Barzali firm specializes in company formation, ongoing consulting for company owners, and assistance with proper tax planning following company establishment. On this page, you can get a glimpse into the process of forming a limited company, and the commitments facing limited company owners regarding accounting and tax handling. As always, we will be happy to assist you specifically with any questions on the subject.
What is a limited company?
A limited company (Ltd.) is an association of several individuals or a single person carrying out business activity, usually for profit. Shareholders generally manage the company or appoint a CEO.
Should I open a limited company?
A business can be established by opening as an authorized dealer (self-employed) or a limited company. Both of these options naturally have advantages and disadvantages, for example, incorporating as a limited company helps with the business's image in the eyes of potential clients.
Anyone can open a limited company.
A private individual, corporation, or entity.
Ltd. - Limited Liability, meaning – the company's liabilities are limited to the extent of its assets, meaning: when a shareholder provides personal guarantee, he is directly responsible for all the company's liabilities.
The process of establishing a limited company
In order to open a limited company, it is necessary to register with the Registrar of Companies at the Ministry of Justice.
When establishing the company, the shareholders will jointly decide on how the company's holdings will be distributed (the distribution of share percentages). The shareholders will be required to establish the company's bylaws, which will coherently regulate the business relationship between the shareholders and the company, and between the shareholders themselves.
The incorporation documents must be signed by a lawyer, and submitted to the Registrar of Companies when applying to incorporate the company.
Accounting practices of a limited company
A limited liability company must keep its books using double-entry bookkeeping (bifurcated according to law).
The accounting for a limited company is generally more expensive than that of a licensed dealer. A limited company is required to submit an audited report by a certified public accountant. A limited company has the option to distribute dividends: shareholders will receive their proportional share of the company's share capital.
A self-employed person (sole proprietor) is legally obligated to pay National Insurance and health contributions on all their income. In contrast, if they work through a private limited company, only the salary they draw will be subject to National Insurance, and the company's profits distributed as dividends will be exempt from this payment.
A licensed business owner (self-employed) pays income tax according to fixed tax brackets and in direct proportion to their income; the maximum marginal tax rate for a licensed business owner (self-employed) is 50% for 2014, and this tax also includes an additional tax at a rate of 2%.
A limited liability company (LLC) has an establishment process that includes company registration, payment of various fees, and bookkeeping costs that are higher than those for an authorized dealer (self-employed person). However, it should be remembered that all the aforementioned expenses are definitively deductible for tax purposes. As we have reviewed so far, we recommend a consultation meeting with a certified public accountant from Barzily firm, in order to examine the various parameters from company to company, which depend on the field of business, the expected revenue turnover, and the investments of the partners or individual.
Taxation of Income of a Limited Liability Company
The tax applicable to a company is 48.55% and consists of corporate income tax on taxable income at a rate of 26.5% and an additional tax of 30% on dividends. Due to this specific tax allocation, a limited liability company has the option to defer the tax payment on dividends (profit distribution), thereby avoiding the additional tax. Therefore, when examining the distribution of profits and its implications, it is advisable to consult with a tax accountant.
Barzily Firm would be happy to assist, advise, and be at your disposal regarding the establishment of the company, its opening, and the process involved.
