Thursday, July 18, 2024
General Agriculture

Types of Agricultural Business Organization

Klonsky (2011) observed that the development of agricultural business from a laissez faire operation calls for its organization for efficient operation in a growing economy like ours. An agribusiness venture could be privately or publicly owned.

Private ownership exists when individuals exercise the right and responsibilities of ownership. Public ownership also exists when government (Federal, State or Local) creates exercises and enjoys the ownership rights.

Instance also exists where both the government and private individuals jointly own agribusiness enterprise. In deciding whether to organize an individual proprietorship, a partnership, or a corporation, the following basic factors should be taken into consideration:

– The owner(s) objectives and philosophies of the agribusiness.

– The size of the agribusiness being started.

– The organizing cost and the nature of work associated with the task of organizing it.

– The amount of capital required.

– The initial capital outlay available for the business.

– The ease of obtaining additional capital.

– The tax liabilities and options available

– The involvement of the owner(s) in the management and control of the agribusiness.

– The desired method of distributing earnings and risk

– The factors of stability or continuation and transfer of ownership available.

It is therefore the careful evaluation of these factors decisions that can help in the selection of most appropriate form of agribusiness organization namely: The sole proprietorship, partnership, agribusiness limited company, agribusiness cooperative and state farming.

1. The Sole Proprietorship

This is considered the oldest simplest and the most popular form of agribusiness organization. In most developed nations of the world, the agribusiness sole proprietorship is a very popular form of organization but the organization structure of the business tends to be affected seriously by inadequate finance.

Agricultural sole proprietorship has only one owner who takes all the risks, enjoys all the profit and makes all the managerial decisions. He therefore takes the responsibilities (risks) of all that results from these decisions.

It should be noted that this form of agribusiness does not need any formal application to be approved by the government before starting operation. Because they are not registered legally, they do not pay taxes except they are recognize by tax collectors.

Advantages

The owner exerts complete control over plans, programmes, capital, policies and other management decisions.

Legal formalities are not necessary and license fees are low. Termination or modification of the agribusiness is easy.

Under good financial standing of the proprietor, leaders would be most wiling to extend lending (funds) to the proprietorship.

Disadvantages

Possession of limited amount of capital for the funding process thereby limited the size of the agribusiness and thus reducing the production scale.

Risk is great sine the owner is personally and unlimitedly liable for all debts to creditors. Lender are always reluctant to lend money to private owners of agribusiness except where collaterals are provided as security for such loans.

Sole proprietorship lacks stability and continuity as it depends solely on person. The dead of that person in effect ends the business.

The burden of overall direction and coordination may be beyond the proprietor’s capacity when the business becomes large.

Types of Agricultural Business Organization

2. Partnership in Agribusiness

This is a business that is owned by an association of two or more people (usually not exceeding) who share in both risk and profit.

Partnership Act of 1990 defines partnership as the relationship that subsists between two or more people carrying out lawful business with a view to making profit.

Due to limited and insufficient funds available to the sole proprietor, it is often necessary for individual to full their resources (capital, labour, management, expertise, etc.) together in order to reap income of scale.

Partnership agreement can either be written or oral or on contract between parties involved. Nevertheless, it is strongly advisable that partnership agreement be written to avoid any misunderstanding among member and for ease or reference.

This agreement may set forth respective rights and obligations, determine the share of ownership for each partner and state how profits or losses will be appropriated.

Advantages of Partnership

1. Partnership brings together more resources (human, capital etc.) than the sole proprietorship.

2. It benefits from the enormous talented individuals involved in the business.

3. They are very much motivated in nature than proprietorship in terms of good welfare scheme for the workers.

4. Credit is more easily available, because all partners are personally liable for the debts of the partnership.

5. Partnership he partnership only pay tax on the allocated shares and no tax is paid in the business as a whole.

Disadvantages of Partnership

  1. In a general partnership each partner is personally and unlimitedly liable for all the debts of the agribusiness firm.
  2. A limited partnership suffers the lack of both ready funds for business and talented people as compared tot eh corporation.
  3. There is lack of stability and continuity of the partnership in a limited partnership.
  4. The size of the agribusiness firm is limited to the patters resources, since the scale of securities in the markets is not possible as it would be with a corporate ownership. Limited Company (Company Farming)

Most farmers are either operating as soil proprietorships or in partnership. Company status has not been used to a large extent in farming as in other business due to a natural reluctance of farmers and other agribusiness operators to load themselves with extra administrative burden. However, company farming is growing in popularity for large farms.

Here a few or many individuals may group themselves to carry out farming with the same rights and duties as an individual person.

The form of organization that embodies these attributes is the corporation which is limited by shares that individuals contribute and hence the name limited liability company.

A limited company (corporation) is therefore a “body authorized by law as a private person and legally endowed with various rights and duties”, among them to receiving own and transfer property to make contracts, and to sue and be sued. (Webster Dictionary, 1970).

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 A limited company can raise large amount of capital outlay for the faming business bys selling stocks or shares of ownership to public livestock.

The accumulation of these capital resources provides opportunities for the shareholders (owners of the company) to make profit (dividends) if it succeeds.

Advantages of Corporate Farming

  1. The main advantage of a corporate farm is its limited liability. This feature guarantees that shareholders are liable for damages only on the extent of their shareholders.
  2. Limited liability company have unlimited lifespan. This allows farm firms to make long range plans and thus can recruit, trait and motivate the best talent.
  3. An investment in a publicly held company is liquid that is, can easily be converted to cash, be being bought and sold on stock exchange. This liquidity ensures them to raise far larger sums than other form of agribusiness organization.

Disadvantages

The most serious disadvantages lies on the tangle permit regulation requiring limited company to publicly disclosed its finances and certain corporate operations.

Disclosing the company’s profits margin increase its vulnerability to an unpleasant competition.

3. Agribusiness Cooperatives

Cooperatives associations are non-profit organizations formed to provide goods and services to members at cost (Shubin, 1957). The small-scale farmers (agribusiness men)  like their counter parts in other developing countries of the world, face a number of problems.

These range from the use of crude and outdated tools and techniques of production top lack of  access to markets. Others include problems of fragmented and small size of holdings, low income, low yielding crop varieties and livestock, breeds, lack of production and consumption credit and fund mobilization.

Cooperation developed as a useful instrument for promoting the interest of those who voluntarily come together to solve most of the problems outlined above and enhance their own individual welfare.

The society’s educational programmes be used as means of extending and introducing improved technologies to member. Cooperatives can also serve as important channels for marketing the produce of member and for such input seeds, fertilizers and farming equipment at reduced cost (Osuntogan, 1980).

Farmers may receive lower credit cost through their cooperative societies as well as drive other benefit of large scale operation in production, marketing, credit and input purchases.

Depending on the type of agribusiness venture being carried out, co-operatives can be classified as “Producer”, “Consumer” or “Credit Cooperation”.

Agricultural credit cooperatives are associations that are made up of thrift and credit societies. They borrow funds from other financial institutions for on-lending to member and also provide saving facilities. Farmer multipurpose cooperatives also exist.

As the name implies they offer two or more services to those involved in it. Most multipurpose cooperatives farmers to obtain improved inputs and serve also as village banks while others combine production with marketing and processing of agricultural produce.

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Do you have any question, suggestion or other contributions? kindly use the comment box provided below for all your contributions. You are also encouraged to please kindly share this article with others you feel can benefit from this information if found useful enough as we may not be able to reach everyone at the same time. Thank you so much for sharing!

Agric4Profits

Benadine Nonye is an agricultural consultant and a writer with several years of professional experience in the agriculture industry. - National Diploma in Agricultural Technology - Bachelor's Degree in Agricultural Science - Master's Degree in Science Education - PhD Student in Agricultural Economics and Environmental Policy... Visit My Websites On: 1. Agric4Profits.com - Your Comprehensive Practical Agricultural Knowledge and Farmer’s Guide Website! 2. WealthinWastes.com - For Effective Environmental Management through Proper Waste Management and Recycling Practices! Join Me On: Twitter: @benadinenonye - Instagram: benadinenonye - LinkedIn: benadinenonye - YouTube: Agric4Profits TV and WealthInWastes TV - Pinterest: BenadineNonye4u - Facebook: BenadineNonye

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