In this post, I am going to clarify a common misconception about the legal status of a registered business name otherwise called Enterprise or venture as a form of business or legal structure.

Very often, after people have registered their businesses with the Corporate affairs commission whether as a Ltd liability company or as an enterprise what happens next is that they take to social media to announce their newly registered business.

One of the popular lines, especially by Business name owners is...

"It's official!

We are now a legal entity".

But the question is, are you actually a legal entity?

To answer the above question, we need to clearly understand what a legal entity actually means.

A legal entity is any individual, company, or organization that the law recognizes as having separate legal rights and responsibilities.

These rights include the right to own property in its own name, enter into contracts and be bound by the terms of that contract, the right to sue and be sued, etc.

A legal entity can stand on its own and has a separate legal identity.

The business name or enterprise registration as a form of business structure is not a legal entity, because the law does not recognize it as having a separate legal personality that is different from that of its owner.

As a matter of fact, the business name as a category of registration merely exists for the purpose of convenience.

It is just a registered trade name, no more no less.

The owner of a business name is personally liable for the debts of the enterprise and his liability is unlimited.

The business name itself lacks the power or capacity to enter into contracts in its own name.

Contracts for the business are entered into in the name of the business name owner and not in the name of the business.

A business name can not be used to raise equity funding for the business, because there is no equity to give in the first place.

Because it is not considered a legal entity, the business name is very limited in scope, in terms of the nature of the business that it can be used for.

Unlike the limited liability company, there is no legal protection for the business name owner.

This is because the law does not recognize the enterprise or business name as having its own set of legal rights and responsibilities.

In other words, the business name as a form of business structure is not a legal entity.

So if you are looking to register your business anytime soon, it's good you know what you are getting into so you can better prepare and protect yourself.

I hope this helps you, make an informed decision today.

To your #LegalSense.

-Barinaada.