What is a legal entity?
A legal entity is an organisation recognised by law as a separate legal person. A company is one type, but not the only type.
Under the applicable law, a legal entity can have rights and obligations, own assets, enter contracts and sue or be sued. Companies and registered associations are examples with potentially different purposes. An entity need not be large. A company is legally distinct from its shareholders, so its bank balance is not automatically their personal money. In Israel, exempt and authorised dealer are VAT classifications, not synonyms for incorporation. Registering for VAT alone does not create a separate company. Separate personality is not absolute protection: a personal guarantee can make an individual responsible for a commitment. This lesson describes the Israeli context.
Noa runs a business as an individual and is an authorised VAT dealer. Yoav registers a company. Noa’s VAT status does not turn her business into a company; Yoav’s company is a separate legal person.
Explain the difference between incorporation and VAT classification.
Ministry of Justice — official information ↗Check your understanding
Is every legal entity a company?
- Yes
- No; a registered association is another example
- Only if it has employees
Answer and explanation
No; a registered association is another example. Legal entity is a broader concept than company.
Does registering as an authorised VAT dealer alone create a separate company?
- Yes
- No
- Yes, if revenue is high
Answer and explanation
No. VAT classification does not itself incorporate a company.
A company signs a contract in its own name. Who is normally the contracting party?
- Each employee separately
- The company
- Every customer
Answer and explanation
The company. A company can contract in its own name.
Continue learning
Transaction Invoice, Tax Invoice and Receipt — A transaction invoice documents a transaction; a tax invoice is a tax document; a receipt documents the receipt of payment.
What is an allocation number for an invoice? — An allocation number is a number from the Tax Authority in the context of Israeli invoices, in addition to the business's invoice number.
Exempt Dealer and VAT-Registered Dealer: Exempt from What? — Exempt Dealer and VAT-Registered Dealer are classifications for VAT purposes; being exempt does not mean exempt from all taxes.