CHAPTER 4 LESSON

1. AGBUS 02
(INTRODUCTION TO
AGRIBUSINESS)
IRVING T. FAJARITO,JR.
University of Southern Mindanao

2. ORGANIZING AN
AGRIBUSINESS

3. Chapter Objectives:
• Compare and contrast the types
of Agribusiness.
• Research on the different
agribusiness firms according to the
type of agribusiness.

4. Major Types of Business Organizations
 Single (sole) proprietorship
 Partnership
 Corporation
 Cooperatives

5. Proportion of Business
Corporation
17%
Partnerships
9%
Proprietorshi
ps
74%
Proportion of Business

6. Proportion of Total Business Revenue
4%
9%
87%
Partnerships Proprietorship Corporations

7. Single or Sole Proprietorship
 Major type of legal structure (agricultural industry)
 The simplest type of business and easiest to
organize
 They are the smallest businesses

8. Advantages of Sole Proprietorship
 Simple to start
 Management and control are solely in the owner’s hand
 Pride of ownership
 Retention of profit
 No special taxes
 Simple and flexible
 Independent decision making
 Change organization or operation quickly and easily
 Relatively low initial capital requirements
 Fewer government regulations
 One owner in control
 Offers opportunity for personal advancement

9. Disadvantages of Sole Proprietorship
 Unlimited liability
 Limited financial resources
 Difficulty in management
 Overwhelming time commitment
 Few fringe benefits
 Limited growth
 Limited life span
 Businesses and owners are a single entity
 Restriction of expansion potential
 Owner assumes all the risks
 Owner is often tied to the business and may be unable to spend time
away without closing it

10. Partnership
 A business association of two or more persons
 It able business persons to use their specialized skills

11. Types of Partnership
 General Partnership
 Two or more people manage a business together as owners
 Voting and profit sharing are generally guided by the amount each
member contributes
 Partners are completely liable for all the activities
 Limited Partnership
 Some partners are not completely liable for their partners
 One must invest but will not participate to the day to day operation
of the business
 Limited Liability Partnership
 Gives the benefits of limited liability, partners can protect their
existing personal assets

12. Advantages of Partnership
 More financial resources
 Shared management and pooled knowledge
 Longer survival
 Special skills of the partner
 Legal aspects of forming a partnership are relatively simple
 Pay no taxes as a business
 May be ended anytime partners agree
 Limited government regulations
 Greater management base than with one owner
 Partners, often feel pride owning and operating their own
company

13. Disadvantages of Partnership
 Unlimited liability
 Division of profit
 Disagreements among partners
 Difficult to terminate
 Dissolved when a partner dies or leaves the partnership
 Size is limited by resources
 Difficult to manage if there are too many partners
 Lack of continuity
 Divided management authority

14. Corporations
 An organization owned by many people but
created by law as thought it was itself a person
 Legal entity, separate from the people owning it
 Stockholders are the owners of corporation who pay
a set of price for their shares

15. Types of Corporation
 Subchapter C (Regular) Corporation
 Owners of regular corporation sell stock to investors to
raise capital
 Dividend or the income of the investment are given to
the investors
 Subchapter S (Small Business or Family) Corporation
 Unique government creation that has the characteristics
of a corporation but taxed like a sole proprietorship
 Limited liability
 Limited in US

16. Advantages of Corporation
 More money for investments
 Limited liability
 The right size to do needed things
 Perpetual life
 Ease of ownership change
 Ease of attracting talented employees’ separation of ownership
from management
 Corporation is a legal entity
 Combined resources of shareholders
 Stable level of production
 Owners do not have ti devote time to the company to make money

17. Disadvantages of Corporation
 Initial cost
 Paperwork
 Complicated to establish
 Complex organization
 Two tax returns
 Double taxation
 Size causes slow response time to market changes
 Difficulty of termination
 Possible conflict with the BOD
 Must follow government rules
 Owners have limited control of the business

18. Cooperatives
 Corporation formed to provide goods and services
to members either at cost or as near to cost as
possible
 Not formed to make profits but to serve the people
needed

19. Kinds of Cooperatives
 Supply cooperatives
 Buying supply for resale to the members
 Marketing cooperatives
 Assist production specialist in marketing their
agricultural products by finding buyers who will pay
the highest price
 Service cooperatives
 Provide their members with a specific service, rather
than a product

20. Advantages of Cooperatives
 Owners have limited liability
 Continues at death of shareholders
 Benefits go to members
 Members-shareholders share in direction of business
 Broad capital base
 Special tax advantages
 Legal entity
 Special antitrust exemptions

21. Disadvantages of Cooperatives
 More legal formalities than sole proprietorship or
partnership
 Members-shareholders have limited control over business
 Expensive to form, maintain, and dissolve
 Restrictive charter requirements
 Lack of member understanding about cooperative
structure
 Lack of member participation
 Business community resentment against cooperatives
 Divided management authority

22. Franchises
 Contract in which a franchisor sells to another
business the right to use its name and sell its
products
 The franchisee (the one who purchase the franchise)
buys a system of operation that has proven
successful

23. Characteristics of Franchises
 The parent company (franchisor) prepackage all
the business planning
 The franchisee agrees to run the business in a way it
is being ran by the parent company

24. Advantages of Franchises
 Nationally recognized name and reputation
 Help with finding a good location
 Management system with successful track record
 Successful methods for inventory and operations
 Financial advice and assistance
 Training for owners and staff
 National advertising and promotional assistance
 Periodic management counselling
 Proven record of success
 Personal ownership

25. Disadvantages of Franchises
 Large startup and franchise cost
 Additional cost may be charged for marketing
 A monthly percent of gross sales may go to the parent
company
 Possible competition from other, nearby franchises
 Little to no freedom to select decor or other design features
 Management regulations
 Many rules and regulations to follow
 Coattail effect if other franchises fail nationwide
 Restrictions on selling