fm6e-chapter14 - Farm Management Chapter 14 Forms of...

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Farm Management Chapter 14 Forms of Business Organization
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farm management chapter 14 2 Chapter Outline Life Cycle Sole Proprietorship Joint Ventures Operating Agreements Partnerships Corporations Limited Liability Companies Cooperatives Transferring the farm business
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farm management chapter 14 3 Chapter Objectives 1. Describe the primary forms of business organization 2. Discuss the organization and characteristics of each form 3. Compare their advantages and disadvantages 4. Show the effect on income taxes 5. Summarize the factors to consider when selecting a form of organization 6. Compare the different forms for estate planning
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farm management chapter 14 4 Life Cycle Each farm business has a life cycle with four stages: 1. entry 2. growth 3. consolidation 4. exit
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farm management chapter 14 5 Figure 14-1 Illustration of the life cycle of a farm business
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farm management chapter 14 6 Sole Proprietorship The owner owns and manages the business, assumes all risks, receives all profit No special legal permission required Advantages: simplicity and freedom Disadvantages: personal liability, size may be limited, lack of continuity Taxes on profit paid at tax rate of owner (individual or joint for couple)
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farm management chapter 14 7 Joint Venture Operating agreements Partnerships Corporations Limited liability companies Cooperatives
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farm management chapter 14 8 Operating Agreements Two or more sole proprietors carry on some activities jointly while maintaining individual ownership of resources Operating expenses usually shared among the parties in some fixed proportion Income is shared in same proportion as fixed assets and expenses are contributed
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Table 14-1 Example Budget for a Cow/Calf Joint Enterprise (One Head) Item Value Party A Party B Operating expenses Hay 90.00 90.00 Supplements 16.13 16.13 Salt and minerals 3.20 3.20 Pasture maintenance 70.00 35.00 35.00 Veterinary & health expense 7.00 7.00 Livestock facilities 8.00 8.00 Machinery & equipment 16.00 16.00 Breeding expenses 5.00 5.00 Fuel and lube 11.00 11.00 Labor 40.00 40.00 Miscellaneous 10.00 10.00 Interest on variable costs 13.82 2.40 11.42 Ownership expenses Interest on breeding herd 68.00 68.00 Livestock facilities Depreciation & interest 10.00 10.00 Machinery & equipment Depreciation & interest 37.50 37.50 Land charge 60.00 60.00 Total expenses 465.65 225.90 239.75 Percent contribution 100% 49% 51%
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farm management chapter 14 10 Figure 14-2 Distribution of income from a joint venture
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farm management chapter 14 11 Partnerships An association of two or more persons who share ownership of a business General partners contribute to the management of the business and are exposed to unlimited liability Limited partners do not participate in the management and are liable only for what they have contributed to the business
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fm6e-chapter14 - Farm Management Chapter 14 Forms of...

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