An association, corporation, partnership, proprietorship, trust, or individual that has legal standing in the eyes of law. A legal entity has legal capacity to enter into agreements or contracts, assume obligations, incur and pay debts, sue and be sued in its own right, and to be held responsible for its actions.2 people found this helpful. Modern economic systems typically allow for creation of a legal entity which is separate and distinct from a person but which is able to function in limited capacities to enter contracts, pay bills, and to be held liable for it's actions.