It is exciting and diverse. It is changing quickly. It relies on the weather, uses an incredible

3. AGROBUSINESS MANAGEMENT IN A NEW WAY

3.1.The organization of an agribusiness

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 firm’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 firm’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 oldest and simplest form of business organization is the sole or individual proprietor- ship, an organization owned and controlled by one person or family, It is the most popular business organization. In that same year, it was estimated that this
relatively large number of small businesses accounted for only about 4 percent of total UZB business receipts.
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 firm changing from a proprietorship to the corporate form of organization.
Advantages of proprietorships
The legal requirements necessary to organize as a sole proprietorship are minimal. About all that is required is an individual’s desire to start a business and the purchase of a license, if one is required for that particular kind of business. If the owner wishes to do business under an assumed name, that is, if the business is to be conducted under a name other than that of the owner, most states require that the assumed name be registered.
The proprietorship gives the individual owner complete control over the business, subject only to government regulations that are applicable to all businesses of that particular type. No one else shares in this control unless the owner specifically delegates a portion of the control to someone else. All profits and losses, all liability to creditors and liability from other business activities are vested in the proprietor. The costs of organizing and dissolution are typically low.
Whenever capital is needed it is supplied by the owner from personal funds or is borrowed against either the owner’s business or personal assets. Personal and business assets are not strictly separated as they are in some other business forms; therefore, if the owner as an individual is financially sound, lenders will be more likely to extend funds. A proprietor can sell their business to whomever they wish, whenever they wish, and for whatever price they are willing to accept. They can take on as much risk or liability as they wish, but it is important to note that they are personally liable for whatever risk they assume.
A sole proprietor pays no income tax as a separate business entity. All income that the business earns is taxed as personal income even though the IRS requires the filing of a separate form to show business income and expenses. Since a proprietor cannot pay him/herself a salary, the amount left over at the end of the year is treated as personal income or salary. The proprietor may choose to keep this money in the business or use part or all of it for personal expenditures.
The proprietorship can conduct business in any of the 50 states without special permis- sion other than whatever licenses are required for that particular kind of business. This is a right guaranteed by the United States Constitution, which provides that “citizens of each state shall be entitled to the privileges and immunities of citizens of several states.” The person who desires the lowest cost (to organize), simplest, most self-directed, most private, and most flexible form of agribusiness will choose the sole proprietorship.
Perhaps the most important disadvantage of the proprietorship is the owner’s personal liabil- ity for all debts and liabilities of the business, which can extend even to the owner’s personal estate. In a proprietorship, there is no separation between business assets and personal assets. Consequently, this form of business organization is characterized by what is called unlimited liability. The owner’s liability does not stop with business assets; it also extends to personal assets. Such assets can be, and often are, used to satisfy financial obligations. Thus, if Fragrant Floral starts losing money, and the bank demands payment on a loan made to the business, Jessica Alverson is personally liable for the payment of the loan. If the busi- ness cannot cover the loan, the bank can typically demand payment from Jessica’s personal savings and investments, or other assets she owns.
Another important disadvantage relates to the generally limited amount of capital funds that one person can contribute. Lenders are also somewhat reluctant to lend to an individual owner unless the owner’s personal equity can guarantee the loan. Proprietorships often find that they are starved for capital, and this serious disadvantage may do more than stunt growth. Thousands of bankruptcies each year can be traced to a serious shortage of capital when a business is started.
While freedom from business taxes is generally an advantage, it may also be a disadvan- tage. Since business profit in a proprietorship is considered personal income to the owner, a high business profit may throw the owner into a higher tax bracket than would the corporate form of business organization. This is especially disadvantageous if extensive funds are needed for the growth and expansion of the business. Corporate tax rates along with other tax regulations may provide an advantage in such cases.
The concentration of control and profits in one individual may also be a disadvantage. Many highly trained and motivated employees want to participate financially in the business where they work (i.e., they may have a desire to own a portion of the business). They may also be uneasy about the fact that their futures depend on the health and viability of a single person. Thus, proprietorships may experience some difficulty in hiring and keeping good people. Without good, highly motivated employees, the owner may find as the business grows—that he or she is “wearing too many hats” with the end result that the business suffers.
Finally, the proprietorship lacks stability and continuity because it depends so heavily on one person. The death or disability of that one person, in effect, ends the business. Proprietorships may be difficult to sell or to pass on to heirs. This is particularly true if they become sizeable businesses. Individual shares or parts of the business cannot be parceled out to several individual owners or to heirs in the same way that shares of a corporation can.
Let’s revisit Fragrant Floral and Perfect Gifts. Jessica and Erika have been in business together about a year. And, after attending a management course at a local community college, they are introduced to the corporate form of business organization. They decide they like the idea of limiting their personal liability through the use of the corporation. They also like some of the ways that the corporate form of organization eases transitions. What if Erika wanted to move away, but did not want to give up her investment in the business? In addition, they have been talking about expanding the business by establishing another location—so access to investment capital becomes more important. A corporation would help make this possible. After reviewing the advantages and disadvantages, they believe they should become an S-corporation, to help better manage their personal tax situation.