For business law purposes, a "legal entity" is any individual, company, business, or organization that can legally enter into a binding contract with another legal entity. A legal entity can be composed of many people, but has the capacity to function in the same way that an individual can, legally speaking. Incorporated businesses generally qualify as a legal entity.
Some examples of legal entities include:
- Sole proprietorships
- Non-profit organizations and charities
- Limited liability companies
- Various other types of business forms
As a legal entity, the organization or individual has the capacity to:
- Enter into contractual relationships with other legal entities
- Sue others for failing to uphold contractual duties
- File taxes
On the other hand, a legal entity also holds corresponding legal responsibilities. For example, a legal entity is liable performing contract terms for any violations that were done in the company name.
Although the legal entity can be sued for violations done by the company, the individual members cannot be sued for company violations. This is one of the main features of a legal entity, and a main reason why people would choose to form a legal entity rather than operate independently (i.e., to have insulation or buffering from legal liability).
Of course, the exact details regarding liability will be different for each business form. Also, there are some instances where individuals might be held liable even if the violation involves the overall business (for instance, if they acted independently from the company’s instructions). Many state business laws also overlap with trust laws.
Every state has very different business laws concerning legal entities and their guidelines. You may need to hire a business lawyer if you need help with any questions, disputes, or legal issues involving a legal entity.