1. Agribusiness Library LESSON L060008: COOPERATIVES AS UNIQUE CORPORATIONS

2. Objectives 1. Compare and contrast the distinguishing characteristics of corporations and cooperatives. 2 Compare and contrast the advantages and disadvantages of corporations and cooperatives.

3. Terms Cooperative Corporation Dividends Patronage payments S corporation Shareholders

4. Corporations and cooperatives A. A corporation is a business that is treated as a single entity, yet it is owned by several people. 1. The corporation is treated as a single entity; it can own property. 2. The corporation is owned by shareholders people who own stock in the company. 3. Capital is raised by selling shares of stock. 4. The corporation is separate from the operator.

5. 5. Different classes of stock may be sold. 6. The corporation is taxed as a legal entity. 7. The corporation pays dividends (a share of the profits) to the shareholders to distribute profits. 8. A sub-chapter S corporation is a special type of corporation. a. Stock is limited to one class. b. No more than 75 shareholders are allowed. c. It is taxed like a partnership.

6. B. A cooperative is a business organization where the owners are the customers. 1. Cooperatives emphasize member control. 2. Members with a mutual interest organize cooperatives. 3. Cooperatives are operated on a non-profit basis. 4. Patronage payments are the profits paid to members based on their use of the cooperative.

7. 5. Membership is voluntary. 6. Most cooperatives operate on a one-member, one-vote basis. 7. Its members elect the board of directors, which is composed of cooperative members. 8. Cooperative stock does not increase or decrease in value.

8. Advantages and disadvantages of corporations and cooperatives A. Agricultural corporations have numerous advantages. 1. Raising capital is easier in corporations than in partnerships and sole proprietorships. 2. There is a separation between ownership and management.

9. 3. The business continues smoothly, regardless of illness or death. 4. Ownership is easily transferred. 5. The liability of owners is limited to the stock purchased. 6. Corporations provide a good way to pool the resources of numerous individuals.

10. B. A cooperative offers numerous advantages to its members. 1. The cooperatives philosophy centers on member services. 2. Liability is limited to the amount of the investment. 3. Numerous people pool their resources to start the cooperative. 4. All members share control of the business; no one or two people can control the company. 5. A long life of the cooperative is likely.

11. C. A corporation may pose several disadvantages. 1. Organizing a corporation can be complicated and costly. 2. Corporations usually have additional bookkeeping and accounting costs. 3. Freedom of actions and changes to the business are limited. 4. It is expensive to end the business.

12. 5. There are considerable legal aspects to consider. 6. Double taxation may occur; the corporations income is taxed, as is the dividend paid to stockholders. 7. It may be less of a personal business.

13. D. Very few disadvantages of a cooperative are apparent. 1. Legal formalities can be numerous. 2. A large share of ownership is impossible. 3. Management of the business is limited to the general manager.

14. REVIEW What are the characteristics of a corporation and a cooperative? What are the advantages of a corporation and a cooperative? What are the disadvantages of a corporation and a cooperative?