How to Choose a Type of Company in Israel

This article addresses how to choose a type of company in Israel. There are 3 main categories of companies in Israel.

A small private company (Osek)
A limited liability company (Ba”am or בע”מ)
Association

COMPANY IN OWN NAME

A private company is a sole proprietorship which entails unlimited personal responsibility for all the activity of the company. The profit is the property of the contractor. This structure does not require any incorporation costs and does not require the keeping of accounts and a balance sheet by a chartered accountant (although hiring an accountant is advisable). This sort of private company may be run from one’s own private residence. However, it can have employees, an office, and a modestly substantial financial turnover.

There are two types of small businesses:

-Osek Patur (עוסק פטור) Companies with a maximum annual turnover of 99,000 shekels (revalued annually). This type of company does not require any VAT declaration, so it is possible not to return VAT to the state. However, this company cannot recover VAT on expenses or investments.
-Osek Murshe (עוסק מורשה) for companies with a turnover of 100,000 shekels or more. You will need to make VAT returns every month or two months (depending on the turnover). However, this type of company can recover VAT on purchases and collect on revenue. It should be noted that certain professions, including lawyers, are obliged to establish their small companies as “Osek Murshe,” even if they have a modest turnover under 100,000 shekels.

Limited Liability Company (LTD)

This type of company can have from 1 to 50 partners and its constitution does not require a contribution of capital. The registration fee is 2,554 NIS, or 500 euros. Each year the company is operational, it must pay an additional fee. As we presented in our article on the creation of a company in Israel, this type of company requires a chartered accountant to meet the tax and administrative obligations. Note that a limited liability company in Israel allows the manager to borrow money directly from the company, which creates a source of income.

ASSOCIATION

The status of an association in its own name is identical to that of a sole proprietor company. It allows the association of several entrepreneurs in a business association. Thus, each individual will be taxed according to the shares he holds in the association.

There are two other types of companies in Israel which are the public limited company and cooperative, which is mainly found in the agriculture and transport sector. We will review the details of the different charges, employers and employees, which apply to each type of company and their taxation in another article.

CONTACT US – Type of Company in Israel

Our law firm specializes in Israeli company law, and we would be happy to help you choose a type of company in Israel or advise on any other issues related to your company or corporate needs.