Most small businesses start with one person, one idea and the simplest business structure: the sole proprietorship.

Company in Israel: independent companies are also known as Osek Murshe or Osek Patur. But forward-thinking entrepreneurs shouldn't wait too long before considering the advantages of incorporating in Israel. For those looking to grow and hire, the limited liability company (Hevra Baam - חברה בע "מ) is by far the best structure. Self-employed people often start their business as a sole proprietorship, in which the entrepreneur is the direct owner of all assets and personally liable for all liabilities. One of the advantages of a sole proprietorship is its simplicity, especially in terms of administrative formalities. For example, sole proprietorship tax information is filed on the owner's personal tax return (Doh Ishi - דוח אישי).

Easier transfers of ownership, limited liability and unlimited lifetime.

However, as they grow, most businesses become corporations, as this structure offers several advantages not available in sole proprietorship. Here is a non-exhaustive list of some of these advantages:

Transferring ownership is easier.

A company in Israel is made up of shareholders, each of whom owns shares in the company. To transfer ownership of your company, all you have to do is sell your shares.

Owners' liability is limited.

As its name suggests, an SARL limits the liability of its shareholders. This means that creditors and other banking institutions can only trace their claims to the assets of the company itself. They will not be able to intervene directly on shareholders' assets, except in exceptional cases.

The company can outlive its founders.

A company in Israel is a separate legal entity, and the owners do not directly own its assets. Instead, they hold shares in the company, which represent ownership of the assets. Limited liability means that the owners are not personally liable for the obligations or acts of the company, within certain legal limits. Potential losses are limited to the amount invested in the company, unless the owner has provided a personal guarantee, which banks may sometimes require. The other decisive advantage of a company is its theoretically unlimited lifespan. When a shareholder dies, his or her shares are bequeathed to his or her heirs or passed on through a sale. In contrast, a sole proprietorship is automatically dissolved on the death of the entrepreneur.

Instant credibility

The limited liability company, unlike other structures, gives the owner immediate credibility. Potential investors, lenders, suppliers, customers and employees know right away that you're serious and have a long-term perspective. That said, incorporation involves additional costs and effort. For one thing, a corporation must maintain a set of accounting records independent of those of the owners. For another, a company must pay annual registration fees and file separate tax returns and financial statements. However, analysts and legal experts are clear: it's worth the effort. It's rare to find a major business that isn't incorporated.

Significantly lower taxes.

Without going into detail about all the tax advantages available to a company in Israel (See also : understanding the Israeli corporate tax system)In this section, we will simply mention the tax rate that applies to the profits of Israeli companies: Mas Havarot - מס חברות. While a self-employed person can see his tax rate reach 50% of his income (Read also: Understanding tax calculation in Israel). The tax rate on profits made by a company in Israel is linear, at around 24% (on profits made in 2017), then 23% from 2018 onwards.Read also: From January 1, 2017, several reforms for companies in Israel. So, even if all the elements outlined above haven't convinced you of the need to open a Hevra Baam, it could well be that this huge difference in tax rates is the trigger for your thinking. Don't hesitate to consult our firm of chartered accountants for a tax optimization solution that will considerably reduce your annual tax bill.