Would generate a new table help reducing the overall size
You would not actually save any space using BIT rahter than TINYINT (and would also give yourself more options to add other entities). This is because 8 or less bits are stored in a byte. If you were using multiple bit entries this could save you space, but it's ultimately very limiting. A TINYINT would use the same 1 byte of storage, but would allow you to store up to 256 different entity values. 

Saying this though, from a practicality standpoint, unless you are looking at ridiculously high volumes of data the space savings are not going to be that significant regardless of using TINYINT or SMALLINT (~65k values &amp; 2 bytes). 

Using normalization for this sort of thing is very common, and helps prevent excessive bloat (after all in your second table you would store 1 bytes instead of twelve to represent the person entity). Don't forget to add foreign key references.