This presentation outlines the 4 major business ownership structures and how they operate.

1. Agriculture Business Management Lesson 2: Business Ownership

2. What are the characteristics of a sole proprietorship? A sole proprietorship is a business entity with a single owner/operator. A business entity is a professional organization offering something that has real existence. The following factors characterize a sole proprietorship.

3. What are the characteristics of a sole proprietorship? A. It is the oldest, most common, and simplest form of business organization. B. One person can serve as the business decision-maker. C. No registration with the state is required, as is necessary with a corporation or a limited liability company (LLC).

4. What are the characteristics of a sole proprietorship? D. It is easily set up and maintained. E. The owner is personally responsible for assets, income taxes, and business debts. F. It is relatively simple to manage and control.

5. advantages: a. ease of exit & entry b. owner control c. low startup costs d. no special taxes e. secrecy f. pride disadvantages: a. unlimited liability b. lack of capital c. lack of management skills d. lack of continuity e. time commitment What are the advantages and Disadvantages of a sole proprietorship?

6. How does a partnership work? A partnership is a form of business where two or more people go into business together. A. Partners pool their money to start the business. B. A written agreement that specifies partnership terms is needed. It explains the responsibilities of each partner and what percent of the business each owns.

7. How does a partnership work? C. Profits and losses are divided as agreed. D. The partnership may own property. E. Partners share unlimited liability, so they share responsibility for debts and for wrongful acts. 1. Each partner is responsible for the partnership’s liabilities. 2. Each partner is liable for the other partners’ wrongful acts as a partner.

8. How does a partnership work? F. Records are necessary. In a partnership, it is necessary to file a partnership tax return and to pay taxes individually. G. A partnership is normally dissolved upon the death of a partner. Characteristics of a partnership 10% of all businesses in U.S. 4% of all sales in U.S.

9. What are the special types of partnerships? Limited A limited partnership is a work relationship with an individual (silent partner) who provides capital but has no decision-making powers; the person is only liable for the amount invested. Nominal The business is allowed to use the partner’s name (for example: in advertising). General The business partner is active in the decision making process and whose identity is known by the public.

10. Advantages: a. low startup costs b. few regulations c. more capital available d. management specialization e. no “special” taxes Disadvantages: a. unlimited liability b. lack of continuity c. frozen investment d. personal conflict e. share profits What are the advantages and disadvantages of a partnership?

12. 1. It provides limited liability to owners.

13. Limited liability means the investor cannot lose more than the amount invested.

15. 1. Owners own shares (stock), which signifies ownership in a corporation.

16. Ownership in the company is determined by the amount of stock a person owns.

18. b. If a stockholder does not own a significant amount of shares, he or she will not have a vote in company decisions.

20. People invest money in the corporation, and as the business gains in success, the stock value will increase.

21. As the stock value increases, the investors see an increase in the value of their stock.

23. When this occurs, each member has a vote in the decisions of the corporation.

24. a. This usually occurs when a corporation is not publically traded on the stock market.

25. b. Not-for-profit corporations also operate in this manner.

27. 1. A C corporation is the most common form of a corporation.

28. A C corporation creates a separate legal entity with assets and liabilities separate from the owners.

30. A closed corporation has one or a limited number of shareholders.

32. The LLC offers the advantage of being taxed like a partnership.

33. Multiowner LLCs also offer the protection of limited liability.

35. A. It is necessary to choose a business name that complies with state laws.

36. B. It is necessary to appoint directors of the corporation.

37. C. It is necessary to file formal paperwork (articles of incorporation) with state and federal governments.

39. F. It is necessary to issue stock certificates to shareholders.

41. A. It must be a domestic corporation or LLC.

42. B. It must have only one form of stock.

43. C. It must have no more than 100 stockholders.

44. D. Stockholders must be U.S. citizens.

46. What are the characteristics of a corporation and a cooperative? B. A cooperative is a business organization where the owners are the customers. 1. Cooperatives emphasize member control. 2. Members with a mutual interest organize cooperatives. 3. Cooperatives are operated on a non-profit basis. 4. Patronage payments are the profits paid to members based on their use of the cooperative.

47. What are the characteristics of a corporation and a cooperative? 5. Membership is voluntary. 6. Most cooperatives operate on a one-member, one-vote basis. 7. Its members elect the board of directors, which is composed of cooperative members. 8. Cooperative stock does not increase or decrease in value.

48. What are the advantages of a corporation and a cooperative?What are the disadvantages of a corporation and a cooperative? B. A cooperative offers numerous advantages to its members. 1. Lower taxes. 2. Liability is limited to the amount of the investment. 3. Numerous people pool their resources to start the cooperative. 4. All members share control of the business; no one or two people can control the company. 5. A long life of the cooperative is likely.

49. What are the advantages of a corporation and a cooperative?What are the disadvantages of a corporation and a cooperative? C. A cooperative may pose several disadvantages. 1. Organizing a corporation can be complicated and costly. 2. Sometimes hard to liquidate assets. 3. Freedom of actions and changes to the business are limited. Change comes slow. 4. Limited returns on investment.

50. What is a cooperative? Why and when were cooperatives developed? C. Cooperatives have existed for many years. For example, people used to work together to harvest large animals for survival. 1. One person could not accomplish this task alone. 2. People received help to achieve their objectives. D. Babylonians are noted in their development of agriculture cooperatives by pooling their resources during farming. E. The Chinese developed savings and loans similar to cooperatives we have today.

51. What is a cooperative? Why and when were cooperatives developed? F. In North America, clearing land in preparation for the planting of crops and barn raisings all required cooperative efforts. 1. The first formal cooperative business is assumed to have been developed in 1752. a. This cooperative was a mutual insurance company called the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. b. It was organized by Benjamin Franklin and others, and it is still in operation today.

52. What is a cooperative? Why and when were cooperatives developed? 2. Other farm organizations, including the Farmers Alliance and the Farmers Educational and Cooperative Union of America (known as the National Farmers Union) began to promote cooperative development. Farmers not affiliated with any farm organization began to establish cooperatives. By 1900, at least 1,223 cooperatives were active in the United States. 3. The Grange, a farmer organization established to improve the economic and social position of the nation’s farm population (National Grange), began to engage in cooperative marketing and purchasing.

53. What is the basic purpose of establishing a cooperative? To help members improveprofits To lower input costs, improve quality, raise prices, improve service managementis "affected" by "structure“ "must" do 1/2 of business with members

54. b. financial goals: 1) operate at cost? 2) prices are "at the market" 3) "profits"...can result in patronagerefunds 4) refunds are based on "patronage" 5) revolving fund financing a) stock: "preferred" b) cash: minimum of 20% of patronage refunds.. average is 40% c. member controlled/member owned: 1) board of directors 2) one vote per patron or based on patronage 3) major decisions (mergers, etc.) are voted on by members 4) ability/skills of farmers to serve? d. limited returns on capital: 8% on preferred...ensures that members holding stock know that purpose is not just an "investment" ...so less competition for the "non-coops" ...no floating value for stock

55. 4. Advantages: a. limited liability b. member financing c. lower taxes 5. Disadvantages: a. limited returns b. difficult to sell stock c. inefficiency (slow to change)

56. 6. Organization: a. local: 1) popularity voting 2) conflict of interest b. regional: 1) federated: a) members are other coops: FS/Growmark, COOP/Farmland Ind. b) control: from the bottom up 2) centralized: a) farmers are the members: AGWAY, Welch's b) locals are controlled by "central" c) local outlets have "advisory" councils 3) combined:

57. What are the types of cooperatives? What are the seven cooperative principles, and how were they developed? Types of cooperatives and principles A. Purchasing cooperatives 1. These cooperatives sell farm supplies to their members. 2. Products include production supplies: seed, fertilizer, petroleum, chemicals, and farm equipment. 3. American farmers purchase approximately 28 percent of their supply needs through cooperatives. B. Marketing cooperatives 1. These cooperatives sell their members’ farm products and maximize the return. 2. Operations can be diversified and complex.

58. What are the types of cooperatives? What are the seven cooperative principles, and how were they developed? 3. Some marketing cooperatives perform a limited number of functions, while others vertically integrate. a. Vertical integration owns portions of the business or production process, which often adds value to the products for a higher return. b. For example, Hershey’s candy owns cocoa farms in South America, and they own their own transportation system. This allows the company to control its inputs as value is added to a finished product and sold to consumers.

59. What are the types of cooperatives? What are the seven cooperative principles, and how were they developed? 4. Some cooperatives even sell products in grocery stores under their own brand names: Land O’ Lakes, Ocean Spray, and Florida’s Natural. 5. Some cooperatives serve members in many ways. a. They may bargain for better prices. b. They may store and sell members’ commodities. c. They may process farm products into more consumer-ready goods. 6. In the United States, agricultural cooperatives handle approximately 30 percent of farmers’ total farm marketing volume.

60. What are the types of cooperatives? What are the seven cooperative principles, and how were they developed? C. Service cooperatives 1. These cooperatives provide various services to their members. a. Pesticide applications, seed cleaning, and artificial insemination are some services offered through cooperatives. b. Service cooperatives also include organizations such as the Farm Credit System—a network of borrower-owned lending institutions. c. Another example is a rural electric cooperative, which provides electricity to rural areas. 2. The first U.S. cooperative was a service co-op.

61. 8. Usage: a. 20% of inputs/ 30% of sales b. Farmland Industries: __ largest U.S. frim c. non-ag coops: grocery stores, bookstores, coop housing 9. Joint ventures: