Agriculture Reference
In-Depth Information
Advantages of LLCs
Limited liability companies can include any number of members and ownership is distrib-
uted in accordance to the fair market value of the assets contributed. Also, net income gener-
ated by an LLC is passed on to its members in proportion to their shares of ownership. The
net income is then reported on the members' individual tax returns and taxes are paid by the
members and not by the LLC. An LLC is not required to fi le articles of incorporation as
would be true of a corporation. However, it is still a good idea to record contributions and
distributions of assets, revenue, and expenses, as well as agreements as to how the LLC will
operate. These can be included in an article of organization or an operating agreement.
Disadvantages of LLCs
Although the LLC has the limited liability advantage of a corporation, it does not have some
of the other advantages associated with the corporate form of organization. The LLC cannot
deduct the cost of employee benefi ts, such as insurance costs and the use of vehicles by
members. Also, it does not automatically continue in the event of the death of a member.
Instead, it may be perpetual, end on a set date, or upon an event such as a death of a member,
as outlined in the articles of organization or operating agreement.
Limited liability companies are an attractive organizational form for those individuals
who desire the simplicity and fl exibility provided by a partnership combined with the limited
liability offered by a corporation. Competent and experienced legal counsel should be sought
when considering this form of organization.
Strategic alliances
Many agribusinesses have formed
strategic alliances
and related cooperative relationships
with other fi rms. Strategic alliances are cooperative agreements between fi rms that go beyond
normal fi rm-to-fi rm dealings, but fall short of being a merger or full partnership and owner-
ship. Such alliances can include joint research efforts, technology-sharing agreements, joint
use of production facilities, agreements to market each other's products and the like.
Advantages of strategic alliances
There are several advantages to fi rms that form strategic alliances. First, fi rms can collabo-
rate on technology or the development of new products. The areas of computer hardware and
software and biotechnology are examples. Second, fi rms can improve supply chain effi -
ciency by working together. An alliance between a feed fi rm and a large integrated swine
business would provide an example. Third, fi rms can gain economies of scale in production
and/or marketing. A food fi rm might enter into a strategic alliance with a broker to distribute
its products into a new region of the country. Here, the focus is market expansion and the
scale economies this can bring. Fourth, fi rms, particularly small fi rms, can fi ll voids in their
technical and manufacturing expertise. A fi rm in the precision agriculture arena may have an
alliance with a major farm equipment manufacturer to collaborate on the development of a
new sensor-based system for harvesting melons. Fifth, fi rms can acquire or improve market
access. A fi rm selling animal health products and an e-business fi rm might enter into a stra-
tegic alliance. The e-business fi rm provides the information technology infrastructure, and
access to customers. The animal health fi rm provides products and an existing customer list.
