Tips and Tricks on Israeli Business Entities - Private Limited Company (חברה בע”מ)

Jun 20, 2013 in 2. Legal Services, Blog, Israeli Business Entities | 0 comments


              The most common form of company registered in Israel is the private limited company (Chevra Ba’am), though a public company can also be created, with securities registered on a Stock Exchange. Private companies may not offer or sell debentures (bonds) or shares to the public and its articles must contain restrictions on the transferability of its shares. All companies in Israel must register with the Registrar of Companies at the Ministry of Justice (Rasham HaChaverot or the Rasham or Registrar, for short) –  In Israeli law, the limited company is conceived as a special kind of contract – both between the shareholders themselves and between the shareholders and the company. The limited company comes into existence through the signing of the company’s Articles of Association/Incorporation or Bylaws (Takanon). The General Meeting/Assembly (Asifa Clalit) of the shareholders qualified to vote represents the company. Company decisions, as a rule, are by simple majority of the votes cast, but matters of particular importance, such as alteration of the articles or the object of the company, may require a higher majority if the articles provide for this. The Directors (Menahalim), as well as the designated officers (managers) appointed from among them, run the company on a day-to-day basis, and are trustees and agents, whose acts bind the company. A company may issue several types of shares. The most common categories of shares are ordinary shares, preferred shares, controlling shares and founder’s shares. Ordinary shares, as a rule, carry the right to vote and to be elected at general meetings. Dividends will be distributed to the holders of preferred shares before the holders of ordinary shares. Founder’s shares, on the other hand, entitle their holders to a profit only after a certain dividend has been allotted to the other types of shares. Controlling shares may confer an exclusive right to elect and to be elected to the Board of Directors. Companies which are incorporated overseas may establish a branch or local office in Israel, provided they are registered as a foreign company with the Companies Registrar within 1 month of their establishment. One of the most attractive features of the limited company is that the liability of its shareholders and directors will be limited to the amount unpaid on their shares. The respectability of the company vehicle is valued by prospective investors and the Israeli Government alike, so that where outside financing is sought and it desires to retain its earnings a business will usually choose this mechanism. Nonetheless, shareholders’ liability can be expanded, if the courts agree to “lift the corporate veil” (haramat ha’masach). They will only do this, however, in rare circumstances, such as where there has been fraud or embezzlement of the company’s assets. To form a private company in Israel, a single shareholder is required, together with at least one director (who can even be the same person and need not be an Israeli citizen or resident, although the company will require an address in Israel for its registered office). A name in Hebrew must be chosen for the company and the English translation may also be registered. The name will not be accepted if it has been used previously by an existing company or it is so similar to an existing name as to be misleading. A preliminary check of the register can be made, to check the existence of companies bearing similar names to the name proposed for the new company: To register a company with the Rasham, it is necessary to sign an application to register the company (bakasha le’rishum chevra), articles of association (takanon) and declaration by initial director(s) of competence to serve (hatzharat direktorim rishonim). The documents must be signed in the presence of an Israeli attorney, or, if signed abroad, either at the local Israeli Consulate or before a local notary plus an Apostille stamp (usually obtainable from the Secretary of State or County Court). You must also pay the requisite registration fee (around NIS 2,600; the fee is set annually by the Rasham and can be paid online - An Israeli lawyer is required to verify the company documents in the course of the registration process. The assistance of an Israeli attorney will also be necessary when setting up a corporate bank account through which all company finances will be conducted. When you open the account, you will need to present copies of the company’s articles (takanon) and registration certificate (te’udat rishum), approved by an accountant or an attorney, as well as approval by an accountant/attorney of signatory rights (zechuyot chatima) for the company. The Board of Directors will typically grant such rights to members of the board (usually accompanied by the company’s stamp or printed name). The signatory authority can be with different levels (joint or individual), and for different activities (banking activities, all activities or particular activities). The company will often require the services of an Israeli attorney for post-registration matters as well, such as drafting minutes for signatory rights for the bank, effecting any desired share transfers, reporting to the Rasham on the appointment and dismissal of directors, and with respect to any contractual relationships that may be involved in the course of the business – such as drafting employment contracts and advising on any labor law issues. Once the company has been registered with the Registrar, it must be registered with the appropriate Tax Authorities (the Income Tax and VAT departments at the Ministry of Finance, and for social security with the National Insurance Institute). Registration as a company should be made at the Tax Authority upon commencement of operations. The filing number is usually the same one as the one issued by the Companies Registrar. The opening of tax files for the company is typically the task of the company’s accountants. After registration is complete, the Rasham will issue the company with a Certificate of Incorporation and a company number (of 9 digits). An Israeli company’s records at the Companies Registrar, include its corporate information (such as the company address, registered object(s), share capital, shareholders’ names, ID numbers, addresses and shareholders’ holdings in the company, directors’ names, addresses and ID number, registered liens, outstanding registration fees and company resolutions). All of these records at the Companies Registrar are accessible to the public. The register held by the Rasham can be searched using part or all of a company name in English or Hebrew, or by entering the company number ( Free information on a company includes the type of company, address, legal status and purpose of the company. Additional information, such as details of directors, total authorized capital, division of share capital, shareholders, charges and liabilities is priced. Companies are required to notify the Companies Registrar upon material changes in the company including the transfer/issuance of shares, appointment or dismissal of directors, imposition of liens, etc. For further advice and assistance on the formation or running 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 /

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