Chapter 2- Forms or Business Ownership

Factors that Influence Business Choice

A. Tax liability
B. Personal liability
C. Access to capital/financing
D. Ability to control management
E. Growth potential
• Ability and Velocity
F. Stability of the business
G. Ease of ownership transference
H. Ability to attract employees
I. Barriers to entry (cost, regulations, etc)

Types of Business Operations

A. Sole Proprietorship
• Advantages (no income tax charge to the business; profits are
taxed only once )
• Disadvantages (Owner is responsible for all losses unless specific
legal procedure are taken for important transaction)
•
B. General Partnership: no limit of the numbers of partners
• Advantages (more people are involved and therefore more
resources are available; no tax on the profit of the business; few
laws and regulations govern partnerships)
• Disadvantages (owners’ unlimited personal liability for the firm;
all partners are liable to the extent of their financial resources)
C. Other Partnerships
• Limited Partnerships-one limited (beyond investment) partner
and one general partner (unlimited liability for the debts)
• Limited Liability Partnership-restricted to certain professions

D. Corporations
• C Corporations (C is the legal entity that is separate from the
person or persons who own it)
o Stockholders
o Stock
o Board of Directors

• S Corporations (S is the provision of the IRS tax code, only U.S
citizens can own stock under S corporation)

• Nonprofit Corporations: Tax-exempts status by the IRS
Examples: Future Farmers of America (FFA); Farm Foundation
(FF); International Food and Agribusiness Management Association
(IAMA).
• Limited Liability Corporation (LLC) (started in Wyoming 1988 by
legislators who wanted to let small business to be taxed like
partnerships)

Items to include in a Partnership Agreement

1. Name and address of the partnership
2. Date of agreement
3. Names and addresses of partners
4. Objective of the partnership
5. Duration of the partnership
6. Contribution of each partner
7. Preparation of financial statements
8. Salary arrangements
9. Division of profits and losses
10. Rights and responsibilities of partners
11. Provisions for the addition and withdrawal of partners
12. Dissolution of the partnership

Relationships Between Businesses

A. Strategic Alliances
B. Joint Ventures
C. Franchises
D. Cooperatives
• Marketing Cooperatives
• Farm Supply Cooperatives
• Service Cooperatives
Principles of Agricultural Cooperatives
• Centralized Cooperatives
• Federated Cooperatives
• Mixed Cooperatives
E. Antitrust Laws
F. Present State of Cooperatives

Strategic Alliances:

An agreement between two or
more companies to achieve common business goals i.e.
share strength, complementary resources etc.

Joint Venture:

An agreement between two or more companies to achieve a goal or a
formal strategic alliance formed when two or more companies
formally joined together in a single endeavor to make profit (set up a
separate legal entity with new identity)

Franchise:

An organizational marketing strategy for
expansion....creating an image in the mind of customers.

D. Cooperatives/Co-operatives/ Coops/Co-ops:

A farm, business which is owned and run jointly by its members because
it embodies the concept of self-help

Categorized into:
▪ Service: provide members with improved services they could not
otherwise obtain
▪ Supply: sells supply to farmers
▪ Market: Sells farmers products, vertically integrating into the food
marketing channel

Principles of Agricultural Cooperatives (Structure)

Centralized Associations
Federated Associations

Mixed Associations

Centralized Associations

Owned by their individual members and typically serve an area
ranging from a county to a region, include several states

Federated Associations

When two or more coops join together to form a coop, the result is
federated cooperative

Mixed Associations:

Mixer of centralized and federated

Antitrust Laws: (20th Century)

▪ Farmers complained about market power of industrial companies
▪ Not illegal for companies to form agreement to regulate prices
▪ Congress responded to this situation by passing:
Sherman Act of 1890
▪ Made it illegal for companies to restrain trade in interstate commerce
or to form monopolies
Clayton Act of 1914
▪ To forbade companies from engaging in exclusive dealings and
prohibited mergers that would substantially lessen competition
▪ Congress intended to exempt agricultural organizations from both
Acts.
The Capper-Volstead Act of 1922
Permitted persons engaged in the production of agricultural products to
act together in associations ....for mutual benefit of members