UNDERSTANDING TYPES OF BUSINESSES

1. UNDERSTANDING TYPES OF BUSINESSES

2. What types of Businesses/Ag. Businesses do we have in Sleepy Eye? • What are the major differences between these businesses?

3. What are the major types of businesses? • Individually Owned (Sole Proprietorship) • Partnership • Corporation • Cooperative • LLC (Limited Liability Company)

4. Individually Owned (Sole Proprietorship) • A business enterprise where the individual owns, operates, manages, and receives the earnings of the business. (The oldest and most common method of doing business.) S 1.2

5. Partnership • A business enterprise owned and controlled by two or more people who have agreed to operate on a partnership basis. (Family partnerships are common in farming.) S 1.3

6. Corporation: Investor-Oriented • A state-chartered business that has the right to buy and sell goods and services. • The most common form of business organization, and given many legal rights as an entity separate from its owners. S 1.4

7. Cooperative • A user-owned and user controlled (State-chartered) business in which benefits are received in proportion to use. (Commonly used in agriculture to buy, sell, and service individual farm businesses.) S 1.5

8. Hybrid: Limited Liability Company • A business structure that combines characteristics of both a partnership and a corporation. It combines the single-tax treatment of a partnership with the limited personal liability of a corporation. As in a cooperative, LLC owners are called members. (Becoming increasingly common in agricultural business today.) S 1.6

9. Comparison of Methods of Doing Business Hybrid Limited Liability Features Individual-Owned Partnership Corporation Cooperative Who uses the Nonowner Generally GenerallyGenerally the Generally services? customers nonownernonowner members nonowner customers customerscustomers ---------------------------------------------------------------------------------------------------------------------------------- Who owns the individual partners stockholders members members business? ---------------------------------------------------------------------------------------------------------------------------------- Who votes? Not applicable The partners Common stockholders The members The members ---------------------------------------------------------------------------------------------------------------------------------- How is voting Not applicable Usually by By shares of One-member, Usually by conducted? Partners’ share common stock one-vote or members’ in capital proportional share in capital ----------------------------------------------------------------------------------------------------------------------------------- S 1.7

10. Free Enterprise Systems Two major differences: ownership and profit incentive Ownership Profit incentive Individually owned The individual Profit for the individual owner ----------------------------------------------------------------------------------------------------------------- Partnerships Two or more individuals Profit for the two or more partners ----------------------------------------------------------------------------------------------------------------- Investor-oriented The stockholders Profit (dividends) for stockholders ------------------------------------------------------------------------------------------------------------------ Cooperative corporations The members Profit for members (higher income) ------------------------------------------------------------------------------------------------------------------ Limited-liability corporation The member investors Profit for member investors ------------------------------------------------------------------------------------------------------------------ Public business The public Least cost to taxpayers S 1.8