Not everyone is required to understand the legal nuances of duty, but special terms can also be found in normal life.
One such concept, which has penetrated into the media and everyday speech of citizens, is “legal entity”. What it is, what features a legal entity has and why it is created, is discussed in detail in this article.
Notion of a legal entity
The definition of the term is set out in the law – in the Civil Code. A legal entity is a registered organization that has in its ownership and management a separate property. Such a company has its own civil rights (property and personal non-property) and obligations, for which it is responsible with its own money. In addition, the organization may be present in court as a plaintiff and defendant.
A legal entity must necessarily be registered in the Unified State Register of Legal Entities. Thus, such a company does not exist outside the legal field.
How to create, operate and liquidate a legal entity is stipulated in the Civil Code of the Federation and other laws. In simple words, a legal entity is an association of people that is formalized. If a group is not included in the register, it cannot be called a legal entity either.
Signs of a legal entity
A company that is incorporated as a legal entity has the following characteristics:
- Is an organization and has supporting documents
A company may consist of several people or only one participant – depends on the type of organization. The main purpose of the company may be to make a profit or something non-commercial – for example, to preserve people’s health.
But no organization can exist officially without constituent documents. They prescribe the system of management bodies, all subdivisions and functions that they perform. A legal entity’s will may be expressed by one person (chairman of the board, director) or a group (board of directors, board of directors). An organization also has a charter and a legal address, which may differ from the actual one.
- It has its own separate property
The company’s property is accounted for on its own balance sheet. It may consist of the authorized capital, reserve and special financial funds, intangible assets and other property required by the organization to carry out its activities.
The charter capital, as part of the property, is the sum of contributions of the owners or members of the organization. In essence, it is the source of the company’s own funds from which it covers its expenses and ensures its functioning.
Independently liable for the obligations of its property
The Company is responsible for the results of its operations, and if it is required to pay debts, uses its segregated property.
It should be remembered that a legal entity is not responsible for the personal obligations of its founders. Conversely, the founders are not responsible for the activities of a legal entity formed at the expense of their contributions (except as provided by law).
- Can independently participate in civil turnover and defend its interests in court
A legal entity is an independent unit of civil law relations that performs obligations on its own behalf. The same applies to the statements made by the plaintiff and the defendant in court.
For example, an employee decided to find out why he was not paid his salary and went to court. In this case, the defendant would be the organization whose name is spelled out in the employment contract.
Classification of legal entities
Companies are differentiated depending on the purpose of creation:
- Commercial – seek to make a profit;
- Noncommercial – aim at anything but making a profit.
Commercial legal entities are engaged in business activities. The earned money is distributed among the members of the organization.
Non-commercial legal entities may also make a profit, but the money is used to achieve the company’s primary purpose. This goal may be: the development of physical culture and sport, cultural education, protection of citizens’ interests, scientific research, training of people, etc..
The further division of organizations is as follows:
- Commercial may be partnerships (full or limited), societies, production cooperatives, various unitary enterprises.
- Non-commercial organizations include a wide range of public associations: trade unions, public authorities, foundations, religious associations, consumer cooperatives, associations and even political parties. State corporations and companies may also be noncommercial.
Depending on the nature of the relationship between the legal entity and its founders, there are three types of organizations:
- In the first type of company, the founders retain ownership of the contributions they made when establishing the legal entity. A company, on the other hand, does not have ownership rights to the funds contributed. This type includes state and municipal unitary enterprises, which are financed by the owner.
- In companies of the second type, the participants, having made a contribution, lose the right of ownership, but are granted mandatory rights with respect to the legal entity. These may be production and consumer cooperatives, business companies.
- In third type companies the participants make a contribution, but they do not receive any property rights in respect of the legal entity. This type includes public and religious organizations, charitable foundations, various associations and so on.
By form of ownership legal entities are divided into:
- State companies – organizations to which the state has granted property to perform certain functions (hospitals, universities, ministries, courts);
- Private companies – various societies, unions, foundations that have been formed in the framework of market economy.
Why open a legal entity
A legal entity is opened to be able to legally conduct business or engage in non-profit activities. This formality is required from the point of view of the law.
But some types of work can be conducted without registration of a legal entity. For example, a person may be engaged in business if he registers a sole proprietor – this will give him a special legal status, different from that of an individual, and even allow him to pay less taxes to the state than in the case of a legal entity. However, an individual entrepreneur has limitations – he may not issue shares, hire a large number of employees (depending on the selected tax regime), and IE will have to answer to creditors and counterparties with personal property.
A legal entity also does not need to be registered if a person is employed by the company. Taxes for the employee in this case is paid by the employer, or, if the person has a IE, deductions to the state are made by the employee himself.
Therefore, many factors should be taken into account before opening a legal entity. But the main thing is to determine the purpose for which the company is created.