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Company in Israel
Most businesses start with one person, one idea, and the simplest corporate structure in Israel: the sole proprietorship, also known as the Osek Patur or Ossek Mourche.
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 בעמ) 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 sole proprietorship is its simplicity, especially in terms of administrative formalities. For example, sole proprietorship tax information is filed on the owner's personal income tax return (Doh Ishi - דוח אישי).
Significantly more advantageous tax treatment
Without going into detail about all the tax advantages available to a company in Israel. We'll just mention the tax rate that applies to the profits of Israeli companies: Mas Havarot - מס חברות.
Whereas a self-employed person's tax rate can reach 50% of income. The tax rate on profits earned by a company in Israel is linear, amounting to 23% (as of January 1, 2022).
So, even if all the elements outlined above haven't convinced you of the need to open a Hevra Baam. It may well be that the huge difference in tax rates is what triggers you to think again.ALSO READ: Understanding Israel's corporate tax systemALSO READ: Understanding tax calculation in Israel
Easier transfers of ownership, limited liability and unlimited lifetime.
However, as they grow, most businesses become corporations, as this structure offers several advantages that sole proprietorships do not.
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 these shares.
Owners' liability is limited.
As its name suggests, an SARL limits the liability of its shareholders. Creditors and other banking institutions can only trace the company's assets, and cannot intervene directly on shareholders' assets, except in exceptional cases.
The company in Israel can outlive its founders.
A company 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 owners are not personally liable for the company's obligations or actions 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. On the one hand, a company must maintain a set of accounting records independent of those of the owners. On the other hand, a company must pay annual registration fees and file tax returns. tax and separate financial statements.
However, analysts and legal experts are adamant that it's worth the risk. It's rare to find a major business that isn't incorporated.
