Agriculture Reference
In-Depth Information
important to understand these different business forms for a number of reasons. This chapter
will discuss the important characteristics of each of the fi ve forms of business organization
as well as strategic alliances, and outline the factors that affect their choice for a specifi c
agribusiness situation.
Factors infl uencing choice of business form
Each form of business organization has its own individual characteristics. Owners and man-
agers must choose the most appropriate form for their unique circumstances. An agribusi-
ness may want to change its legal form of organization as it grows or as economic and other
conditions change. When deciding which form of organization is best, an owner or owners
must answer several important questions:
1. What type of business is it, where will it be conducted, and what are the owners'
objectives and philosophies for the agribusiness?
2. How much capital is available for the fi rm's start-up?
3. How much capital is needed to support the agribusiness?
4. How easy is it to secure additional capital for the agribusiness?
5. What tax liabilities will be incurred and what tax options are available?
6. How much personal involvement in the management and control of the agribusiness do
the owners desire?
7. How important are the factors of stability, continuity, and transfer of ownership to the
fi rm's owners?
8. How desirable is it to keep the affairs of the agribusiness private, and carefully guard
any public disclosure?
9. How much risk and liability are the owners willing to assume?
10. How much will this form of organization cost and how easy is this form of agribusiness
to organize?
A careful evaluation of these factors will allow the selection of the most appropriate form of
business organization in each case.
The sole proprietorship
The oldest and simplest form of business organization is the
sole
or
individual proprietor-
ship
, an organization owned and controlled by one person or family. In the United States, it
is the most popular business organization. In 2006, there were 22 million nonfarm sole pro-
prietorships, which together comprised almost 72 percent of the business entities in the
United States that year (
www.census.gov/compendia/statab/2010/tables/10s0728.pdf
). In
that same year, it was estimated that this relatively large number of small businesses
accounted for only about 4 percent of total U.S. business receipts.
Proprietorships tend to be small businesses, although there are notable exceptions. The
fortune amassed by the eccentric billionaire Howard Hughes (1905-76), for example, was
largely accumulated from a sole proprietorship. When a business reaches a certain size, other
forms of business organizations usually become more attractive for a variety of reasons.
Some very large corporations are essentially owned and controlled by a single individual,
but the advantages of the corporate business form at some point resulted in the fi rm changing
from a proprietorship to the corporate form of organization.
