In the last article, it was noted that the laissez-faire economic environment provided by the government allows anyone to legally own and operate an agribusiness. Depending on one’s goals, skills, the operating environment, available capital, and the demand for products or services, one may select from various agribusiness organizations.
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Factors Affecting the Choice of an Agribusiness Organization
When deciding whether to organize as an individual proprietorship, partnership, or corporation, the following basic factors should be taken into consideration:
1. The Owner(s) Objectives and Philosophies: The goals and guiding ideologies of the owner(s) are important factors in determining the form of business organization. If a business owner desires total control over the business, a sole proprietorship is the best option. In instances where an individual prefers to be a co-owner without daily management involvement, a partnership may be considered. Another consideration is investing in a corporation.
2. The Size of the Agribusiness Being Started: The size of the agribusiness also affects the decision on the type of business organization. This is influenced by factors such as available capital and the amount of time the owner can dedicate to the business. A sole proprietorship may be suitable when there is little start-up capital or limited time to manage the business.
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3. Organizing Costs and Nature of Work: The cost of organizing the business and the associated work required are important considerations. A civil servant with limited time may choose an agribusiness option that requires less time and effort to organize.
4. Initial Capital Outlay Available: The initial capital available is a critical factor in determining the type of agribusiness organization. Regardless of ideology, time, or organizing ability, the ability to raise the necessary start-up capital is key in choosing the form of business.
5. The Amount of Capital Required for Operations: Beyond the initial capital outlay, the capital needed for ongoing operations is another important consideration. A business with high operational costs may not be suitable for someone with limited access to running funds.
For instance, a catfish production business that requires significant daily funding may be better suited as a corporation or partnership, whereas a business with lower daily expenses may be more appropriate for a sole proprietorship.
Other factors to consider in establishing an agribusiness organization include:
- Ease of Obtaining Additional Capital
- Tax Liabilities and Available Options
- Involvement of the Owner(s) in Management and Control
- Desired Method of Distributing Earnings and Risk
- Factors of Stability, Continuation, and Transfer of Ownership
- Ease of Function
- Size of the Target Market
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Frequently Asked Questions
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