SELECTING THE RIGHT FORM OF BUSINESS FOR YOUR BUSINESS

GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 1 Bill Thomas Center for Agribusiness & Economic Development Craig Scroggs Rural Development USDA SELECTING THE RIGHT FORM OF BUSINESS FOR YOUR BUSINESS GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 2 GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 3 Alternate Forms of Business   Sole Proprietorship Partnerships – General – Limited  Corporations – Chapter S   Limited Liability Companies Cooperatives GEORGIA COOPERATIVE DEVLOPMENT CENTER 4 February 09 Table 1: General Comparison of Georgia's Most Commonly Used Types of Business Organizations Proprietorship General Partnership Limited Partnership Corporations LLC Cooperatives Method of Creation Owner commences business acti vity Created by agreement of the parties Created by registration with the state under statutory authority Separate from limited partners, not usually separate from the general partners Limited liability for limited partners only. Charter issued by the state under statutory authority Legal entity, separate and distinct from owners. Charter issued by the state under statutory authority Legal entity separate and distinct from the member/own ers. Charter issued by the state under statutory authority Legal entity separate and distinct from the member/owne rs Entity Status Not separate from owner. In some cases , can be separate from owners. Liability of Owners Owner is 100% liable for all debts. Unlimited liability for all partners. Shareholders l iable only to extent of paid-in capital. Members enjoy complete limited liabil ity simil ar to that of limited partners. May be required to specify term of years; must be 99 years or less Member is liable only to extent of paid-in capital. Duration Same as owner Terminated by agreement of partners, or by a partner’s death, withdrawal or bankruptcy Generally, sale of partnership interest terminates the partnership; may create new partnership. May be perpetual May be perpetual May be perpetual Transfer of Interest May be sold at any time Limited partner may sell interests; general partners may not sell interests without consent of the others , depending on the by-laws or charter Shareholders m ay sell or transfer shares of stock Operating agreement defines restrictions, if any, to trans ferability of a mem ber’s interests Mem bership limited to agricultural producers and may be further limited by charter GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 5 Proprietorship      Procures all capital Personally liable for all claims Profits taxed on individual return Need business licenses Should register trade name GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 6 General Partnership       Oral or written agreement Procures all capital Partners liable for all claims Profits taxed on individual returns Need business licenses Should register trade name GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 7 Limited Partnership      More regulated – register with Sec of State General Partners share full liability Limited Partners have limited liability Limited partners no part in running business Profits taxed on individual returns GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 8 Corporations       File papers with Sec of State Report annually Has limited liability Business continues after death of owners Pays taxes on profits Taxes on dividends paid by shareholders GEORGIA COOPERATIVE DEVLOPMENT CENTER 9 February 09 S Corporations       Part corporation, part partnership Limited to 35 shareholders Does not pay taxes One class of stock Limit on shareholders Limit on type of business GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 10 Limited Liability Company       Combines benefits of corporations & partnerships Files Articles of Organization Members active managers Limited liability of members Taxed as either corporation or partnership Refile when membership changes GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 11 Cooperative      Limited to agricultural producers Limited liability of members Requires extensive record keeping Limited tax exempt status Patronage based on use GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 12 WHAT IS A COOPERATIVE? BUSINESS USER-OWNED USER-CONTROLLED DISTRIBUTES BENEFITS ON THE BASIS OF USE GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 13 Why Start a Co-op       Improve bargaining power Reduce Cost Obtain Products or services Broaden market opportunities Improve quality Increase Income GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 14 Steps To Organize          Exploratory Member Meeting Steering Committee Formation Member Survey Market or Supply and Cost Analysis Financial Analysis Incorporation Legal Papers Charter Member Meeting Implement the Business Plan GEORGIA COOPERATIVE DEVLOPMENT CENTER 15 February 09 General Rules for Success       Use Advisors & Committee Effectively Keep Members Informed and Involved Maintain Proper Board-Manager Relations Conduct Businesslike meetings Follow Sound Business Practices Forage Links with Other Cooperatives GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 16 How are Co-ops Different? Service at cost  Benefits proportional to use  Limited return on capital  Democratic control  GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 17 Sources of Capital   Debt – borrowed money that must be repaid at interest Equity – money value of a property used in business, include a risk factor and ownership right to property GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 18 Sources of Loans       Commercial Banks Venture Capital Funds Revolving Loan Funds Federal Government State of Georgia Public offering of Securities GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 19 Commercial Banks      Loan request History & nature of business Management General information Personal & business financial data GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 20 5 C’s of Credit      Character Capacity Capital Collateral Condistions GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 21 Venture Capital    Limited niche High growth business Minimum investment of $1 million GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 22 Revolving Funds    Designed to help local communities Used for bricks & mortar Favorable interest GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 23 Federal Government  USDA Rural Development Small Business Administration – Direct loans – Guaranteed loans – Technical assistance  GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 24 State Government  Dept of Community Affairs – – – – – – Community Development Block Grants Employment Incentive Program Downtown Development Appalachian Regional Com Development Funds Tax-Exempt Bonds And many more  OneGeorgia Fund GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 25 Georgia Department Of Economic Development   A global agency and one-stop-shop for accessing Georgia’s assets and finding the right components for success. Specialists assist in: – – – – – – Business expansion and relocation International trade Small business development Cutting-edge technological advances Entertainment industry Travel GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 26 GEORGIA COOPERATIVE DEVLOPMENT CENTER February 09 27