Legal Entity Definition
The term, legal entity, incorporates any establishment, organization or human being who by municipal, regional, or national decrees, shall fulfil legal duties.
Legal entities are invaluable when it comes to the business world. They create the necessary structure and responsibilities for how a business, organization or individual operates within the legal structure. By creating a legal entity, you put your mind at ease knowing that potential threats will not impact your personal assets and your business operations comply with local, state and federal rules.
Here, we will discover:
What is a Legal Entity?
Any business enterprise, institution or individual who, according to the regional, state and national legislation, dedicates himself to undertaking business honestly throughout his working life is a legal entity.
Under the legal code, for example, a company is deemed an individual entity. A business enterprise can have property, make contracts, initiate civil suits and be sued in civil court or criminal court for its behaviour.
Types of Legal Entities
Take a look at the most common legal entities you must be aware of:
Corporations
It is a certified independent legal entity owned by shareholders and offers limited liability protection to its members. Today, selling shares has become a typical way for many big businesses to gather funds. Once this occurs they often find themselves subject to complex regulations and overlapping tax liabilities.
Limited Liability Companies (LLC)
Striking a balance Between corporations and partnerships, an LLC provides some protection against personal liability and management flexibility; it can also be taxed as either a partnership or a corporation. Small and medium-sized firms have a preference for Limited Liability Companies ( LLCs).
Partnerships
Partnerships are formed when more partners join to operate a business together, making a compatible and profitable organization. Partnerships have several types: general partnerships, where each partner has unlimited liability and limited liability partnerships, with some of the liabilities being limited for certain partners.
Joint Ventures
Joint ventures are temporary partners between two or more companies for a specific investment purpose. Firms maintain their own separate legal identity but share resources and work together. They pool their money among themselves for the advantage of everyone concerned.
Ready to register your legal entity?
The following are some commonly used procedures:
- Obtain an Employer Tax ID Number (EIN) for tax purposes.
- Apply for the necessary business licences and permits.
- Prepare documents as needed by law, such as Articles of Incorporation or Partnership Agreements.
- Select the right legal entity for your business.
- Register your business name with the appropriate authorities.
Legal Entity Examples
Feeling a bit overwhelmed? Don’t worry! To better understand how legal entities work, let’s take a look at some real-world cases.
Corporations:
Many companies claim to offer various branch products, but few have the *staying power Apple seems to have. A widely dispersed ownership structure means that the control of companies is effectively held by shareholders, and thus the owners are not liable for much if anything in terms of accidents or misfortune at work.
Limited Liability Companies (LLC):
This type of legal entity is very easy to comprehend, almost all around you. Your local friendly coffee house might be a Limited Liability Company ( LLC), entitling developers to both limited liability and tax breaks as well as less bureaucratic structure on the management side. This way the developers have a better quality of life running the company.
Partnerships:
We can understand this legal status from the most famous example.
Ben Cohen and Jerry Greenfield, who are two individuals full of passion for ice cream, formed a partnership that became But & Jerry Laila. Every responsibility and possible gain on the way to success was split between them alone.
Joint Ventures:
A joint venture is when a parent company and its subsidiary carve out some new product lines. Both the parent company and the dependent put in resources, risks and profits from the deed.
Sony Ericsson Company, a joint venture between Sony and Ericsson with the world’s two largest technology companies as investors, produces mobile phones. Though the two work together on this specific venture, they insist that each one keep its own image.
There you go! That’s everything you need to know about a legal entity. We hope now you know the purpose and importance of a legal entity.