Doing Business in Israel: Setting up a Limited Liability Company in Israel | Barnea Jaffa Lande & Co.

Israel has become a hub for vast international business activity in recent decades. Israel’s economic growth, coupled with state encouragement (including acting to reduce regulations and corporate taxation), allows local and international businesses to engage easily and with relative efficiency in the commercial activity.

There are several alternatives for incorporating an entity into the State of Israel. The most common alternative is the incorporation of a limited liability company. In this article, we provide an overview of the legal procedure for setting up a limited liability company in Israel. We also cover important things to know before starting a business formation process.

Limited Liability Company

Company formation allows an individual, corporation, group of people, group of companies, or any combination thereof to operate through an entity that is a separate legal entity. This entity operates separately from its owners and has its own rights, obligations and actions. The company will be subject to the laws and regulations that apply to it, depending on the type of company, and will allow its owners to achieve common objectives. There are several types of companies in Israel: a registered company, a partnership, an NPO, a cooperative company and a statutory company.

When one or more persons or companies wish to carry out a business activity in Israel, the best alternative available to them is to set up a registered company. The Companies Act prescribes two alternatives for forming a registered company. The first is to set up a company in which the liability of the shareholders for the debts of the company is limited (limited liability company). The second is the constitution of a company in which the liability of the shareholders is not limited. The first alternative is the most common and most accepted in business activity in Israel.

Shareholders and equity

Any person, including a legal person, can form a company. Israeli company law allows the establishment of a company with one shareholder and does not require any minimum initial capital to set it up, other than the payment of an incorporation fee.

There are no statutory restrictions on foreign companies and foreign citizens setting up a company in Israel, and they can register as shareholders of an Israeli company. When incorporating a company, the founders must complete company incorporation forms and draft the company’s articles of association. The company’s articles of association must contain the following information: the company name, the corporate purpose, the company’s share capital and details of the partners’ liability limits. All other rules provided for in the articles of association are optional. The articles of association constitute a contract between the company and its shareholders. Therefore, they are of the utmost importance for the management of the company and supersede (as far as the company is concerned) any other arrangement between the shareholders.

Directors

Any person, including a corporation, can be a director of a limited liability company. The minimum number of directors in a limited liability company is one. The maximum number of directors is not limited, unless otherwise provided in the articles of association. The Companies Act does not provide any restrictions on foreign companies and foreign citizens serving as directors of a company.

Share classes

When a company is incorporated, the share capital of the company is determined, including the number of shares and the classes of shares. Company shares may have par value or all may be shares without par value. The main rights of shareholders are the right to vote, the right to receive a dividend, the right to limited information and the right to consult company documents.

When setting up the company, it is customary to decide that the share capital of the company will consist of a single category of shares (ordinary shares). However, a company may decide on several classes of shares (for example, ordinary shares, preference shares or management shares), where the holders of a particular class of shares enjoy additional or different rights in the company. Generally, a right provided for in the articles of association relating to a particular class of shares will apply to all holders of that class of shares.

Procedure for setting up a limited liability company

The procedure for setting up a limited liability company is relatively simple. The process takes a few days and after submitting the documents to the Israeli Companies Registry, it is possible to receive a certificate of establishment of the company within four working days. For the most part, the receipt of the certificate takes place earlier than that, assuming the submission of all necessary documents to the Registrar of Companies.

To incorporate a company, the founders must complete the following documents in Hebrew only (except for the articles of association, which they can submit in Hebrew or English):

  1. Company formation form, including details such as company name, personal details of shareholders, address, composition of the company’s share capital and allocated share capital.
  2. Declaration form of the first administrators.
  3. The articles of association, signed by all the shareholders.

The company must submit to the Registrar of Companies the company incorporation forms signed by its directors and shareholders, which certify that there is no impediment to their registration as shareholders or directors, as the case may be.

Foreign citizens as shareholders and directors

When signing company incorporation forms in a foreign country, a notary and apostille must authenticate the signature and the Registrar of Companies must receive the originals for registration.

When all of the directors and shareholders of a limited liability company are foreign citizens or corporations, the Israeli tax authority requires the appointment of a local representative for tax purposes. Additionally, directors are sometimes required to sign forms and attestations in front of an Israeli lawyer (requiring face-to-face signature verification and not by technological means) in order to perform various actions during the day-to-day running of the business. (such as opening a bank account). Therefore, we recommend appointing at least one Israeli director to allow the company to run smoothly and efficiently.

Actions subsequent to the incorporation of the company

In order to initiate business activities, after the Registrar of Companies has certified the incorporation of the company and upon receipt of a certificate of incorporation, it is customary to perform several additional actions. These include opening a bank account and opening a file with the Israeli tax authorities (VAT and income tax). These actions require the establishment of additional documents and various procedural acts, which sometimes require the physical presence of a representative (administrator) of the company.

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About Charles D. Goolsby

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