Legal Entity

A legal entity is an individual or group that has legal rights and duties related to contracts, agreements, payments, transactions, obligations, penalties and sue. The term applies to any kind of organization formally constituted according to the particular set of laws governing the country.

Legal Entity Means:

A legal entity can be an individual, an association, a company, a partnership or any societal form allowed by the authorized legal framework. In contrast to a natural person, it is a body created at the moment of legal incorporation, with a specific name and personality to the eyes of the legal system. There are different types of legal entities and each one has particular privileges and responsibilities established by law.

For example, a sole proprietor is a kind of legal entity that has the advantage of being low-cost and simple but the individual has no asset protection. That means that any debt can be ultimately paid with the individual assets. In corporations shareholders have limited responsibilities and exposure to liabilities.

Types of Legal Entities:

Basically, there are three types of legal entities in which business can be conducted:

(1) sole proprietorship,

(2) partnership, and

(3) corporation.

Within each category, there are several variations. Determining which form is best for a particular commercial enterprise depends on a variety of considerations, including the number of owners, acceptable liability of owners, tax treatment, transfer-ability of ownership interests, set-up costs, and other factors.

Category 1.Proprietorship 2.Partnership firm 3.Company 4. LLP 5.Op c
Prevailing Law No Such Law The Partnership Act, 1932 The Companies Act, 20113 The Limited Liability Partnership Act, 2008 The Companies Act, 2013
Registration Registration is Needed based on the nature of Business Registration with Registrar of Firms required Registration with Registrar of Companies required Registration with Registrar of LLP required Registration with Registrar of Companies required
Name of Entity No Regulations No Regulations Name to contain ‘Limited’ in case of public company or ‘Private Limited’ in case of private company as suffix. Name to contain ‘Limited Liability

Partnership’ or ‘LLP’ as suffix

 Name to contain ‘Private Limited’ as suffix and contain the word “One Person Company”under its name.
Perpetual Succession No Perpetual Succession It has perpetual succession and partners may come and go It has perpetual succession and members may come and go It has perpetual succession and partners may come and go It has perpetual succession and member may appoint a nominee.
Charter

Document

 No Such Document Partnership Deed defines scope and Operation and rights and duties of the Partners Memorandum and Article of Association defines the scope of a company’s operation LLP Agreement defines the scope operation and rights and duties of the partners vis-à-vis LLP Memorandum and Article of Association will be the charter documents
Formalities of Incorporation Based on the Nature of Business we have to get registered Partnership Deed is to be filed with the Register of Firms along with the prescribed fees Various e-forms along with the Memorandum & AOA are to be filed with ROC with prescribed fees Various e-forms and the LLP Agreement are to be filed along with the prescribed fees Similar to Company through e-forms are yet to be notified
Legal

Proceedings

 Proprietor can sue and be sued A Partnership is a legal entity that can sue and be sued A Company is a legal entity that can sue and be sued A LLP is a legal entity that can sue and be sued An OPC will be a legal entity that can sue and sued
Number of Members One member Minimum 2 Members Required 2 to 50 members in case of private company and minimum 7 members in case of public company Minimum 2 partners and no limit on maximum number of partners Only 1 member
Liability of Part- ners/Members Proprietor Liability is Unlimited Partners Liability is Unlimited Generally limited to the amount required to be paid up on each share Limited to the extent their contribution towards the LLP Generally limited to the amount required to be paid up on each share
Transfer /Inherit-

ance of Rights

 No Such Regulation Regulations relating transfer are governed by the Partnership Deed Ownership is easily transferable Regulations relating transfer are governed by the LLP Agreement Ownership can be transferred by appointing a nominee, who can be changed anytime by the member
Annual Filing No Such Requirement No Such Requirement Annual financial statement and annual return are to be filed with the Registrar Annual statement of accounts and Solvency & annual return is required to be filed Annual financial statement and annual return are required to be filed
Audit of accounts All Individuals having Turnover more than 1 Crore (In Case of Business),more than 25 Lakhs (In Case of Profession) have to get Books of Accounts audited All Partnership Firms having Turnover more than 1 Crore (In Case of Business), more than 25 Lakhs (In Case of Profession) have to get Books of Accounts audited Companies are required to get their accounts audited annually as per the provisions of the Companies Act, 2013 All LLP except for those having turnover less than Rs. 40 lakh or Rs. 25 lakh contribution in any financial year are required to get their accounts audited annually. Such companies will be required to get their accounts audited