What Does Entity Mean? Is an Entity the Same as a Company?
In the context of business law and incorporation services, “Entity” is just another word for company.
If you mention the word “Entity” to anyone who grew up in the 80s, and their mind immediately jumps to some slimy, ectoplasmic terror phasing through a library’s bookshelves or haunting a New York skyscraper. In ghost hunting, an Entity is a general term for a non-physical presence, spirit, or supernatural being encountered during an investigation. We are not here to distinguish intelligent spirits, residual Entities, poltergeists, shadow people, and demonic forces.
Instead, we are here to focus on corporate law, where an Entity is an artificial legal person usually coming into existence by the filing of a Certificate of Incorporation or similar Articles of Organization with the Secretary of State. Each government recognized business structure has its own legal existence distinct from owners who initially created them.
Historically, business incorporation required an act of legislature and signature of the governor, and would be limited to large enterprises. About 150 years ago, the laws were simplified to allow anyone to form a business with a filing and no act of the general assembly of a state legislature.
Examples of Entities include an incorporated Entity on one hand, being a corporation, and on the other hand, alternative Entities being unincorporated; such as limited liability companies and limited partnerships.
In contrast, a non-Entity may be a sole-proprietorship or general partnership that has no liability protection.
What Is an Entity?
Unless you are an experienced entrepreneur, over-educated business owner, or trained lawyer, you may have never realized that an Entity is a synonym for company.
Entity is a noun in the English language that means something with a separate and independent existence. Outside of the law, it can be a physical object, a living person, an organization, or an abstract idea that exists on its own. That is just a distinct and individual thing or unit. Sometimes legal Entities are referred to as “juridical Entities.”
Deriving from the Latin word entitatem, meaning “being” or “existence,” the word describes a real independent construct that exists separately from other things. Due to the simple nature of the definition, the essence of the word changes depending on the field, but the underlying mechanism defining the word remains identical.
What Happen After You Form an Entity?
When it comes to an Entity, a government filing is not the end of creation. To finish the due establishment or due incorporation, business entities require actions and private documents be entered into by the people associated with those businesses. While anyone can make a public filing, creating reliable and practical Operating Agreements for LLCs and properly forming a board of directors, appointing officers, and issuing statutes should not be overlooked.
Why Does Entity Refer to Many Different Categories?
In business, “Entity” is used as an umbrella phrase for any distinct legally defined artificial person that exists unto itself.
Within the realm of business, you will encounter many terms like legal Entity, domestic Entity, foreign Entity, business Entity, and corporate Entity. All these phrases contain the root word “Entity,” but the adjective distinguishes it.
- Domestic Entities are simply any legal persons formed within a state by that state’s laws.
- Foreign Entities encompass a company created in another state or country that is registering to qualify to do business in another state or country. This term “foreign” applies everywhere else whether that foreign jurisdiction is still within the United States, or in one of the other 49 states, territories, or Native American tribes.
- Business/Legal/Corporate Entities are three different adjectives or phrases that are all used when the legal system wants to form a rule that applies to all registered Entities. Aside from corporations, limited liability companies, and limited partnerships, legal Entities include LLPs, LLLPs, and Business Trusts.
In many jurisdictions, the “protected series” of a Series LLC is referred to as a person. A protected series associated with a Series LLC carries numerous personhood rights including many constitutional rights of personhood such as freedom of speech, freedom of religion, freedom to travel, and freedom to engage in commerce. However, these rights fall short of being considered a natural person.
Even with all these personhood rights for a protected series, including: right to contract, right to sue and be sued, right not to be held liable for the debts of another are nevertheless considered less than full panoply Entity rights. Protected Series walk like an Entity, quack like an Entity, but yet legally, they exist in a paranormal middle ground. They are so close to being a full legal Entity that for most business owners, it’s a distinction without a difference.
Why Is the Name Attached to an Entity Important?
Due to Entities being their own separate persons, like regular living breathing humans, Entities need to be named too.
Each Entity has the freedom to choose almost any name it wants in the world provided the name is available in the state of formation. Also, a business needs to have a specific indicator suffix to tell the public what type of legal structure and business liability protection it carries. Under Delaware law, it is strictly mandated for the Entity’s specific business ending to be filed as part of the official name.
If the Entity is an LLC, its name must contain “Limited Liability Company,” “L.L.C.,” or “LLC” at the end of its main name. Examples include: Charleston Motors Limited Liability Company, Candle Lights LLC, or Bombardier L.L.C.
If it’s a corporation, it needs to contain “Corporation,” “Incorporated,” or their standard abbreviations, Inc., or Corp. Examples include: The Fiesta Palace Corporation, Mystery Incorporated, Agents and Corporations Inc., or BigTech Corp.
If you do not keep your Entity’s suffix designation and sign a contract just as “The Fiesta Palace” or “Charleston Motors,” a plaintiff could argue that they did not understand they were contracting with a corporate Entity or that the Entity name did not match the official corporate name. Accordingly, you run the risk of binding yourself to the contract, rather than the Entity.
You should always use the full legal name of the Entity with punctuations, corporate ending, and state where it is formed to avoid ambiguity or misinformation. You should only sign under the company name and indicate your manager at title with authority as an agent to bind the Entity to the contract.
This helps to ensure the specific liability protections of Entities. You don’t want to be named personally responsible for breach of contract and get served a lawsuit holding you to account, exposing your personal assets to creditors.
This term might seem all encompassing at first, but an Entity is simply the company you create that separates your personal net worth from the gremlins, ghouls, and goblins of your business venture’s mistakes and misfortunes.