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Agribusiness Planning & Analysis AP3 Selecting a Business Structure
Agribusiness Planning & Analysis: Selecting a Business Structure Notes Page
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Sole Proprietorship Partnership Cooperative Corporation
Agribusiness Planning & Analysis AP3 Selecting a Business Structure
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
Agribusiness Planning & Analysis AP3 Selecting a Business Structure
Agribusiness Planning & Analysis: Selecting a Business Structure AP3.1
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
Agribusiness Planning & Analysis AP3 Selecting a Business Structure
Agribusiness Planning & Analysis: Selecting a Business Structure AP3.1
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
Agribusiness Planning & Analysis AP3 Selecting a Business Structure
Agribusiness Planning & Analysis: Selecting a Business Structure AP3.1
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
Agribusiness Planning & Analysis AP3 Selecting a Business Structure
Agribusiness Planning & Analysis: Selecting a Business Structure AP3.2
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.
Agribusiness Planning & Analysis AP3 Selecting a Business Structure
Agribusiness Planning & Analysis: Selecting a Business Structure AP3.2
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.
Agribusiness Planning & Analysis AP3 Selecting a Business Structure
Agribusiness Planning & Analysis: Selecting a Business Structure AP3.2
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.
Agribusiness Planning & Analysis AP3 Selecting a Business Structure
Agribusiness Planning & Analysis: Selecting a Business Structure AP3.2
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.
Agribusiness Planning & Analysis AP3 Selecting a Business Structure
Agribusiness Planning & Analysis: Selecting a Business Structure AP3.3
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 AP3 Selecting a Business Structure
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
Agribusiness Planning & Analysis AP3 Selecting a Business Structure
Agribusiness Planning & Analysis: Selecting a Business Structure AP3.4
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.
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
Agribusiness Planning & Analysis AP3 Selecting a Business Structure
Agribusiness Planning & Analysis: Selecting a Business Structure AP3.4
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
Agribusiness Planning & Analysis AP3 Selecting a Business Structure
Agribusiness Planning & Analysis: Selecting a Business Structure AP3.5
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?
Agribusiness Planning & Analysis AP3 Selecting a Business Structure
Agribusiness Planning & Analysis: Selecting a Business Structure AP3.5
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.
Agribusiness Planning & Analysis AP3 Selecting a Business Structure
Agribusiness Planning & Analysis: Selecting a Business Structure AP3.6
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.
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