sole proprietorship or partnership. A corporation can also sell

additional shares of stock to raise funds. Corporations are complicated and costly to organize.

More procedures are involved in forming a corporation than any other business structure.

Expenses may include filing fees, articles of incorporation, and initial legal and accounting

expenses. Corporations are also often saddled with a complicated record keeping system. In

addition,, all decisions about the corporation must be made and approved by the shareholders or

directors, and the larger the number of people involved the greater difficulty of decision making.

Profits of a corporation are also taxed twice. The corporation itself is first taxed, and then the

income that has already been taxed is distributed to the shareholders and taxed again as personal

income. Ending a corporation may be complicated and expensive.



Cooperative

A cooperative is a special type of corporation. It is a system characterized by the absence of the

profit motive. Its primary function is distribution of goods and services. The members of a

cooperative are all the people who make purchases from the cooperative. These members are

the owners. A person involved in a cooperative may not own more than eight percent of the

cooperative. Cooperation with other businesses that offer the same type of product or service

helps members reduce costs. Many rural electric and water companies are cooperatives. They

provide a service needed by residents and businesses and reduce utility costs. Cooperatives are

limited to eight percent profit each year. If more profit than eight percent is earned, the amount

over must be returned to the members in the form of a patronage refund based on the amount of

business the member does with the cooperative. However, doing business with the cooperative,

the members agree to allow the cooperative to retain some of this patronage refund for growth

and improvements. Therefore, the members may receive only a portion of the patronage refund,

and the rest is kept by the cooperative. Members of cooperatives risk only the amount they have

invested. Since cooperatives are owned and controlled by members that use them, they should

be responsive to the needs of the members. Cooperatives are designed to operate on a low level

of profit to hold down costs for members, and because a portion of the profits go to the customer,

the income tax paid by the cooperative is limited. Customers do usually never receive the full

amount of their shares of the profit, but they do pay tax on the full amount of profit. Current

customers may also suffer from past business losses because the cooperative will have to raise

prices or use patronage refund money to cover those losses. Members may also be required to

purchase stock in a cooperative. This stock is unlike regular stock because it cannot gain value.



Sole Proprietorship Partnership Corporation Cooperative

1. Who uses these services?

2. Who owns the business?

3. Who votes and how is voting done?

4. Who is financially liable?

5. Who determines policies?

6. Are returns on ownership capital

limited?

7. Who receives profits?

8. How are they taxed?

9. Identify 3 advantages

10. Identify 3 disadvantages


Agribusiness Planning & Analysis: Selecting a Business Structure AP3.3 KEY

Sole Proprietorship Partnership Corporation Cooperative

1. Who uses these services?

Non-owner customers Generally non-owner Generally non-owner

customers

Chiefly the owner-

patrons

2. Who owns the business?

The individual The partners The stockholders The member-patrons

3. Who votes and how is voting done?

None necessary

General partners only –

usually by partners’

share in capital

Common stockholders –

by shares of common

stock

The member-patrons –

one member, one vote or

proportional to

patronage

4. Who is financially liable?

Individual

Partners or limited

partner for amount

invested

Corporation Cooperative

5. Who determines policies?

Individual General partners only –

not limited partner

Common stockholders

and directors

The member-patrons and

directors

6. Are returns on ownership capital

limited?

No No No Yes – 8% or less

7. Who receives profits?

Individual Partners in proportion to

interest in business

Stockholders in

proportion to stock held

Patrons on patronage

basis

8. How are they taxed? Individual files and pays Partnership files, but

individual pays

Corporation pays tax on

profit; stockholders

taxed on dividends

Cooperative files but

members pay based on

patronage refund

9. Identify 3 advantages

10. Identify 3 disadvantages



The Kind of Business We Should Start!

For ten businesses below, identify the type of business that would be most profitable and

beneficial for the business owner(s). Because there may be no completely right or wrong

answers, justify your responses with two to three reasons for your selection.




Fertilizer Company Artificial Insemination Service

Row Crop, Cattle, Hogs, and Sheep

Production

Hay Business – Small Square Bales and

Large Round Bales



Outdoor Photography Business Bee Production

Fruit Trees and Vegetable Gardens Orchard

Soy Candle Company Fruit Preserves, Jams, and Jellies

Agriculture Awareness Website Business Agricultural Issues Quarterly Newsletter

Publications

Poultry Production Tractor Restoration Business



My Business Structure Evaluation

Create an agribusiness. This agribusiness does not have to be one that could be realistically

started in the local community, but should be something of personal interest, possibly related to a

Supervised Agricultural Experience Program or future career. Once a business has been decided

upon, choose the type of business structure it will follow. Next, complete the chart below

pertaining to the “dream business” you have created. Once complete, illustrate the business

structure creatively through PowerPoint, Word document, poster, etc.

Students will present business structure projects to the class. Along with explaining the chosen

business structure, students must also be prepared to orally justify why other business structures

did not work for their “dream business.”

My Business ___________________________________________________________________

Business Structure ______________________________________________________________

Who will use

the services

your business

provides?

Who owns the

business?

Who votes and

how?

Who is

financially

liable?

Who determines

policy?

Who receives

profit?

How are you

taxed?



Students will be evaluated based upon teacher and peer evaluation sheets as stated below:

Teacher/Peer Presentation Evaluation

5 4 3 2 1

Bu

sin

ess

Str

uct

ure

Kn

ow

led

ge

Student fully

explains knowledge

of business structure

plan and why this

business structure

was chosen over

others

Student easily

explains

business

structure plan

and somewhat

explains why

this business

structure works

over others

Student easily

explains business

structure plan

and answers

questions, but

fails to elaborate

on why this

business

structure works

over others

Student is

uncomfortable

with

knowledge and

has difficulty

backing up

answers with

facts

Student lacks a

grasp of

knowledge and

has difficulty

answering

questions

Org

an

izati

on

Student presents

information in

interesting and

logical sequence that

is easy to follow

Student

presents

information in

a logical

sequence that is

easy to follow

Audience has

difficulty

following

presentation as

it jumps around

from topic to

topic

No sequence of

information

Gra

ph

ics,

tech

nolo

gy u

se,

nea

tnes

s, o

ver

all

ap

pea

ran

ce o

f

vis

uals

Visual includes

graphics and use of

technology. Visual

is neat in appearance

and easy to read and

understand.

Visual includes

graphics, but

no use of

technology.

Visual is neat

in appearance

and easy to

read and

understand.

Visual lacks

neatness in

appearance, but

is still easy to

read and

understand.

Visual lacks

neatness in

appearance and

is not easy to

read or

understand.

No visuals are

used.

Mec

han

ics

Presentation has no

spelling and/or

grammatical errors.

Presentation

has 1-2 spelling

and/or

grammatical

errors.

Presentation has

3-4 spelling

and/or

grammatical

errors.

Presentation

has 5 spelling

and/or

grammatical

errors.

Presentation

has more than

5 spelling

and/or

grammatical

errors.

Pre

sen

tati

on

Qu

ali

ty

Student maintains

eye contact with

audience, speaks

clearly, speaks

loudly, and is

confident.

Student

maintains eye

contact, speaks

clearly and

loudly, but

lacks

confidence.

Student lacks eye

contact, speaks

somewhat

clearly, and

needs to increase

volume.

Student lacks

eye contact,

clarity of

speech, and

volume.

Student looks

at presentation

visual instead

of audience.



Selecting a Business Structure Alternative Evaluation

1. The most common structure of a farm business is a ____________________________. a. corporation b. sole proprietorship c. partnership d. joint venture

2. Which is the best organizational structure for an agricultural business? a. corporation b. sole proprietorship c. partnership d. None of the above

3. A regular corporation ____________________. a. reports and pays tax on profits b. reports but does not pay income tax c. has a patronage fund to protect against unexpected expenses d. primarily serves its members

4. A ______________ is made up of individuals or individual businesses that join together to market their goods or services.

a. partnership b. cooperative c. sole proprietorship d. corporation

5. Which of the following is an advantage of a sole proprietorship? a. All profits are taxed only once b. A sole proprietor is personally responsible for all the debts of a business c. Liability is limited d. Getting a loan is easier for a sole proprietorship than for a corporation

6. Which of the following is not an advantage of a corporation? a. Liability is limited; stockholders are not responsible for debts b. Getting a loan is easier for a corporation than for other types of businesses c. Corporations can sell additional shares of stock to raise capital d. The individuals involved always cooperate with each other and are able to reduce

costs.

agribusiness planning & analysis: selecting a business structure selecting a business...

Documents