Farm Management. Chapter 14 Forms of Business Organization. Life Cycle. Each farm business has a life cycle with four stages: entry growth consolidation exit. Figure 14-1 Illustration of the life cycle of a farm business. Sole Proprietorship.
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Forms of Business Organization
A partnership does not directly pay taxes.
It files an information income tax return
reporting income and expenses. Each
partner’s share of income from the
partnership is reported on his or her
own tax return.
A C corporation pays taxes on its earnings
before dividends are distributed. The
shareholders then pay taxes on the dividends,
at their individual rates. (“Double taxation”)
If shareholders are employees, their salary and
benefits (e.g. health insurance) can be
charged as expenses to the corporation, but
these expenses must be reasonable.
An S corporation is taxed like a partnership.
The corporation files an information tax
return, but shareholders report their share
of income on their own tax returns and
are taxed at their own rates.
Check current tax rates for changes
A farm or ranch business can be organized
as a sole proprietorship, a partnership,
a corporation, a limited liability company,
or a cooperative. Each form of business
organization has advantages and
1. What are the differences among the four stages in the life cycle of a farm business? Think about a farm or ranch with which you are familiar. In which stage is it?
5. For the operating agreement shown in Table 14-1, how would you divide gross income if party A and party B each owned one-half of the livestock?
Does a two-person partnership have to be 50-50? Can it be a 30-70 or a 70-30 partnership? How should the division of income be determined?
13. What form of business organization would you choose if you were just beginning a small farming operation on your own? What advantages would this form have for you? What disadvantages?
14. What form of business organization might be preferable if you had just graduated from college and were joining your parents or another established operator in an existing farm? What advantages and disadvantages would there be to you? To your parents?