Legal entity

A legal entity refers to an organization or individual recognized by law as having its own legal rights and obligations. This recognition allows the entity to enter into contracts, own property, incur debts, sue, and be sued in its own name. The concept of a legal entity is fundamental in law, accounting, and taxation, as it determines how an organization interacts with others and how it is treated under the law.

Key Features:

Separate Legal Status: Certain business structures—such as corporations, joint-stock companies, and limited liability companies (LLCs)—are considered distinct from their owners or shareholders. This means the company itself, rather than the individuals behind it, is responsible for its debts and obligations.

Tax Treatment: Corporations and Companies: Treated as separate taxpayers; they pay taxes on profits independently of their shareholders. Partnerships: Often not considered separate legal entities for tax purposes. Instead, the profits are “passed through” and taxed in the hands of the individual partners. Variation Across Laws: The definition of a legal entity for tax purposes may differ from its definition under general or corporate law, depending on the jurisdiction and the context of regulation. Examples:

A Private Limited Company (Pvt. Ltd.) is a legal entity that can own property, enter contracts, and be taxed separately from its shareholders.

A Partnership Firm, while recognized under general law, is not a distinct taxable entity; the partners themselves are taxed on their share of income