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Legal glossary

Legal existence: Overview, definition, and example

Legal existence refers to the status of an entity, such as a corporation, partnership, or individual, being recognized by the law as having rights, responsibilities, and the ability to engage in legal activities. For businesses, legal existence is achieved through formal registration with relevant authorities, such as incorporating a company, registering a partnership, or obtaining necessary licenses. Legal existence allows an entity to enter into contracts, own property, incur liabilities, and operate within the boundaries of the law.

For example, a corporation gains legal existence once it is registered with the state, receiving a certificate of incorporation that legally recognizes it as a separate entity from its founders.

Legal existence is important because it ensures that an entity has the legal capacity to perform actions such as entering contracts, owning assets, borrowing money, or suing or being sued. Without legal existence, an entity cannot operate within the legal framework that governs its actions and responsibilities. For businesses, legal existence provides a clear structure for taxation, liability, and governance, ensuring that the entity’s operations are protected under the law.

For individuals, legal existence guarantees recognition of personal rights and responsibilities, such as the right to work, own property, and access legal protections.

Imagine a small business owner, Jane, who starts a company. To ensure her business has legal existence, she registers her company with the state, files articles of incorporation, and obtains the necessary licenses. Once these steps are completed, her company is legally recognized, and she can now open a bank account in the company's name, sign contracts, and hire employees, all under the protection of the law.

In another example, a person who has not filed for legal recognition of a business, or has not followed local regulatory processes, would not have legal existence as a business entity. If Jane were to enter into contracts or attempt to open a business bank account without properly establishing legal existence, her personal assets could be at risk, as the law would not distinguish between Jane the person and her unregistered business.

Here’s how a legal existence clause might appear in a contract:

“The Company represents and warrants that it is duly incorporated, validly existing, and in good standing under the laws of [insert jurisdiction], with full legal capacity to conduct its business and fulfill its obligations under this Agreement.”

Conclusion

Legal existence is a fundamental concept that establishes the rights and responsibilities of an entity, whether it be a business, organization, or individual. For businesses, having legal existence provides the legal framework for operations, governance, and protection against liabilities. Whether through formal incorporation or registration, securing legal existence allows entities to operate lawfully and engage in legal actions, ensuring that their activities are recognized and protected by the law.

This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

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