When creating new entity, follow step-by-step instructions and you’ll be fine. Except if you want to enable the entity for Knowledge Management later on, you’ll find the relevant checkbox disabled. What the?
To work around this behavior (that looks suspiciously like a bug), open Settings > Service Management > Embedded Knowledge Search, check the box for your entity in Record Types list and save the changes.
Follow the same process to disable Knowledge Management for your entity. Note: when Knowledge Management is disabled, N:N relationships between the entity, Knowledge Articles (shiny new KBs since CRM 2016) and Knowledge Base Records (Parature integration) are not removed which makes life much simpler if you have data or added the KB sub-grid to the entity form. Nuke the relationships manually or keep them around in case your want to resurrect Knowledge Management later on.