Shazia looked at the group of women. "What does it mean to be a legal entity?" they had asked. How do I explain that she wondered?
Shazia works for UPLIFT, a small organisation set up by a group of young professionals some years ago who wanted to "enhance the livelihood conditions of the needy, downtrodden and weaker sections of society".��
The women had been meeting for some time now, each week saving a small amount of money and using their meetings to discuss other matters that affected their lives.�� Sometimes members borrowed some money from the accumulated savings and sometimes they lent it to other groups in the village who needed extra funds.�� Otherwise one of the members kept the money in their house until the next meeting.�� They had had problems though ��� first when another group could not pay them back and also when some of the money had been stolen from a house.
Shazia was helping them to get more organised and she had recommended that they start to use a bank for keeping surplus funds.�� However, when they approached Povertia Rural Bank they were told they could not have a bank account for the group as they were not "a legal entity".
"Let’s ask Vinayak, the bank manager, to explain" suggested Shazia.�� This is what he told them…
A legal entity is a definition through which the law of a country allows a group of people to act as if it were an individual for certain purposes. This concept allows for easy conduct of business by having ownership and agreements under the name of the legal entity instead of the names of all the people making up the entity.
To become a legal entity the name of a group has to be registered somewhere according to conditions laid down in an "act" or law approved by the government of each country.�� Then the bank can "transact" with the group and open a bank account in its name.
In most countries there is more than one law under which people can register groups as a legal entity.��
Here are two possible names of legally registered groups:
- Limited company
Can you think of some more?