The term "legal entity" is certainly very common among many people, even if they don't really know what it means. To address this linguistic issue, it's important to explain that it basically refers to a fictitious person capable of exercising rights and assuming obligations to carry out activities that entail full legal responsibility. It's particularly relevant for developing a wide range of contracts that require this specific legal entity, and this can be further clarified with a few examples.
One of the key points to emphasize from the outset is that the concept of a legal entity doesn't necessarily align with that of a natural person. While it's true that in some cases it will be the same, in others it won't. This is partly because the concept of a legal entity is much broader, encompassing actions related to both companies and individuals. Its broad scope, therefore, is one of its defining characteristics and the meaning behind this term, which you've likely heard countless times.
Furthermore, you need to understand that a particular social or professional group is given a greater role in participating in a legal framework . This is fundamentally aimed at achieving the goals pursued by all its members. It's important to note that this crucial term can be mistakenly confused with that of an individual, when in fact, they are not the same, as explained in this brief introduction.
Legal person: differences
You need to know that, above all other considerations, there are some very substantial differences compared to other common terms in this field, such as "natural person." A natural person is personally liable for the debts and obligations that a company may assume at any given time. In contrast, with a legal entity, this liability is limited to the company's assets. Another difference is that a natural person is a single individual.
Another important indicator of this unique status lies in its very nature. It grants a person or entity (of any kind) certain rights and obligations. This is crucial for any legal proceedings they may face, or even for launching a business or professional project. Indeed, it shapes future actions in various aspects of the administrative process, to the point that it can be used to secure funding or grants of any kind.
Links with other figures
Nothing sheds more light on the true meaning of the term we're discussing in this article than other comparisons. In this sense, one of the most relevant keys to understanding what constitutes a legal entity is something as simple as the fact that they can be public limited companies (Sociedades Anónimas), private limited companies (Sociedades Limitadas) , or similar. In both cases, legal entities are present. However, you should be aware that sometimes this entity is disguised under company names. This is done to avoid liability in the event of a claim, and although it is a legal process, it's important to clarify that this practice is not highly recommended from an ethical standpoint. Further considerations will be addressed in more specific analyses.
Do you want to know some examples of what constitutes a legal entity? You might be surprised, as they include well-known names like Inditex, El Corte Inglés, and Leroy Merlin. In other words, a legal entity can even own companies listed on stock exchanges. Indeed, in many cases, it can represent companies engaged in commercial activity , as in the examples we've discussed in this article. This will help you better understand the true implications of this term, which can sometimes be a bit complex to grasp.
Advantages of this legal form
In any case, the legal person involves a series of contributions if you are integrated into this figure. You may already know some of them, but others may surprise you and even benefit you from them. Among which are the ones that we expose you below:
- You are in a position to have a greater capital because it can be contributed by the other partners. This is a very effective strategy to boost business, companies or any professional project.
- In all cases you will have a better access to credit lines that commercialize the banking entities. In preference to other types of clients, including individuals. But with an added value such as that they will be formalized with better contracting conditions so that in this way you save a few euros in the accounting operation.
- Another of his most relevant contributions lies in the fact that a legal person is in a position to access public tenders without major restrictions. With a certain preference in relation to other figures and that can help you to achieve your objectives with respect to these approaches.
- With respect to the previous section there is another derivation that can be very interesting to defend your personal interests and even from a professional point of view. It is the fact derived from carrying a series of social benefits and safe and that they could not otherwise get. Even to be receptive to a very specific line of grants launched from official bodies.
- And finally, it cannot be forgotten at any time that legal entities have limited liability. This in practice means that they significantly restrict their responsibility for the obligations or debts that the company may incur. To the point that this fact can be very advantageous to them at some point in their lives.
Disadvantages of legal persons
But not all are benefits with this special figure, but some inconveniences are generated that you should keep in mind if you are in some of these situations. In this sense, it is not surprising that you get the odd surprise with certain approaches. Like the ones that we are going to show you below.
- There is no doubt that its biggest drawback is that it requires a greater investment for its constitution. That is, it will involve a greater financial effort than you will have to make to become a legal entity if this is really your desire.
- Moreover, the administrative effort it will be much greater. Not surprisingly, you will have no choice but to submit a greater number of accounting documents. This can be told by people who have gone through this situation since bureaucratic procedures will increase above normal.
- El control of society it is more diffuse than in the rest because the administration can fall on several people. They are considered as partners and there will be more debates to make a decision or carry out any economic or legal management. This is a difference that sets many people back in their desire to establish themselves as a legal entity.
- Undoubtedly, another of his most negative contributions is based on the fact that this figure presents a greater difficulty to be closed or sold. It is not as simple a process as can occur through other kinds of figures.
- If what you really want is to expand or reduce equity Of course, more problems await you since the restrictions are higher. To the point that you can see yourself immersed in incidents from an accounting point of view.
- Finally, you must bear in mind that the legal person is not always the best possible scenario to establish a company. On the contrary, there are other formats that will be more useful for the defense of your personal interests. You just have to inquire about them in case you are interested in adopting a constitution formula.
Governing bodies
Another very important aspect is that which has to do with its regulation. In this sense, the existence of natural persons is very necessary to decide the destination of the goods you have. You cannot forget that the bodies are regulated by law and also by the statutes presented by legal persons. Among which the following stand out due to their special relevance:
- El administrator it is the most common of all.
- A more complex figure as it is in the specific case of the so-called solidarity administrators.
- El board of directors It is one of the terms with which you will be more familiar since it is used with special frequency by legal persons.
- And as a last resort, other governing bodies such as the shareholders or the board of partners, among some of the most important and at the same time common. There is no doubt that they will be the ones that will sound the most to you right now.