Source: Instrumental “Drops of H2O (The Filtered Water Treatment)" by J.Lang (feat. Airtone),” Creative Commons, http://ccmixter.org/files/djlang59/37792, Image of Stock Market Board, Creative Commons, http://en.wikipedia.org/wiki/File:Philippine-stock-market-board.jpg
Hey everyone. Welcome to our video on business and organizations. So what are today's discussion topics? We're going to talk about publicly-traded versus privately-owned companies.
We're also going to talk about the different legal entities and tax entities. And for those tax entities, we're going to look at the different forms that they might file, whether that's an 1120, a 1065, or a 990. Now, we'll get into that a little bit later.
The first thing I want to talk about is that first bullet point, publicly-traded versus privately-owned companies. So publicly-traded companies have their stock listed on an open market. The main differentiator with a privately-owned company is that privately-owned companies are not listed on the open market. Publicly-traded companies are under more scrutiny, because they have to provide reporting information at certain intervals. And there's more regulatory requirements for publicly-traded companies.
Privately-owned companies are more nimble. They don't have the same regulatory oversight as publicly-traded companies. Many times, publicly-traded companies, if they want to make a big decision, they have to have shareholder approval, which can be a difficult and long process. Privately-owned companies, because they're more nimble, they can focus more on growth and expanding the business. Publicly-traded companies can sell more shares, so it's easier for them to get access to new capital as they need it, whereas privately-owned companies, that can be more difficult, because they have to go out and try and raise the capital from different investors.
So now let's talk about some of the different legal entities, starting with the sole proprietor. What is a sole proprietor? That's a type of company that is owned by a single individual, where the individual and the business are legally treated as the same.
Now let's contrast that with a limited liability company, or an LLC. That's a type of company where owners are not held personally responsible for the organization's liabilities. Now we have a limited liability partnership or an LLP. What is that? That's a type of company where only one of the partners is liable for the amount invested in the organization and is not accountable for the behavior of the other partners.
So sole proprietor, individual and the business are legally treated as the same. A limited liability company, owners are not personally responsible. And a limited liability partnership, the partner is only liable for the amount invested in the organization.
Continuing with those legal entities, there are a few more. Let's talk about a private corp, or a PC. That's a type of company whose shares are not purchased or traded publicly.
We have a nonprofit. That's an organization that reinvests its profit into the goals of the company instead of distributing to owners and shareholders. And finally, we have a corporation, an inc. That's a type of company that exists as a separate unit from owners and shareholders, thereby protecting each individual from liability that exceeds the original investment. So those are our legal entities.
Let's talk about some of the tax entities, starting with a C corp. A C corp files form 1120. The corporate income tax is paid by the corporation, so the corporation itself pays taxes.
But there's double taxation. Any distributions made by that C corp to owners are also taxed. So not only does the corporation pay tax, but so do the individual owners.
Now we have the S corp. Now, they also file a form 1120, but it's the 1120s. The corporation pays no income tax, so that's different from a C corp. It's considered a pass-through entity, so all the activity of the organization passes through to the owners.
Now we have our LLC. They file the form 1065. Like an S corp, the LLC pays no taxes. And it's also considered a pass-through entity, whereas all of the business's activity passes through to the owners.
And finally we have our nonprofit. They file form 990. And they're exempt from taxation, so these are our charities, our fundraising organizations. They don't have to pay taxes. So those are our tax entities.
Now let's recap. In a nutshell, what did we talk about today? We talked about privately-owned versus publicly-traded companies. We looked at the advantages of both, as well as the disadvantages. We talked about the different taxable entities, C corp, S corp, an LLC, and a nonprofit.
But we spent most of our time talking about those legal entities, so let's do a recap. So we have our sole proprietor. That's a type of company that is owned by a single individual. And the individual and business are legally treated as the same.
Our corporation, or our inc, is a type of company that exists as a separate unit-- keywords there-- from owners and shareholders, thereby protecting each individual from liability that exceeds the original investment. And our limited liability partnership, that's a type of company where only one of the partner is liable for only the amount invested in the organization, and not accountable for the behavior of the other partners.
Last three. We're almost there. Nonprofits, that's an organization that reinvests its profit into the goals of the company instead of distributing to owners and shareholders. Our limited liability company, a type of company where owners are not held personally responsible for the organization's liabilities. And finally, last but not least, a private corp, a PC, a type of company whose shares are not purchased or traded publicly.
I hope you all enjoyed the video. And I hope to see you next time.