Q. What is an annual report? Is it complicated and am I required to also file a financial balance sheet?
A. The annual report (doch shnati) is not a financial statement. A relatively straightforward form needs to be completed, which is intended to provide an updated picture of the company, including its registered address, particulars of directors, shareholders etc.
Q. What is a company in breach of the law (Chevra Meferat Chok)?
A. A company will be declared by the Registrar of Companies as a “company in breach of the law” where it has committed a breach of the provisions of the Companies Law by failing to pay annual fees and/or failing to submit annual reports to the Registrar. Sanctions which can be imposed by the Registrar on such a defaulting company include: non-registration of a charge made in favor of the company, non-registration of a charge on the company assets, which impacts upon the company’s ability to obtain bank loans, and non-registration of pledges in the company’s favor at the Registrar of Pledges (Rasham HaMashkonot). In addition, the company will be unable to change its name or its objects; and the company and its controlling shareholders will be unable to register a new company.
The Registrar of Companies is also empowered to impose financial sanctions on such companies – ranging from several thousands of shekels to several hundreds of thousands of shekels in the case of each day of delay in failing to file an annual report. Moreover, if the financial sanction is not paid on time by the company, the Registrar can demand its payment from a director of the company. Proceedings can likewise be commenced for collecting the financial debts and penalties pursuant to the Taxes [Collection] Ordinance. Therefore, any unpaid annual fees should be paid, and unfiled annual reports should be submitted, as soon as the Registrar of Companies sends out a letter to the company’s registered address, warning that the company will be declared a company in breach of the law if it fails to rectify these matters, in order to cancel this status at the Registrar of Companies.
Q. The company I own has not been active for a number of years. How can I avoid sanctions being taken against the company?
A. A company which is not active can commence the process of voluntary liquidation. In this manner, it can avoid the accrual of fee obligations payable by the company and the imposition of sanctions on its directors or controlling shareholders. Liquidation discharges a company from fee obligations. Following the conclusion of the winding-up process, the company will be registered as “liquidated” (mechuselet).
Also worth noting is the fact that even if the company’s directors have died, the company will continue to be registered and to incur financial and other obligations at the Registrar of Companies – until such time as the company is liquidated. The lawful heirs of the owners should therefore consider liquidating the company, or take other steps as provided for by law, to avoid financial and other unpleasant sanctions.
Q. If our company is not active, why did we receive a form to pay the annual fee?
A. The annual fee payable to the Registrar of Companies is based on “registration,” not on “activity.” So long as the company has the status of being “active” or “live” on the Registrar’s file, an annual fee must be paid. Indeed, even a company which is in the process of being wound up must pay an annual fee, until it is actually liquidated. That said, the company liquidator can apply for an exemption from the need to pay any outstanding annual fees, by appending to his final report (pursuant to s. 338 of the Companies Ordinance) the relevant authorizations from the bank and the VAT and Income Tax authorities confirming that, in practice, the company’s account/files there have been closed during the relevant years.
Q. Can a company be frozen?
A. No. At the Registrar of Companies, a company’s status can be either live/active (pa’il) liquidated (me’chusal) or in the process of being wound up (be’halichei pe’iruk).
For further advice and assistance on the formation or operation of a private limited company, or other form of legal business entity, in either Israel or the UK, feel free to contact Simon: 0737-40-60-40 / 0545-742-374 / simon@jacksonadvocates.net
