Differences between legal entities and individuals: definition

Are you an individual? A legal entity? It's often difficult to find your way around, and to understand the impact of such statutes on a company's operations.

When setting up a company, there are many notions to consider about legal and physical persons. In particular, what differentiates them?

Indeed, making the wrong distinction between these two entities can have negative consequences for your structure, which are easy to avoid when setting up a company.

To help you avoid unnecessary headaches, we're focusing today on how to differentiate between legal entities and natural persons in business!

In what context do we refer to a legal entity?

We need to ask ourselves in what context the notion of legal entity becomes central to a company.

A company is a legal entity only if it is a corporate legal structure.

Indeed, if a business turns out to be a company (whether it has several partners or a single partner), it will be a legal entity with all that this implies:

• Giving the company its own legal personality
• Obtaining rights and obligations
• Own capital, distinct from that of its associate(s)

In what context do we refer to a natural person?

If a company is not a corporation, it is not a legal entity but a natural person.

The term " independent" is used, with all that this implies:

• It is the entrepreneur who has the legal personality of the company, not the company itself.
• There is no separation between the company's assets and those of the partner.
• The partner's assets are fully committed

What are the most important points to bear in mind when setting up a business? 

The key points to bear in mind when setting up a company differ between legal entities and individuals:

• Incorporation formalities: while incorporating a company for a legal entity requires a relatively large number of formalities, the number of formalities is reduced for an individual.
• Liability: unlike a natural person, the legal personality of a legal entity is limited. This protects the entrepreneur.
• Formalities linked to the development of a company: in the course of a company's life, the formalities that a legal entity will have to face are numerous: between modification of the articles of association, of the corporate purpose or other, these steps can again be time-consuming. For an individual, the formalities are reduced to a minimum.
• Corporate decision-making: decision-making for a legal entity can be highly complex, due to the large number of partners involved (except in the case of a single-member company). A natural person makes decisions alone. Decision-making is therefore quicker and less complex.

All of these dimensions, which are not exhaustive, must be taken into account when creating a structure to meet your company's needs.

In conclusion, it's vital to be able to distinguish between the notions of natural person and legal entity when developing a business.