Types of Businesses Topic # 4014 Nick Thompson

4 Types of Business Structures - Sole Proprietorship - Partnership - Cooperatives - Corporations

Sole Proprietorship Controlled and owned and operated by individual Controlled and owned and operated by individual Can buy or start business Can buy or start business Profits are used as owner sees fit Profits are used as owner sees fit Business built by personal capital Business built by personal capital

Sole Proprietorship Advantages Low Start up cost Low Start up cost Tax advantages to small owner Tax advantages to small owner In direct control of business In direct control of business Minimal working capital requirements Minimal working capital requirements Little government Regulation Little government Regulation Profits go to owner Profits go to owner

Sole Proprietorship Disadvantages Difficult to raise capital without incurring large debt Difficult to raise capital without incurring large debt Owner is 100% financially liable Owner is 100% financially liable

Partnership Controlled and owned and operated by 2 or more individuals Controlled and owned and operated by 2 or more individuals Can buy or start business Can buy or start business Profits are used as agreed upon by partners Profits are used as agreed upon by partners Business built by owners capital Business built by owners capital

Partnership Advantages Partnerships are easily formed Partnerships are easily formed Start up costs are low Start up costs are low Limited government regulation Limited government regulation More management = better decisions More management = better decisions Some tax advantages Some tax advantages More than one source of capital More than one source of capital

Partnership Disadvantages Partners are 100% financially liable Partners are 100% financially liable Difficult to find partners that easily cooperate Difficult to find partners that easily cooperate Limited ability to raise capital Limited ability to raise capital Disagreements between partners may cause confusion with management decisions, employees, etc. Disagreements between partners may cause confusion with management decisions, employees, etc.

Corporations Owned by the Stockholders Owned by the Stockholders Operated by the board of Directors Operated by the board of Directors Profits are used as dividends to stockholders or as reserves for operations Profits are used as dividends to stockholders or as reserves for operations Business built by stockholder investment Business built by stockholder investment

Corporation Advantages Specialized management =Greater efficiency Specialized management =Greater efficiency Easy to raise capital Easy to raise capital Specific privileges, rights and regulations Specific privileges, rights and regulations Ownership can be transferred Ownership can be transferred Tax advantages Tax advantages Limited financial liability Limited financial liability

Corporation Disadvantages Very expensive to organize Very expensive to organize Closely regulated by government Closely regulated by government Less personal management = lower employee loyalty & output Less personal management = lower employee loyalty & output Can be Double Taxed Can be Double Taxed

Cooperative Organized by associates who become owner/members Organized by associates who become owner/members State Charter required to start cooperative State Charter required to start cooperative Profits are limited by state law (around 8%) Profits are limited by state law (around 8%) Members do business through cooperative (group advantage) Members do business through cooperative (group advantage)

Cooperative Differences Buys and sells primarily to it’s own members Buys and sells primarily to it’s own members Co-ops sometimes exempt from antitrust regulations Co-ops sometimes exempt from antitrust regulations Highly regulated buy government Highly regulated buy government Often resented buy other members of the business community Often resented buy other members of the business community

Recap 4 Business types- Cooperative Corporations Partnership Sole Proprietorship 4 Business types- Cooperative Corporations Partnership Sole Proprietorship Each serves specific purpose and has advantages and disadvantages Each serves specific purpose and has advantages and disadvantages All are used for specific purpose, all work well for different types of enterprises All are used for specific purpose, all work well for different types of enterprises

Resources MSU Agriscience Website MSU Agriscience Website Calpoly Agriscience Website Calpoly Agriscience Website