Agriculture Reference
In-Depth Information
Corporations report their sales, expenses, and profi ts on Form 1120 for ordinary corpora-
tions and Form 1120S for S-corporations. Taxes on regular corporations are calculated
from the tax rates included in the tax table used for corporations. The point here is that
tax issues do enter in an important way when selecting a form of business organization,
especially for smaller businesses. And, when making these choices small business owners
and entrepreneurs need competent legal and tax advice.
Summary
Agribusinesses represent nearly every conceivable kind of business organization. A great
many are owned and controlled by one person as a proprietorship, or by two or more people
as a partnership. These forms of business are the simplest forms and allow their owners
complete fl exibility, minimize red tape, and incur no corporate profi ts tax. But owners are
personally liable for any debts or lawsuits against their business. Also, the longevity of the
business is limited to the life of their owners. The LLC is a relatively new type of business
organization that closely resembles a partnership, but provides its members with limited
liability and the opportunity to infl uence the longevity of the business.
The corporation is an organization created for the purpose of carrying on business.
Because it is a legal entity, it can own property in its own right, sue or be sued, and carry on
business on its own behalf. Its owners are separate legal entities; thus their liability is limited
to the amount of their investment in the fi rm. Also, the life of a corporation does not depend
on how long its owners live. However, corporations must pay a special corporate profi ts tax
and must regularly report their activities to federal and state governmental units. The
S-corporation is a special type of corporation for small fi rms; they gain the benefi ts of a
corporation, but are exempt from corporate profi ts tax.
Cooperatives are a type of corporation that allows individuals and/or businesses to
work together or “cooperate” in marketing products or in buying inputs. They are an impor-
tant part of the agribusiness landscape and have a focus on the member-user. Limited
Liability Companies (LLCs) closely resemble a partnership, but provide their members with
limited liability and can include any number of members.
Strategic alliances are agreements to cooperate that stop short of formal legal combina-
tions. These alliances offer a number of benefi ts and are commonly used in food and
agribusiness markets. But, there are clearly some limitations and problems to be managed,
so fi rms must explore both the advantages and disadvantages before forming a strategic
alliance. What will work in one situation may not work in another situation.
Selecting the best form of business organization for a particular agribusiness is an infre-
quent business decision for both management and owners, but an extremely important one.
As an agribusiness fi rm grows, it must often consider moving toward becoming a regular
corporation. And the timing of that decision is highly important.
Discussion questions
1 .
What are some of the questions that business managers/owners should consider when
deciding on which form of business organization is best?
2. What are some of the characteristics of the sole proprietorship which make it an
attractive form of business?
3.
Explain the concept of unlimited liability as it relates to sole proprietorships.
4.
Discuss the differences between a general and limited partnership.
