Building a product with a partner? How to choose the right structure
Two people building a product together is the most common combination in the builder world, and the least handled. At the start everything flows: one builds, the other markets, the income is divided over WhatsApp. And then the first tax question arrives ("wait, who issues the invoice to the client?"), then the IP question ("whose name is the code in?"), and in the end, if it was never dealt with, the painful separation. In this guide we go through the three possible structures, when each is right, and what must be settled in writing right now.
The three structures at a glance
| Two separate dealers | A partnership | A limited company | |
|---|---|---|---|
| How it works | Each issues invoices for their share, or one collects and pays the other as a supplier | A joint business entity; registered as a partnership for VAT, and the profit is attributed to the partners | A separate legal entity; you are shareholders (and usually employees of it too) |
| Taxation | Each taxed personally on their share | The partnership is transparent; each partner is taxed personally on their share of the profit | 23% corporate tax, and further tax on drawing (salary or dividend) |
| Intellectual property | Scattered, with whoever actually wrote or registered it | The partnership's, under the agreement | The company's, clean and centralized |
| Adding an investor or selling | Very difficult | Difficult | Built for it |
| Cost and operation | The cheapest | Medium | The most expensive (audit, fees) |
| A partner leaving | Chaos with no agreement | Under the partnership agreement | Orderly share mechanisms |
The staged route we recommend for most pairs
The experiment stage (no significant income yet): you can live with a light structure, each of you a dealer in their own right, plus a short understandings document (see below) that protects the rights. This is the stage where you still do not know whether the product will live, and there is no point in the costs of an entity.
The income stage: once there is regular income, the "each of us bills separately" structure starts to creak: the client wants one invoice, shared expenses get complicated, and dividing the profit requires orderly internal accounting (usually one collects the income and the other issues them an invoice for their share, which is proper but requires discipline). This is a legitimate interim stage, not a permanent home.
The serious stage: a live product, real income, two people building a future on it. Here a limited company with a founders agreement is almost always the answer: the IP moves to the company and gets clean, ownership is defined in shares, there is vesting that protects both sides if someone leaves, and a structure ready for fundraising or a sale. For a serious pair this is an expense that buys certainty, and the full calculation is in when to move to a company.
The paper worth more than the structure: the founders document
More important than "which entity" is what is settled between you in writing. At every stage, including the experiment, five clauses must be agreed and written down:
- Division of ownership in the product, in the IP and in the income. Including what happens to the division if one of you stops contributing (a vesting mechanism, the clause that breaks or saves partnerships).
- Intellectual property: who owns the code, the design, the brand and the data, and an undertaking that every future contribution belongs to the venture.
- Decisions: what you decide together (a sale, fundraising, expenditure above an amount) and what each of you decides alone.
- Money: how the income comes in, who holds it, when you distribute, and what happens with expenses each of you paid.
- Separation: an exit mechanism, valuation, a right of first refusal, what happens to the IP. You settle this while you still like each other, not while you are fighting.
Where our work ends and a lawyer's begins: binding legal drafting of a founders agreement is work for a lawyer, and we do not draft agreements. What we do do: build the economic and tax side of the arrangement with you (the division, the internal accounting, the structure), and work hand in hand with your lawyer. Do not skimp on that paper. It is cheap now and very expensive later.
And the favourite complication: a partner sitting abroad
An Israeli and foreign pair is a common story in the build in public world, and each side lives in a different tax system. A few principles:
- Each is taxed in their own country on their share, but the structure determines how: payments between you may meet withholding requirements, and the relevant tax treaty has an effect.
- A joint company, but where? An Israeli company with a foreign shareholder works excellently; a foreign company with an Israeli founder brings you back to all the control and management and CFC questions. There is no generic answer, there is an answer based on who does what and from where. We expanded on this in the Delaware guide.
- Start simple: in the early stages a clear contractual arrangement plus transparent accounting beats a sophisticated international structure nobody maintains. You upgrade the structure when the income justifies it.
A licensed Israeli CPA (license no. 500125101) accompanying businesses and self-employed clients across Israel - including founders, builders and owners of digital products. Bookkeeping, filings to the authorities, annual reports and personal financial guidance. About Adir →
Official sources
- Partnerships Ordinance - definitions and partners' liability (Hebrew)
- Corporations Authority - registering partnerships and companies (Hebrew)
- Kol Zchut - taxation of companies and shareholders (Hebrew)
The information in this guide is general only, current as of August 2026, and does not constitute tax advice or a substitute for professional advice fitted to your business's circumstances. It is a condensed adaptation of our fuller Hebrew guide. For personal advice - talk to us.
Partners - the questions everyone asks
We split 50/50, the client pays my partner and he transfers me half. Is that proper?
The private transfer is the problem: if all the income is recorded with your partner and he "transfers you half" by an app, he is taxed on everything and you on nothing, which is both wrong and creates excess tax for him. The simple solution at this stage: you issue him an invoice for your share (as a supplier to the venture), and each of you reports and is taxed on your real share. Orderly, lawful, and it takes five minutes a month.
What is the difference between a "registered partnership" and just working together?
A partnership is a legal and tax status: it is registered as a single dealer for VAT (in the partnership's name), keeps joint books, and the profit is attributed to the partners by their share, each paying tax personally. "Just working together" with no framework may be treated as a de facto partnership without your having intended it, with full mutual liability for obligations. If you are already operating together on a regular basis, it is better to choose a structure deliberately.
My partner contributes money and I contribute the work. How do we split it properly?
That is the classic valuation question: capital against exertion. There is no single formula, there are mechanisms: an asymmetric split, a preferred return of the investment before profits are distributed, or vesting that balances an ongoing contribution against a one-off one. What matters is setting it down in writing now, including what happens if the money runs out or the work stops. We help build the economic model of the arrangement.
Can I add a partner to my existing osek murshe?
No. A dealer status is personal and a partner cannot be "joined" to it. A real partner coming in means a change of structure: a registered partnership or a company. That is also the right moment to settle the value of what has already been built (your product to date is worth something), a point that gets missed in the excitement and costs dearly at a separation.
A friend contributed code or design at the start and now the product earns. Is he a partner?
Legally it depends what was agreed (or not agreed), and that is exactly the risk: an early contributor with no written arrangement is a question mark over the IP and the ownership, which will surface at precisely the most sensitive moment, a sale or a fundraise. The solution: settle it now, in writing, one of two ways, an agreed consideration for the contribution (with a release of rights), or an orderly admission as a partner. Do not leave it vague.