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Startup Accompaniment

Most of the expensive decisions in a startup are made in the first year — when nobody is thinking about tax yet. How the shares are split, who counts as an employee, when options are granted, and where the intellectual property sits. By the time the raise or the exit arrives, those decisions have already cost what they cost.

What the accompaniment covers

  • Planning the corporate structure and taxation — an Israeli company, a structure with a foreign parent, or a combination; where the intellectual property sits; and the tax consequences of each choice;
  • Bookkeeping and payroll adapted to a start-up's pace, including reporting by cost centre and project;
  • Employee option plans under section 102 — establishment, deposit with a trustee, vesting tracking and exercise;
  • Innovation Authority grants — applications, performance reports and audit;
  • Encouragement Law benefits — assessing eligibility for preferred technological enterprise status and applying it;
  • The Angels Law — positioning the company so investors can benefit from the relief;
  • Readiness for fundraising and due diligence — the statements, documents and answers an investor will ask for;
  • Exit support — deal structure, taxation of founders and employees, and spreading of consideration.

Three mistakes that recur in almost every startup

1. A founder working with no arrangement. Not an employee, not a service provider, no agreement — until a raise arrives and it has to be explained. 2. Options promised verbally and granted only after the valuation has risen — turning a benefit into a tax event. 3. Intellectual property created by an external contractor without a proper assignment of rights. All three surface in due diligence, at the worst possible moment to deal with them.

Planning the structure and taxation — the heart of the accompaniment

The questions that determine how much tax the company, the founders and the investors will pay are usually settled long before there is revenue. These are the topics we plan together with you:

  • Corporate structure — an Israeli company, a foreign parent (for example in Delaware) above an Israeli company, or moving to such a structure ahead of a raise (a flip). Each choice has consequences for the founders, the investors and eligibility for benefits in Israel.
  • Where the intellectual property sits — where the technology is developed, and who owns it. This determines eligibility for the preferred technological enterprise track under the Capital Investment Encouragement Law (corporate tax of 12%, and 7.5% in Development Area A) and the tax on exit. Moving intellectual property after the fact is a tax event.
  • The founders — share allocation, the vesting mechanism and the form of engagement, so that they are in order before the first raise.
  • Financing instruments — share issuance, a convertible loan or a SAFE: how each instrument is classified and what follows from it.
  • Benefits for the company and its investors — positioning the company as an "R&D company" for the Angels Law, Innovation Authority grants, and preparing for preferred technological enterprise status.
  • International activity — transfer pricing between the Israeli company and related companies abroad, and the relevant tax treaties.
  • The exit — a share sale versus an asset sale, and the taxation of founders, investors and employees.

← Read our full guide: startup taxation — from incorporation to exit

← Read our full guide: the Capital Investment Encouragement Law — who is eligible and what the benefits are

And employee options — section 102

An option plan under section 102, capital gains track with a trustee, is one of the components of the planning, and it is sensitive to detail: deposit with a trustee, a minimum holding period, and the timing of the grant relative to the company's valuation. A plan that was not properly established may push employees from 25% tax to marginal rates.

← Read our full guide: employee options and section 102

Who accompanies you

The hi-tech practice at our firm is led by CPA Amir Gonen — former Head of the Tax Division at the Israel Innovation Authority, and before that a senior inspector in the international taxation unit at the Tax Authority and a senior manager in EY's international department.

Which means a company accompanied by us gets both the routine side — books, payroll, filings — and the perspective of someone who was on the side that grants the benefits and examines them.

← CPA Amir Gonen's profile

When to get in touch

The honest answer: earlier than you think. An hour's conversation before incorporating, before the first option grant or before signing a term sheet is worth more than any retrospective fix. Most of what is hard to repair later could have been arranged for almost nothing at the start.

The information on this page is general and does not constitute professional advice. The tax aspects depend on the company's structure, the identity of its shareholders and the circumstances of the transaction.

Incorporating, or heading into a raise?

Talk to us before the decisions — that is where most of the value is

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