What Can a Business Entity Do?
– make money – own property (such as real estate, boats or aircraft) – enter into contracts and agreements – open bank accounts – it can sue and be sued – pay taxes
Basically, the only thing a Legal Entity can’t do is vote in an election, run for political office, or do laundry.
By setting up a Legal Entity, you are creating a business organization that can interface with customers, clients, vendors and more.
Safeguarding Your Assets
And most importantly, by setting up a Legal Entity you are keeping your personal assets safe.
In the event of a lawsuit, creditors can only go after the assets of the Legal Entity, and that is all they can get…
They cannot get to your personal assets.
Personal Liability Protection
Again, personal liability protection is the #1 reason that people set up a Business Entity.
If you don’t create a Business Entity, the law will view your business as a Sole Proprietorship (if there is 1 owner) or a Partnership (if there are 2 or more owners).
Neither a Sole Proprietorship or a Partnership will protect your assets.
Remember, if a Sole Proprietorship or Partnership is sued, the owner’s personal assets are at risk of being used to settle business debts and liabilities.
If you first create a Business Entity and your business is sued, then the courts can only go after the assets of the business (not your personal assets).
Forming a Business Entity creates a “shield of protection” between your business and your personal assets.
The two main types of Business Entities that people form are Corporations and Limited Liability Companies (LLCs).
We compare these in more detail in the “Sole Proprietorship vs. LLC vs. Corporation” section.