A legal entity is any business, organization, or individual that is expected to meet legal obligations and responsibilities from the local, state, and federal governments.
Legal entities are an essential part of business management. They determine how interactions between roles of the business, organization, or individuals have to take place in the legal framework. Moreover, operating a company through a legal element provides security not only for your assets but also for your business operations everywhere at the local level, state, and federal rules.
Through this discussion, we shall take you through the different types of business entities available, and the process of incorporating them as well as provide you with some practical examples to make this idea clear.
Content Outline
What Is A Legal Entity?
A legal entity is a business, organization, or individual that must comply with the laws that governments have made for the town, state, or federal constitutional authority. Consider it as a distinct “person” of the law. It can own property, make deals, go to court to be sued or bring a lawsuit, and can be charged for breaking the law.
Types of Legal Entities
There are several options for legal entities to be chosen. Here are the main four types :
- Corporations: A corporation is a legal entity that is divided into sections that belong to shareholders who in turn are financially benefited due to their limited liability protection. Corporations obtained the opportunity to raise funds from the market by sale of shares and this happens to be the reason it is widely opted by large businesses. Yet, they often experience challenging legislation and double taxation.
- Limited Liability Companies (LLCs): LLC is a hybrid of corporation and partnership which combines the pros of both structures. It gives you limited liability protection among other privacy protection and management flexibility with the option to either be taxed as a partnership or a corporation. LLCs are a favorite among small and medium-sized enterprises
- Partnerships: This is when the partnership is formed when individuals cooperate toward running a business. General partnerships are the type of partnership where partners share the financial liability 50/50 and limited liability partnerships enable some partners to be protected from the firm’s debts. Remember that a partnership is a partnership, so the agreement should be well-balanced.
- Joint Ventures: Imagine joint ventures as short-term partnership between two or more companies with a specific goal. Each corporation might have its own separate legal identity, but still, they cooperate and share their resources to benefit themselves. Joint ventures provide the opportunity to share risks, operation costs, and profits, hence, they are known to be one of the best solutions for the implementation of big-scale projects.
How to Setup a Legal Entity
Depending on the type of entity types, the requirements may be different. FastLane Group is an organization that acts as a great advisor and offers a chance for entrepreneurs to get expert assistance navigating legal issues and regulations. These are the common steps :
- Select the legal structure that fits your business the most.
- Register your business name with the appropriate authority.
- Get the licenses and permits that you may need.
- Write any required legal document, including Partnership Agreements and Articles of Incorporation.
- Get an EIN (Employer Identification Number) for tax purposes.
Legal Entity Examples
Here are some examples that will help you understand more about the legal entities :
- Corporation: Microsoft is the best example to show what a corporation is. It is a company, where one can acquire shares that provides limited liability to its shareholders.
- Limited Liability Company (LLC): For example, the friendly coffee shop in your local neighborhood probably is an LLC, which would give the owners the advantage of limited liability and tax benefits by maintaining an informal management approach.
- Partnership: It all began when Ben Cohen and Jerry Greenfield, who loved ice cream, formed a partnership and co-founded the company named Ben & Jerry’s. They were partners taking equal shares in all aspects of responsibilities and profits on their path to success.
- Joint Venture: A joint venture is when the holding company and its subsidiary company decide to work together to make a new product line by sharing the risks, resources, and returns. Another example is Sony Ericsson, which is a joint venture between Sony and Ericsson, two large tech companies that share the business of making cell phones. These companies were able to keep the two distinct brands and join them together in this particular venture.
How FastLane Group Can Help?
Now that you’ve learned how to establish a legal entity, whether you are starting a legal entity wanting to go global or an established organization needing more efficiency, FastLane Group is here to help your mission. Take advantage of our ten years of experience in corporate services including company registration, company secretary service, HR and payroll service, accounting, and other corporate services.
Contact us right away to learn how our customized approach will grow your business and be part of your success story.