Separate Legal Entity
/ˈsepərət ˈliːɡəl ˈentɪti/
A separate legal entity is a business structure that exists as its own "person" in the eyes of the law, completely distinct from its owners or shareholders.
A separate legal entity is a business structure that exists as its own "person" in the eyes of the law, completely distinct from its owners or shareholders.
A separate legal entity creates a protective barrier between you personally and your business.
If your company faces debts or legal issues, your personal assets like your home or savings remain protected.
This protection is called "limited liability" and it's one of the main reasons founders choose to incorporate.
A separate legal entity can enter into contracts, own property, and take legal action in its own name.
It can also continue existing even if the original founders leave or pass away.
This gives your business stability and credibility that sole traders simply don't have.
A separate legal entity pays its own taxes on profits, which are often at different rates than personal income tax.
The entity can also claim business expenses and deductions that wouldn't be available to sole traders.
Any profits you take out as dividends or salary are then taxed again personally.
You should consider forming a separate legal entity when you're ready to take on business risks, need to protect personal assets, or want to attract investors.
Most investors won't put money into sole trader businesses because they can't buy shares in something that isn't a separate legal entity.
Running a separate legal entity requires keeping proper company records, filing annual returns with the relevant company registry, and maintaining separate bank accounts.
You'll also need to hold formal meetings and document important decisions, even if you're the only shareholder.
Yes, a separate legal entity can have multiple shareholders who each own different percentages of the company.
This makes it much easier to bring in business partners or investors compared to sole trader arrangements.
Each owner's liability remains limited to their investment in the company.
