Legal Entities for India

A legal entity is a recognized party with rights and responsibilities under Commercial Law, through the registration with the country’s appropriate authority.

These are the rights and responsibilities of a legal entity:

• Own property

• Trade

• Repay debt

• Account for themselves to regulators, taxation authorities, and owners according to rules specified in the relevant legislation

Their rights and responsibilities may be enforced through the judicial system.

A legal entity has responsibility for elements of your enterprise for the following reasons:

• Facilitating local compliance

• Minimizing the enterprise's tax liability

• Preparing for acquisitions or disposals of parts of the enterprise

• Isolating one area of the business from risks in another area. For example, your enterprise develops property and also leases properties. You could operate the property development business as a separate legal entity to limit risk to your leasing business.

No legal entities are predefined. You must create all legal entities that apply to the enterprise you're setting up. Use the Manage Legal Entity HCM Information task in the Setup and Maintenance work area.

When defining legal entities, you must consider the following:

• Roles of Legal Entities

• Types of Legal Entities

• Registrations

• Additional Reporting Information

Role of Legal Entities

In configuring your enterprise structure, the contracting party on any transaction is always the legal entity. Individual legal entities:

• Own the assets of the enterprise

• Record sales and pay taxes on those sales

• Make purchases and incur expenses

• Perform other transactions

Legal entities must comply with the regulations of jurisdictions, in which they register.

To support local reporting requirements, you create and register legal reporting units (LRU).

You are required to publish specific and periodic disclosures of your legal entities' operations based on the different jurisdictions' requirements. Certain annual or more frequent accounting reports are referred to as statutory or external reporting. These reports must be filed with specified national and regulatory authorities.

A legal entity can represent all or part of your enterprise's management framework.

Types of Legal Entities

Two types of legal entities exist:

• A legal employer is a legal entity that employs workers.

• A payroll statutory unit (PSU) is a legal entity that's responsible for paying workers, including the payment of payroll tax and social insurance. A PSU can pay and report on payroll tax and social insurance on behalf of one or many legal entities. That choice depends on the structure of your enterprise.

When defining a legal entity, you must consider the context in which it's to be used:

• If the entity is to be used in an HCM context, designate it as a legal employer. In an HCM implementation, it's mandatory to define legal employers.

• If the entity is to be used in a payroll context, designate it as a payroll statutory unit (PSU) for payroll processing and tax reporting.

• You can define a legal entity that's both a legal employer and a PSU.

• If multiple legal employers must be grouped together for tax reporting purposes, you can associate them all with a single PSU. If legal employers don't report together, they must be segregated by PSU.