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Types of Agribusinesses

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What are the 3 types of agribusinesses? Single (sole) Proprietorship Partnership Corporation

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What 3 types of corporations are there? Subchapter C Regular corporations Subchapter S Family Farms and Small Businesses Subchapter 7 Cooperatives

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Single (Sole) Proprietorship Ownership One person Start Up Costs Large amount of capital by owner Taxes Pay only once on the income from the company Example Tractor Repair Shop

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Single (Sole) Proprietorship Liability Unlimited (personal and business assets of owner) Responsibility for Decisions owner

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Single (Sole) Proprietorship Major Advantages Simple to start Be your own boss Few government regulations Choose own products & hours Pay taxes only once on income from company Receive all profits

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Single (Sole) Proprietorship Major Disadvantages Limited financial resources (capital needed to begin) Difficulty in management Overwhelming time commitment Limited growth Restriction of expansion potential Few fringe benefits

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Partnership Ownership General (all is shared) Start Up Costs Shared by partners Taxes Income taxed only once Example Ag. Machinery Dealership, Landscape Business

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Partnership Liability Shared in General Partnership but not unlimited. Responsibility for Decisions Shared between partners in a general partnership

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Partnership Major Advantages More financial resources Shared management & pooled knowledge Longer survival Special skills of partner Pay no taxes as a business Limited government regulations

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Partnership Major Disadvantages Division of profits Disagreement among partners Difficult to terminate Dissolved when partner dies or leaves the partnership Divided management authority

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Corporation Ownership Many people Start Up Costs From multiple sources Taxes Business is taxed (double taxation) Example Phillip Morris, Procter & Gamble, Kroger

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Corporation Liability Business only (not personal) Responsibility for Decisions Board of Directors

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Corporation Major Advantages More money for investment Perpetual life Ease of ownership change Draw talented employees Separation of ownership from management Legal entity

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Corporation Major Disadvantages Initial cost Paperwork Two tax returns (double taxation) Difficulty of termination Possible conflict with board Must follow state laws Owners have limited control

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Cooperative Ownership Owned & controlled by members Start Up Costs Buy shares Taxes Most are exempt (if 50% of business with members & profits returned in dividends) Example Land O Lakes, Sunkist

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Cooperative Liability Members risk only the amount they have invested Limited Responsibility for Decisions Each member gets one vote

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Cooperative Major Advantages Continues at death of shareholders Benefits go to members Share in direction of business Broad capital base Special tax advantage Legal entity

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Cooperative Major Disadvantages Legal formalities Limited control over business Expensive to form, maintain, & dissolve Few persons may gain excessive power Lack of member participation

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Franchise Ownership Buy Franchise name & products Start Up Costs Large Start Up & Franchise Costs Taxes Business is taxed Example McDonalds

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Franchise Liability Limited Responsibility for Decisions Management (from above)

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Franchise Major Advantages Nationally recognized name & reputation Help with finding a good location Management system with successful track record Successful methods for inventory and operations Financial advice & assistance Training for owners & staff

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Franchise Major Disadvantages Additional costs for marketing Monthly percentage of gross sales may go to parent company Competition from other franchises Regulations: management, dcor, selling, rules Coattail effects if other franchises fail nationwide