Business Entity - What Is A Business Entity?

Business Entity - What Is A Business Entity?

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Definition Of Business Entity
You might have heard the term ‘business entity’ before and you weren’t sure what it meant.

A business entity is an entity that is formed and administered as per corporate law in order to engage in business activities, charitable work, or other activities allowable (Wikipedia).

Most often, business entities are formed to sell a product or a service.

So in laymen’s terms, in order to start a business you need to create a legal business entity.

You need to file your business with your state government in order to legally create your business.

This way your records for profits, taxes, etc are tracked with the government and your business activity can be legally captured.

What Is The Purpose of Forming A Business Entity?
In general, forming a business entity serves four purposes:

1) Protecting business owners

2) Saving taxes

3) Providing certainty and structure to business operations;

4) Presenting a professional image to customers and the general public.

What are Benefits Of Starting A Business Entity

Secure your assets, gain tax breaks.

Corporation owners enjoy limited liability protection, and are typically not personally responsible for business debts. So creditors can’t pursue your home or car to pay business debts. Another plus: corporations often gain tax advantages, writing off such things as health insurance premiums, savings on self-employment taxes, and life insurance.

Grow your corporation for now—and the future.
Incorporating bolsters credibility, and may help you reach potential new customers and partners. And while you can’t live forever—your corporation can. Even if an owner dies or sells interest, the corporation still exists.

Easy transfer and faster funds.
Corporation ownership can be easily transferable (with some restrictions on S corporations). Capital can be raised more easily through the sale of stock. Another advantage is that many banks prefer handling loans with incorporated borrowers.

Ready for retirement.
Retirement funds and qualified plans, like a 401(k), can be easier to establish.

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