# Legal entity

> A legal entity is a company or organisation formally registered under the laws of a country, giving it the right to employ people, sign contracts, and pay taxes in that jurisdiction.

A legal entity is a business formally registered under a country's laws. The registration creates a recognised structure, distinct from its owners, that can hire employees, hold assets, sign contracts, and pay local taxes. Without one, you cannot compliantly employ people directly in most jurisdictions. Setting one up typically involves filing with a government authority, appointing directors, creating governing documents, and registering for tax. The process can take weeks to months and requires ongoing compliance: annual accounts, director filings, payroll registration, and sometimes works council obligations. For companies expanding internationally, establishing a local entity is a significant commitment of time and cost. That is why many businesses start with an Employer of Record (EOR) arrangement instead, which lets them hire in a country without owning a local entity. As headcount and confidence in a market grow, some companies then establish their own entity and take employment responsibilities in-house.

## What types of legal entity can a company register?

Common types include a private limited company (Ltd in the UK, GmbH in Germany, SAS in France), a branch of a foreign company, or a subsidiary. The right choice depends on liability, tax treatment, and how much autonomy the local operation needs.

## How does an EOR let you avoid setting up an entity?

An Employer of Record already holds a registered entity in the target country. It employs your workers on your behalf, handling contracts, payroll, and compliance locally. You get the benefit of having people on the ground without the cost and lead time of incorporating yourself.

## When should you move from an EOR to your own entity?

There is no fixed threshold, but companies typically consider their own entity once local headcount is large enough that the per-employee EOR fee exceeds the fixed cost of incorporation and in-country compliance, or when commercial or regulatory reasons require a local corporate presence.

## Key facts

- **UK digital incorporation fee (from Feb 2026):** £100 (Source: GOV.UK, Companies House, verified 2026-06-24)
  Increased from £50 to £100 on 1 February 2026, the largest Companies House fee rise in over a decade, driven by the Economic Crime and Corporate Transparency Act.

## Frequently asked questions

### Do I need a legal entity to pay contractors in another country?

Not always. You can pay contractors directly without a local entity, though you must be careful about misclassification risk. A legal entity or EOR is needed only when you want to employ people as employees, with the protections and obligations that brings.

### Can a foreign company hire employees in the UK without a UK entity?

Yes, by using an Employer of Record that holds a UK entity and employs the workers on your behalf. This is a common route for companies testing the UK market before committing to full incorporation.

### What is the difference between a branch and a subsidiary?

A branch is an extension of the parent company with no separate legal identity, meaning the parent carries full liability. A subsidiary is a distinct registered company in its own right, which limits liability to the subsidiary's own assets.

### Does having a legal entity in a country create a tax liability there?

Almost always, yes. A registered entity is typically subject to corporate tax on local profits, payroll taxes, and VAT or its equivalent. The exact obligations depend on the country's tax law and any double taxation treaties in place.

## Sources

- [Companies House fees are changing from 1 February 2026](https://www.gov.uk/government/news/companies-house-fees-are-changing-from-1-february-2026), GOV.UK

_Last updated 2026-06-24. Reviewed by Teamed's in-house employment-law team. Source: https://www.teamed.global/glossary/legal-entity_