The fundamentals of legal entity identity data – Part 2
Read Part 1 – What actually is a legal entity?
Filling in a form creates a new legal person. That sounds absurd – until you understand what’s actually happening.
This is the second in a series of posts from OpenCorporates exploring legal entity identification – what it is, why it matters, and why the world still lacks a universal solution. This series accompanies the launch of the plei, a new approach to universal legal entity identification. In this post, we examine what actually happens when a legal entity comes into being.
In the previous post, we explored what a legal entity is: a construct so foundational to modern commerce that we rarely stop to examine what it actually is. We looked at the key features that make legal entities so powerful – distinct legal personality, universal recognition, chainability, and limited liability.
Now we turn to a different question: how does a legal entity actually come into being?
The consistent pattern
Like many of the posts in this series, a single article cannot fully do justice to the nuances and complexities that are intrinsic to this subject. But in general, the creation of an incorporated legal entity follows a fairly consistent pattern across jurisdictions. The founders – sometimes with the involvement of notaries or legal professionals, as required in many civil law jurisdictions – prepare formation documents: articles of incorporation, a memorandum of association, or equivalent filings, providing the essential details: the entity’s name, its registered address, the names of directors or officers, perhaps its stated purpose.
These documents are submitted to the relevant authority – a company register, a secretary of state’s office, a district court, perhaps even a local chamber of commerce. The authority reviews the submission, confirms it meets the requirements, and performs the official act: recording the new entity in the register, and sometimes in an official gazette too.
That act of recording is in general the moment of creation. Before the register entry, no legal entity exists. After, there is a new legal entity – a construct capable of owning property, entering contracts, suing and being sued. (Some civil law jurisdictions recognise a degree of legal capacity during the formation process itself – German law, for example, treats the Vorgesellschaft, the entity-in-formation after notarisation but before registration, as capable of holding property and entering contracts. But even in these cases, full legal personality attaches only upon registration.)
If this seems absurd – that an administrative act creates a new legal entity – think about how laws are passed, and the power they have. A lot of writing, a few people shouting Aye, perhaps a signature by the governor or president, and suddenly doing something that was previously legal can wind you up in jail. Both are performative legal acts – acts that change legal reality by virtue of being performed in the prescribed manner. Recording a new entity in the register is a performative act of a different kind from legislation, drawing on statutory authority rather than sovereign power, but it is done at scale, often with limited oversight, and as we saw in the first post of this series, with immense consequences.
The register as creator
This is a point worth dwelling on. The register doesn’t merely record the existence of a legal entity. In most jurisdictions, the act of registration is what creates it. The register is not a phone book that catalogues pre-existing things. It is the mechanism through which new legal entities are brought into being.
This is sometimes called the “constitutive” function of registration, as distinct from the “declaratory” function of, say, registering a birth. When a birth is registered, the person already exists – the register simply acknowledges what has happened. When a company is registered, the entity does not exist until the register says it does.
This means the register is not just an important source of information about legal entities. It is the authoritative source for its existence – the thing that makes them real. (Not all attributes recorded in the register carry the same constitutive weight, however. If false information about a director is filed – as in the UK’s first prosecution for false company information – the register entry may create legal consequences for third parties who rely on it in good faith, but it does not make the named person a director in fact. The register’s authority is strongest and most unambiguous for the entity’s existence itself.)
From rare event to mass production
For centuries, incorporation was rare. Commerce was physical, supply chains were short and relatively static, and contracts were entered into infrequently. Forming a legal entity was a slow process that happened relatively infrequently. In 1975, for example, 45,700 companies were incorporated in the UK – around 125 a day.
Last year, that number was 827,000 – more than 2,200 a day.
This explosion in volume has been accompanied by a transformation in process. The paper form has become a web interface. The submission is an electronic transaction. The official act of recording happens in a database. Legal entity registers are no longer registers in the paper sense – they are computer systems.
The register typically still issues a certificate of incorporation as evidence that a new legal entity has been born. But where these certificates once bore physical seals and stamps, they are now PDFs – sometimes scans of paper versions, increasingly generated directly from the raw data in the register’s database.
The source of truth
Through all of this change, one thing has not changed: the register remains the authoritative source. The database record of the entity’s creation – not the certificate, not the PDF – is what constitutes the entity’s existence. The certificate is a rendering of that record. The record is the thing itself.
This distinction – between the register’s record and any document derived from it – might seem like a technicality. It is not. As we will see in the next post, it is the key to understanding what “proof of life” actually means, why the documents we have relied on for centuries are becoming worthless, and what must replace them.
In the next post, we will examine what it actually means to prove a legal entity exists – and why, in an age of generative AI, a certificate of incorporation now proves almost nothing.
OpenCorporates and the plei are not affiliated with and operate independently of the Global LEI System and the Global Legal Entity Identifier Foundation (GLEIF).
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