Legal Entity Setup

Establishing the Entity Identity

Identifying a Legal Entity

• For a company or legal entity or legal vehicle (non-natural person), the creation of an entity is evidenced through Formation Documents or Constitutive Documents. Examples include Certificates of Incorporation, Certification of Formation/Organization and Partnership Agreements. This is similar to the process of opening an account for an individual when a person is asked to verify their identity through documentation such as: Birth Certificate, Drivers License, Social Security Card etc.

Understanding the Corporate Hierarchy

• Each entity within the corporate family is independent and has its own governing body. Their relationship to one another is determined by "control" via ownership of shares:
  • The Parent: Owns enough voting stock in another company resulting in its ability to greatly influence, by voting its shares, the underlying subsidiary company. An unincorporated branch of a Parent entity would not be considered a separate legal entity
  • Subsidiary: An entity whose shares are majority owned by another entity
  • Affiliate Companies: Are associated with one another when the entity is controlling, or commonly controlled by another

Note: Each legal entity acts on its own behalf. A legal entity (even if it is a subsidiary of another entity) will have the right to own, sign agreements for, and operate their accounts independent of their parent. In order for the parent to have the right to act on behalf of its subsidiaries a Delegation of Authority document must be signed by the subsidiary.

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