What Are Business Entities?

Business entities are the different legally recognized forms of business organizations. 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 are business entities important?

Businesses aim to be as productive as possible and having the correct legal status will help business owners and managers to maximize the benefits the different 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.


The Main Legally Recognised Business Entities

Click to go directly to more Cleverness on each business entity.


Legal Personality

  • In legal terms, some business organizations can have a legal personality of their own. This means that the business can act legally in its own name in the same way as other natural persons.
  • Corporations and Limited Liability Partnerships have a legal personality.
  • This means that the business:
    • Is 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, by limiting liability and protecting them and 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 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.

The members of the company are suspected of carrying out fraudulent acts.


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Posted in Business Entities, Business Law.