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Corporate entities have a distinct legal personality. Unincorporated entities don’t have a distinct legal personality. An example of an incorporated entity would be a private limited company. An unincorporated entity example would be a sole proprietorship. Legally a sole proprietorship is not considered legally different from its owner even though in accounting terms the entity concept means it’s accounts are distinguished from the owner’s private transactions.Having a distinct legal personality means a company’s owners are shielded legally and financially from the decisions and actions of a company (in most cases). The liability of company is unlimited but shareholders’ liability is limited to amount unpaid on shares in event of liquidation.A company can also sue or be sued.
Incorporate entities can own assets in their own name. For example, land can be registered in the name of the company and the company owns that. In an unincorporated business (such as a sole trader or partnership), the land would be owned by the sole trader or partners personally.
In addition, companies have their own tax rules and rates and pay corporation tax. The profit made by a sole trader is included in the personal tax computation of the sole trader. Similarly with partnership profits.
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