business entity

What Are Business Entities?

Sole Proprietor

Sole Proprietor

Business entities are the different legally recognized forms of business organization. It refers to the way the business organization is structured. Each business organization has different rights and responsibilities inside and outside of the organization and each type of business entity has its advantages and disadvantages.

Why is studying business entities important?

Businesses aim to be as productive as possible and aim to maximize their productivity. Choosing the correct business organization will help business owners and managers to maximize the benefits, which each business legal status gives.



It is also important for business owners and managers to understand which one best meets their requirements under Business Law. Getting the right legally recognized business structure could give tax benefits, administration savings or save many thousands in legal costs if anything goes wrong.

What Are The Legal Forms of a Business?

  1. Sole Proprietor / Trader
  2. Partnership
  3. Limited Liability Partnership (LLP)


  4. Limited Liability Companies
  5. Companies (Corporations).

Legal Personality

In legal terms, some business organizations can have a legal personality of their own. This means that they can act legally in the same way as other natural persons.

Corporations and Limited Liability Partnerships have a legal personality.

This means that the businesses:

  • Are independent of who owns or operates it.
  • Can be sued and can sue others.

Veil of Incorporationveil of incorporation

This separates the company from its directors and shareholders, protecting their personal assets from lawsuits against the business.

  • It is said to create a ‘veil’ between the company and its members.

The court may “lift the veil” to identify the true nature of a company. Gilford Motor Co. Ltd. v. Home (1933)

The veil of incorporation can be lifted:

  1. Where it is necessary for the purpose of revealing members who may be liable for the debts owed by the corporate body to a failed bank.
  2. When the members of the company are suspected of carrying out fraudulent acts.

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Posted in Business Law, Business Law - Business Entities.