What Is the Meaning Of Legal Entity & Its Importance

Duration: 5-6 minutes

Legal Entity Definition

The term legal entity encompasses any institution, entity, or person who, by municipal, regional, or national laws shall comply with the legal obligations.

In the business world, legal entities are of great value. They give form and responsibility on how a business or organization, or individual operates within the legal framework. Forming a legal entity will relieve your mind from potential threats, which won''t harm your personal assets and make sure your actions are up to par with local, state, and federal rules.

Any business enterprise, institution or individual who, under the regional, state and national legislation, dedicates himself to undertaking business honestly throughout his working life is a legal entity.

For instance, under the legal code, a company is considered an individual entity. A business enterprise can own property, enter into contracts, sue in civil court and be prosecuted in criminal court for its actions.

Types of Legal Entities

Check the most common legal entities you need to know about:

• Corporations: It is an incorporated independent legal entity the shareholders, and it provides limited liability to its members. Nowadays the sale of shares has been a sought after means of finance by many large companies. The moment they do so, they most of the time submit themselves to complex regulations and unnecessary tax duplications.
• Limited Liability Companies (LLC): Balancing in between corporations and partnerships, an LLC offers some personal liability protection and management flexibility; it can also be taxed as a partnership or a corporation. Small and medium-sized firms tend to favor Limited Liability Companies (LLCs).
• Partnerships: Partnerships are formed when more partners associate to come together to run a business and try to come up with a compatible and profitable organization. Among them, the general partnerships have unlimited liabilities for each partner, while the limited liability partnerships have some limitations on liabilities for certain partners.
• Joint Ventures: Joint ventures are temporary partners between two or more companies for some particular investment purpose. Firms maintain their own separate legal identity but share resources and work together. They pool their money amongst themselves for the better advantage of everyone concerned.

How to Form a Legal Entity?

Ready to register your legal entity?

Here are some of the most commonly used procedures:

• Apply for an Employer Tax ID Number, EIN, since most states require this number on business tax returns.
• Apply for all required business licenses.
• Prepare documents required by law: Articles of Incorporation or Partnership Agreements.
• Select the legal structure best suited to your business.
• Freedom Planet name registration.

Examples of Legal Structures

Feeling a little overwhelmed? No worry! As a means of giving you a sense of the way things actually are within legal entities, we turn now to some case studies.

• Corporations: Few of the many organizations claiming to provide all types of branch products really have the staying power Apple seems to have. Under a widely dispersed ownership structure, the management of companies is effectively that of shareholders, and, therefore, owners are not liable for a lot if anything in relation to accidents or misfortune at work.
• Limited Liability Companies: That kind of legal entity is so easy to understand, it''s almost all around you. Your local friendly coffee house might be an LLC, with the developers entitled to limited liability and tax breaks, and less bureaucratic structure on the management side, so that they can have a better quality of life running the company.
• Partnerships: We can better understand this status through the most famous example. Ben Cohen and Jerry Greenfield, who dearly loved ice cream, set up the partnership that later became Ben & Jerry''s Homemade Laila. Every responsibility and possible gain on the way to success was divided up between the two of them alone.
• Joint Ventures: A joint venture is when a parent company and its subsidiary carve out some new product lines. In the deed, resources, risks, and profits are put in by both the parent company and the dependent. Sony Ericsson Company produces mobile phones and is a joint venture between Sony and Ericsson; their investors are the world''s two largest technology companies. Although they work together on this specific venture, they insist that each one keep its own image.

There you go! That''s all you need to know about a legal entity. We hope now you know the purpose and importance of a legal entity.