Is it worth it to register a new company Ltd?
There are advantages and disadvantages to registering as a corporation with Limited Liability. Self-employed people and salaried employees with high income consider registering as a company due to:
- Separate legal entity and liability limitation
- Additional considerations which are not financial
Separate legal entity and liability limitation
The legislator will create a separate legal entity in the form of a limited liability company whose shareholders do not guarantee the company’s debts beyond the issued and paid up share capital. The court tries to keep the company separate from its shareholders, and only in certain cases, such as criminal acts committed by the company, will it obligate the company’s shareholders to pay the company’s debts. Banks that lend money to limited liability companies in some cases require shareholders to provide personal guarantees for the debts of the company or pledge assets in favor of the credit taken from the bank.
Costs – Companies registrar fee
Incorporation as a company requires the management of a double accounting system, the appointment of an accountant, the payment of the Companies registrar fee once a year, and the submission of reports in the company form to the tax authorities. All of the above-mentioned treatment raises the costs of maintaining a company and amounts to tens of thousands of shekels per year. An independent large business owner is required to manage accounts in the double accounting system. This applies to manufacturing, wholesale or retail businesses, whose annual turnover (including VAT) exceeded NIS 3 million in 2003 (250,000 NIS per month) or the number of employees exceeds the minimum (in retailers 4-5 employees), as well as service businesses such as transport and transportation, restaurants, maintenance services, etc., whose annual turnover in 2003 exceeded NIS 1.7 million (NIS 141,666 per month including VAT). For self-employed people who are obliged to manage a double accounting system, this consideration will not constitute a factor when examining the considerations of incorporation as a company. Double accounting management has a great advantage in controlling finances in the business and better financial control.
Additional considerations which are not financial
Business activity within a company presents a more respectable business appearance than an independent business and therefore many businesses prefer association in this way. When there are several partners in the business it is preferable to act as a company since the company’s articles constitute a contract between the shareholders of the company that regulates the management of the company and other matters among the shareholders of the company. A prominent disadvantage of association as a company is the desire to stop its business activity. A business activity that is not within the framework of a company, can be stopped immediately without costs or legal actions. However, discontinuation of activity within a company is not simple and sometimes requires a procedure of voluntary liquidation and court approval.
Therefore, rational considerations must be exercised before deciding whether to become a limited liability company or to act as an independent. The advantages and disadvantages of each option should be weighed and adapted to the nature of the business, its scope, the potential for expansion, and more. Consulting with an accountant can prevent making the wrong decision.