Business Organizations

1
Business Organizations Structure

• Understanding Sole Proprietorships, Partnerships,
  Corporations and Cooperatives

2
Finding Balance Needs vs. Abilities

• Five principles for determining what
  organizational structure works
• The organization should
• be as simple as possible.
• provide access to sufficient resources such as
  land, labor, capital and management.
• encourage planning for as many years as possible.
  The helps reduce uncertainty.
• increase the efficiency of land, labor, capital
  and machinery resources.
• distribute benefits fairly on the basis of
  contributions to the business.

3
Factors in Choosing a Business Structure

• Ownership - Who owns the business organization?
• Resources - What is the ability to acquire
  resources such as land, labor and capital?
• Life - How long is the expected life of the
  organization?
• Liability - What is the liability of the owners?
• Participation Who participates in management
  decisions?
• Compensation - What is the compensation for
  management?
• Transfer - How easy is it to transfer business
  ownership?
• Taxes - What problems are there for tax planning
  (income and estate taxes)?
• Estate - What problems are there for estate
  planning?

4
Sole Proprietorship

• A business that is controlled by one manager. A
  sole proprietor owns, makes all the decisions,
  and does all of the planning for a business. This
  is the simplest form of business organization.

5
Partnership

• A business organization that is controlled by
  more than one person. Two or more people are
  associated for the purpose of conducting a
  business for profit.

6
Corporation

• A business organization that is run by a board
  of trustees at the discretion of the controlling
  stockholders. It has a separate legal identity
  and is taxed apart from its shareholders.

7
Sole Proprietorship

• Advantages
• Owner makes all managerial decisions that affect
  the business.
• Can expand or contract the size of the business,
  change enterprises, etc.

• Disadvantages
• Raising capital may be difficult
• Responsible for all management decisions
• Responsible for all debts
• Injury or illness could stop business

8
Partnership

• Advantages
• Pooling capital and know-how
• Labor and management can be divided
• Disadvantages
• Inequity of resources
• Might acquire new debt to expand operation

• Disadvantages, cont
• Objectives and opinions may vary
• An injury or death to one partner has a tragic
  effect on the partnership
• Each partner is liable for the others actions
• Unlimited liability may restrict credit use

9
Corporation

• Advantages
• Economic reasons
• Separation of ownership and management
• Ease of continuing business
• Easily transferred ownership
• Opportunity for tax savings
• Limited liability

• Disadvantages
• Complicated and costly to organize
• Continuing costs to maintain corporation
• May be difficulty in obtaining credit
• May be no freedom of action
• Corporation can be sued
• Minority stockholder problems
• Income tax laws are unique
• Termination is expensive.

10
Cooperatives

• Like a corporation, a cooperative is a legal
  entity distinct from its members
• Unlike a corporation, it is not organized for
  making a profit
• Two major premises
• Cooperatives are owned and controlled by the
  member-patrons
• The profits of the cooperatives are returned to
  the members based on patronage.

11
Kinds of Cooperatives

• Marketing
• Purchasing
• Service
• Processing
• Credit

12
Marketing Purchasing Cooperatives

• Members pooling their saleable products and
  purchase needs in an effort to obtain increased
  market power.
• Marketing Examples Storage of commodity, such as
  grain in elevators
• Purchasing Examples Operating inputs such as
  feed, fuel, fertilizer, etc.

13
Service Cooperatives

• Group efforts to improve the level of services
  received by members.
• Examples Electricity through rural electric
  cooperatives

14
Processing Cooperatives

• Organized to provide processing and packaging
  alternatives for members.
• Examples Assembly, processing, and packaging of
  Ag products

15
Credit Cooperatives

• Acquire funds and provide them to members on a
  cost basis.
• Examples Farm Credit, Production Credit
  Association, Federal Land Bank and Bank of
  Cooperatives