Ag Management Chapter 10 Business Organizations. Objectives State the principles of business organizations Compare characteristics of the three primary.
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Slide 1
Ag Management Chapter 10 Business Organizations
Slide 2
Objectives State the principles of business organizations
Compare characteristics of the three primary farm businesses
Discuss how to raise capital for each of the business organizations
Compare other types of business organizations and their unique
characteristics State how cooperatives function as a means of doing
business
Slide 3
Principles of a Good Organization Simple Organization
ResourcesPlanning EfficiencyBenefit Distribution
Slide 4
Factors to Consider When Setting up an Organization Ownership
ResourcesLife Liability Participation Compensation
TransferTaxesEstate
Slide 5
Agricultural Business Organizations 3 primary Sole
Proprietorship 85.7% Partnership 11.2% Corporation 2.7%
Slide 6
Sole Proprietorship Managed by an individual 85.7% of farms
with sales over $25,000 per year are operated this way
Slide 7
Sole Proprietorship AdvantagesDisadvantages Easily formed Few
Government regulations and restrictions You are the boss Easy to
expand/contract the business Able to take advantage of sudden
opportunities Receive all the benefit No problems with disagreement
Raising capital may be difficult Responsible for purchasing,
producing and marketing Must like to make decisions Responsible for
all debts Enterprises may be stopped because of the lack of
stability and permanence.
Slide 8
Raising Capital Under a Sole Proprietorship Lease rather than
own assets Do your own work Consign several farm operating notes
Borrow equipment Spouse works in town to earn part of the family
living expense
Slide 9
Partnerships An association of two or more people who carry on
a business together as co-owners with the goal of making a
profit.
Slide 10
The Facts of Partnerships Death dissolves the partnership
unless special arrangements are made Partnerships, do not pay
income taxes, instead each partner must report their share of
partnership income on their own income tax return Each member is
subject to liability for all debts Real and personal property may
be owned in the name of the partnership or it may be owned in the
name of 1 or more partners Profits and losses should be divided in
accordance with a specific agreement
Slide 11
Partnerships AdvantagesDisadvantages Capital and Know-How can
be pooled Labor and Management can be divided Each person can
specialize yet remain in a position to help the other during peak
labor periods Unlimited liability of each partner may limit credit
Each partner is liable for wrong doings in connection with the
business Objectives and opinions of partners may differ If either
partner becomes ill or dies it may have a tragic effect on the
partnership arrangement by causing an untimely legal dissolution of
the organization
Slide 12
Limited Partnership Holds one or more of the partners liable
for the debts and obligations of the business Limited partners can
not participate in the management of the business
Slide 13
Farm Corporations Estate Never Dies Continuity of Business Tax
Deduction Limited Personal Liability More Capital
Slide 14
C vs. S Corporations C corporation is a regular corporation S
corporation retain all the features of a C corporation however it
is not taxed as a separate entity. All tax items pass through the
corporation to the stockholders much like partners in a
partnership.
Slide 15
Other Types of Organizations Limited Liability Company (LLC)
Trust Cooperatives
Slide 16
LLC A legal form of business organization with daily activities
like a partnership but with limited liability similar to a
corporation Theoretically members have no liability for the
obligations of the LLC.
Slide 17
How LLCs are Managed Managed just like a partnership
Slide 18
Ways LLCs are Dissolved A member dies A member undergoes
bankruptcy Members formally enact a resolution dissolving the
LLC
Slide 19
Trust The administration of assets on behalf of another: an
institution or one or more individuals, living or dead.
Testamentary trust are created by being written into a will.
Slide 20
Uses of Trusts Providing personal and financial safeguards for
family and other beneficiaries; Postponing or avoiding unnecessary
taxes; Establishing a means of controlling or administering
property; and Meeting other social or commercial goals.
Slide 21
Establishing A Trust The Grantor signs a document called a
declaration of trust, which is similar to a Last Will and
Testament. In the document, the Grantor typically names himself or
herself as trustee, and transfers assets to that trust (i.e., the
transfer is actually made from the Grantor to himself, as Trustee).
Because the Grantor is named as the trustee, he or she maintains
full control over the assets. After the Grantor (or the Grantor and
Grantor's spouse in the case of a joint trust) dies, the person
identified as successor trustee in the trust document generally
assumes that role. The successor trustee transfers ownership of the
assets in the trust to the beneficiaries named in the trust
document. In many cases, the whole process takes only a few weeks,
and there are no lawyer or court fees to pay. When all of the
property has been transferred to the beneficiaries, the living
trust terminates.
Slide 22
Revocable Trust A revocable trust is one in which assets are
owned by the trustee, but the settlor reserves a power of
revocation. Because the settlor can revoke the trust and therefore
maintains control over the property, there are normally no tax
advantages involved in this arrangement.
Slide 23
Irrevocable Trust An irrevocable trust is often used for
charitable purposes by organizations or millionaires as well as for
the management of inheritances. As the benefactor relinquishes
control of the assets upon creating the trust, any charitable
activities incur tax benefits even while the assets are invested to
provide a financial endowment for later use by the charitable
foundation.
Slide 24
Maximum Time Length for Trust No specified time during which a
trust must remain in effect. Each situation must be evaluated
separately Charitable trusts, on the other hand, may continue
indefinitely.
Slide 25
Cooperatives A legal entity distinct from its members It is not
organized to make a profit Instead it is organized on 2 major
premises Cooperatives are owned and controlled by member-patrons
The profits of the cooperative are returns to the members based on
patronage
Slide 26
Kinds of Cooperatives Classified by functions or activities
Marketing Cooperatives Purchasing Cooperatives Service Cooperatives
Processing Cooperatives Credit Cooperatives
Slide 27
Marketing and Purchasing Cooperatives Farmers pooling their
saleable products and purchase needs in an effort to obtain
increased market power.
Slide 28
Service Cooperatives Group efforts to improve the level of
services received by farmers and ranchers
Slide 29
Credit Cooperatives Acquire funds and provide them to members
on a cost basis
Slide 30
Processing Cooperatives Organized to provide processing and
packaging alternatives for the members
Slide 31
Purpose of Cooperatives Primary purpose is collective action by
farmers to improve their economic well-being Cooperatives
accomplish this by Securing higher market prices Securing more
favorable inputs Providing improved or new services Providing
farmers with credit structured to farm and ranch needs Allowing
farmers and ranchers to become involved in assembly and
processing
Slide 32
Characteristics of Cooperatives Member Owned Member Control Non
Profit For Member Needs Shaved Risk Elected Board
Slide 33
Ways Cooperatives are Financed Stock sales Members can use
cooperative funds to finance operations and invest in long-term
assets Retention of a portion of the profits in the cooperative.
This is paid to members as patronage dividends. These are called
retained earnings. Successful cooperatives will be able to repay
members the retained earnings over a period of years.
Slide 34
Wrapping Up Cooperatives Important competitive force in
agribusiness Provide good and services to farmers and ranchers at
lower cost than other sources Helped make agribusiness profitable
by reducing operating costs Sometimes able to get higher prices for
agricultural products Helps make agriculture more profitable by
increasing income