The Establishment of a Private Company
The matter is being regulated mainly in the Companies Law, 5759-1999. The law makes an essential distinction between two forms of companies: Private Company and the Public Company. This essay focuses on the establishment of a Private Company.
In Israel, a company may be established rather quickly, simply and for relatively low costs than in Germany. A deposit of any nominal capital in the company’s account is not required; its amount merely has to be registered and may be determined discretionary. In practice, the nominal capital is often set at 40,000 NIS and divided into 40,000 shares at a value of 1 NIS each.
100 shares thereof at a value of 1 NIS each could be issued to the shareholders, in relation to their shareholdings of the company. The remaining shares could be issued later, if necessary, without increase of the capital.
The company limited by shares is the most common form to establish a private company in Israel. The shareholders of such a company are in general solely liable in the amount of the shares held by them, inasmuch as these have not been paid up until the liquidation of the company. If a shareholder has paid up his shares in full (e.g. 50 shares of the 100 shares issued, with the value of 1 NIS each) he shall not be liable for the company’s debts, provided that the corporate veil is not lifted for reasons provided by law or jurisprudence.
It is also possible to establish a one-man-company in Israel.
In order to establish a company in Israel, neither a personal appearance in front of any authority, nor an involvement of a notary public during the proceedings is necessary. Both individuals and legal entities may be involved in the foundation process. The Nationality or place of residence or business of the establishing shareholders are not relevant. The company is established with its registration with the Registry of Companies. For this purpose the following documents are required:
- The application of the establishing shareholders to register the company with the Registry of Companies, which is to be made on a standard form provided by the Israeli Ministry of Justice.
- The company’s articles of association (to be discussed later).
- An affidavit of each and any shareholder stating his capacity in establishing a company, holding its shares and confirming the absence of legal restrictions cast upon him in such respect.
- The affidavit(s) of the first director(s) of the company confirming his (their) willingness to act as director(s). Nationality or place of residence of such director is insignificant, so that he (they) could very well be situated outside of Israel.
- The receipt for the registration fee payment, which amounts to 2640 NIS, approximately 613 € (June 2014).
- If the founding shareholders are represented in the process by an attorney, a corresponding power of attorney is required.
If an existing company takes part in the establishment, the registration additionally requires a notarized copy of its certificate of incorporation. Furthermore a representative’s affidavit is necessary stating the company’s registration with the respective Registry of Companies and the absence of legal restrictions cast upon it. The documents 1 to 4 have to be in Hebrew or in another language provided with an notarial translation into Hebrew.
Particularities regarding Foreign Shareholders
If a foreign shareholder takes part in the foundation of the company, the registry has to be provided with a copy of his passport.
If such a person makes an affidavit, as establishing shareholder or as first director, he may give it (i) before the Israeli consul at his place of residence, (ii) before an Israeli attorney, or (iii) before a notary public at his place of residence together with an apostille according to the Hague Convention (October 5, 1961).
If a foreign company takes part in the foundation process, an Israeli attorney specialized in the relevant foreign law has to declare in an expert legal opinion the entity’s correct registration with the relevant Registry of Companies. The expert has to specify further who functions as the company’s authorized representative according to the foreign Companies’ Registry’s excerpt. The named person should make the abovementioned affidavit as well as signing the power of attorney.
Details regarding the Articles of Association
Aside from the abovementioned registered capital and the limitation of liability the Articles of Association require merely the regulation of the following two issues:
1. The Company’s Name
The name of the company must not be misleading or deceptive. Furthermore the company’s name must not lead to the risk of it being mistaken for an already existing company. Three additional alternative names have to be proposed when filing in the application. It lies within the sole discretion of the Registrar of Companies, whether he accepts a name as suggested or not. Delays in registering the company due to the chosen name can be avoided by evaluating in advance, if there are reasons to deny the registration under a certain name.
Additionally the given name has to indicate the company’s shareholders limitation of the liability by including the suffix “Ltd”.
2. The Company’s Objectives
In general it is sufficient to state in the company’s Articles of Association the company’s engagement in any legal activity. Of course, the objective may also be defined specifically.
The Establishment through a Trustee and the Blank Declaration of Assignment
Another possibility under Israeli law is the foundation of a company in trusteeship and thereafter the assignment of its shares held in an escrow.
As specified above, the company may also be established by a trustee such as an Israeli attorney. Simultaneously the trustee and whoever the shares shall later be transferred to may agree that the trustee shall assign the shares to the new shareholder at a date yet to be determined. Such shares remain with the trustee for the time being and are assigned to the predetermined shareholders, as soon as the shareholder so wish. Naturally, such assignment must thereafter be registered with the Companies’ Registry.
This construction is recommended especially when the founders are outside of Israel, the establishment is urgent and there is no time for the proceedings before the Notary Public or the Israeli consul and the necessary translations.