Establishing a company in Israel in a nutshell
Establishing a company in Israel through a business lawyer

I have been a member of the Israeli Bar specializing in commercial and business law for more than a decade.
As a business lawyer in Israel, I assist entrepreneurs by handling anything the business activity requires, such as: establishing new companies, drawing founders’ agreements, drafting commercial agreements between the company and vendors and clients, general legal counsel, and much more.

Alongside a vast legal experience in establishing companies in Israel, I also hold an Executive MBA from the Hebrew University of Jerusalem and serve as the legal counsel for many companies.

Establishing a company in Israel through a business lawyer could greatly contribute to shaping the legal structure suitable for your company, while applying a broad business understanding of your business activity and receiving appropriate advice.

Establishing a company in Israel – considerations and merits

Establishing a company in Israel is the best option for any entrepreneur wishing to manage a business while controlling the risks and legal exposure resulting from their business activity.
Also, legitimate, legal tax plans are the realm of CPAs handling LLCs.

Whether the envisioned business activity is operating a restaurant, food packing plant or apparel store, in each case establishing a company is the legal solution that provides the founders with maximal protections and minimal risks.

Managing businesses through companies enables you to plan ahead, for example in accepting new partners and raising investments, protecting intellectual property, establishing management rules through Articles, share sale or transfer procedures and so forth.

Managing the business activity by establishing a company shows vendors and clients that this is a serious, solid business.

In Israel, companies are established and managed according to the Companies Law, and their current functions require a dual bookkeeping and audit by a CPA.
Company owners are required to show earnestness in anything to do with the company’s routine management, to avoid breaching laws and regulations by the income tax authorities, Ministry of Justice and other agencies, which could lead to sanctions and fines.

Taxation wise too, establishing a company in Israel is profitable since the Companies Tax awards the company certainty, since it is fixed at a rate of 23% while an individual’s income as a “licensed dealer” is determined according to actual income levels and could reach up to 49%.

Establishing a company in Israel also guarantees its owners that no payments will be made to Social Security and health fess out of the profits accumulated in its coffers.
Payments to Social Security are deducted only when salaries are cashed, so that the company’s coffers accumulate greater funds than those of a licensed dealer.
Don’t forget that an individual paying tax as a licensed dealer has to pay Social Security and health fees for their entire earnings!

The right time to establish a company in Israel

The right time to establish a company in Israel is individual for each case.
Regardless of an economic analysis and economic profitability in anything to do with taxes and ancillary expenses, some entrepreneurs decide to establish companies even before they have any revenues.

Entrepreneurs dealing with high-tech, banking, internet, food, digital and pharmaceuticals realize that establishing an LLC in Israel provides them with many business and legal benefits, regardless of the operation costs.

The operation costs of establishing a company in Israel mainly include an annual fee to the Israeli Registrar of Companies, amounting to approximately NIS 1,500 and current CPA fees averaging approximately NIS 1,400.

An Israeli company is an independent legal being created on its establishment date, which forms a legal entity that is separate from the company’s founders.

In other words, the company will have legal rights and obligations of its own, that will be unrelated and will not affect its shareholders and officers.

The company is authorized to execute contracts with vendors, sell merchandize to clients, take loans, purchase assets, register property in its name etc.

Unlike a person managing their business as a licensed dealer, an Israeli company could use its Articles to create a set of rules applicable to any of its officers.

Establishing a company in Israel – selecting a name for the company

When you file the documents necessary to establish a company with the Israeli Registrar of Companies, you also have to provide the name you want for your company.

Before we file the name for registration, we run several tests that include, inter alia: reviewing the Israeli Registrar of Companies’ database to check that the name isn’t taken or similar to an existing name, and an identical review of the Israeli trademarks’ database.

When we establish companies for business that will operate abroad, we run additional tests concerning its name, using such databases of European, American and other government entities.

Drafting Articles to establish a company in Israel

The company’s Articles of Association form a fundamental document, since they determine important rules governing its management and shares.

The Articles contain clauses taken directly from the Companies Law which could not be stipulated against, but there are many other provisions that could be shaped and worded as we please.

The Articles are a contract amongst shareholders and between them and the company.
Meaning, the Articles obligate the shareholders to act accordingly both amongst themselves and within the company itself.

The provisions provided in the Articles’ initial version greatly impact the company’s day-to-day life and managerial routine thereafter.

When establishing a company, one should consider the various potential future scenarios and prepare suitable business and legal protection clauses, from the manner of transferring shares that will apply to all shareholders to drafting clauses dubbed “poison pills” to avoid a hostile takeover against the company.

A founders’ agreement when establishing a company

When there are at least two founders establishing a company, a founders’ agreement is advisable in addition to the Articles.

A founders’ agreement differs from Articles of Association since it only applies to its parties and not the company.
In addition, the agreement is discrete and only its parties are privy to it, as opposed to Articles that are available to the public.

Before establishing a company, entrepreneurs want to make sure they can divide the roles between them and reach understandings.
As part of the founders’ agreement, they set guidelines, plan the first actions necessary to establish the company and describe each founder’s responsibilities.
Usually, a founders’ agreement also includes confidentiality and non-compete clauses, or clauses limiting the entrepreneurs’ competition against each other.

Should the founders’ agreement ripen and the entrepreneurs’ vision be realized into a company, most of the agreement’s provisions could be incorporated in the Articles to preserve the parties’ objectives and aspirations at the core of the company.

Commercial agreements following the establishment of a company in Israel

Often, as early as the establishment of the company, entrepreneurs ask their commercial lawyer to draw several commercial agreements that will serve the company.

These are usually agreements with employees, vendors and clients, research and development agreements, distribution agreements, English agreements if necessary and so forth.

Actions following the establishment of a company in Israel

Every company in Israel has to maintain a bank account in its name, in order to receive payments from clients and pay vendors and employees.
Several actions have to be taken once the company is established:

Drafting minutes of a resolution by the company’s board, to determine its signatories concerning its bank account.

Selecting the bank in which the company will maintain its account and the banking services it will be authorized to use.

Determining the identity of the company’s CPA, CEO, etc.

Services by the Israeli Registrar of Companies following the establishment of the company

Pledge registrations, removals and amendments in the company’s extract.

In Israel, a company extract is a document similar to a real estate property’s land registration extract.
A company extract is issued once a company is established and contains its name, registration number, incorporation date, registered address, details of potential pledges, share capital composition, main shareholders and the names of the company’s directors.

Annual fee collection – in addition to the fee for establishing the company, there is also an annual fee to be paid to the Israeli Registrar of Company, from NIS 1,043 to NIS 1,386 (depending on payment date).

Document review and reports concerning companies – such as board composition changes, share transfers, share capital changes, etc.

• Handling a voluntary company liquidation.

Changes following the establishment of a company that are to be reported to the Registrar of Companies

Several actions have to be reported to the Registrar upon their taking:

Increase or annulment of the company’s registered share capital, changes in its board’s composition, auditors termination, share transfers or allocations, changes in its Articles, alteration of its registered address, details of pledges it created, in addition to an annual report to the Israeli Registrar of Companies.

Most actions have to be reported to the Israeli Registrar of Companies within 14 days of the relevant decision.

The Companies Law determines that a company that failed to report to the Israeli Registrar of Companies as necessary of any of the above mentioned actions breached its duty and the Israeli Registrar of Companies is authorized to fine it.

Company name change following its establishment

Should the lawful majority in a meeting of the company’s shareholders decide to change its name, the minutes are to be sent to the Israeli Registrar of Companies along with an appropriate form.
The Israeli Registrar of Companies will review the new name just like a name for a new company wishing to be registered.

Company Articles change following its establishment

Alterations of company Articles are fairly common compared with a company name change.

The decision to change the Articles is usually taken when the company raises an investment and the new shareholder conditions their investment on alterations to the Articles and addition of clauses according to their legal and business interests.

To change the Articles, the company has to hold a shareholders’ meeting and resolve with an ordinary or another special majority obligated by the Articles.
Report of the Articles’ change and a copy of the new Articles have to be filed with the Israeli Registrar of Companies within 14 days, as mentioned.

Relevant Israeli legal provisions

The companies Law of 5759-1999.

The Companies Ordinances (Reporting, Registration Details and Forms) of 5760-1999.

The Companies Ordinances (Fees) of 5761-2001.

The Companies Ordinances (Reporting, Registration Details and Forms) (Amendment) of 5775-2015.