Business Entity

Updated: Apr 18

What is a business entity?

A business entity refers to a legally recognized organization that engages in commercial, industrial, or professional activities with the aim of earning profits. It can be a sole proprietorship, partnership, corporation, LLC, or any other legal structure recognized by the government. It might also be referred to as a type of business, or business model.

The concept of a business entity is essential for anyone starting a business as it helps them define their legal and operational structure. Understanding the different types of business entities can help business owners choose the most suitable option for their company. The choice of business entity can affect various aspects of the business such as taxes, liability, ownership, and governance.

History and evolution of the different types of business entities

The concept of business entities has been around since the beginning of organized commerce. The earliest known form of business entity was the partnership, which was prevalent in ancient civilizations such as Babylon and Egypt. Over time, different legal structures such as sole proprietorships, corporations, and limited liability companies (LLCs) emerged.

What is a business entity made up of?

The key components of a business entity include:

It's legal status
Governance structure
Taxation
Liability protection
Ownership structure

Each of these can vary depending on the type of business created, and they may also vary from state to state.

Benefits of stating and establishing your business entity

The benefits of using or implementing a business entity in a business strategy include:

Protection of personal assets as these are kept separate, with the handling of business assets defined by the type of entity created
Tax advantages, these will vary between type of business created
Limited liability protection
Funding opportunities
Credibility with customers and suppliers

Examples of business entities

Real-life examples of business entities include:

Corporations - such as Coca-Cola and Microsoft

LLCs - such as Uber and Airbnb

Sole proprietorships - such as freelancers and consultants

Partnerships - such as law firms and accounting firms

4 steps for choosing the right business entity

Before starting your business you'll need to choose which business entity is right for you. In order to do this consider the following steps,

01. Consult with a lawyer or accountant to determine the most appropriate legal structure for your business.

02. Maintain accurate financial records and comply with tax regulations.

03. Regularly review and update your business entity structure to ensure it aligns with the company's goals and objectives. As your business grows, your entity may need to adapt also.

04.Separate personal and business banking finances to protect personal assets in case of lawsuits or bankruptcy.