UNDERSTANDING COOPERATIVES

UNIT 1 - The American BusinessEnterprise System

Business Form Characteristics

Slides for Unit 1

Our Business System

Principles:

• Freedom of choice

• Private property rights

• Profit motives of owners

• Owner control

S 1.1

Individually Owned (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

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

Corporation: Investor-Oriented

• A (State-chartered) business that has the right to buy and sell goods and services.

(Operated as a profit-making enterprise for its investors.)

S 1.4

Corporation: 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

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

Comparison of Methods of Doing Business

Features Individual-Owned Partnership Investor-Oriented CooperativeCorporate Form Hybrid

Limited Liability

Who uses the Nonowner Generally Generally Generally the Generallyservices? customers nonowner nonowner members nonowner customers customers customers----------------------------------------------------------------------------------------------------------------------------------

Who owns the The individual The partners The stockholders The members The members business?----------------------------------------------------------------------------------------------------------------------------------Who votes? Not applicable The partners Common stockholders The members The member----------------------------------------------------------------------------------------------------------------------------------How is voting Not applicable Usually by By shares of One-member, Usually byconducted? Partners’ share common stock one-vote or members’ in capital proportional share in capital-----------------------------------------------------------------------------------------------------------------------------------

S 1.7

Free Enterprise Systems

Ownership Profit incentive

S 1.8

Two major differences: ownership and 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