Israeli Private Corporations : A Brief Summary Of How To Establish And Comparicent To Delaware Laws

By Adv. Meir Fuchs, Partner in Gideon Koren & Co. Law Firm (Aliant+ Member in Israel).

In 1999 Israel passed the current Companies Law, which is in large part based on the Corporation Law of the State of Delaware. Both the mechanics of setting up a corporation as well the governance of same, in relation to privately as well as publicly held corporations having been modeled after Delaware.

This short summary focuses on the basic requirements of setting up a private corporation in Israel and similarities and differences with Delaware.

For the establishment of a privately held Israeli corporation*:

1. It is sufficient to have one shareholder. The shareholder can be an individual or a corporation.
2. For the corporation to be considered privately held it cannot have more than 50 shareholders, excluding employees of the corporation or former employees of the corporation who while being employed by the corporation and even after termination of their employment continue to be shareholders in the corporation. Two or more persons who together hold a share or shares in the corporation shall be deemed as a single shareholder.
3. There are no restrictions on the size of the capital that a corporation can have, whether minimum (at least of course one share) or maximum, nor as to the types of shares which can be registered. Shares can have a par value or be without a par value.
4. The registration fee for establishing a corporation stands today at 2,944 NIS (approximately US$794 ) or 2,412 NIS (US$650) if filed online.
5. The fee for establishing the corporation is not dependent on the size of capital which is being registered and is a fixed fee.
6. The fee is valid for the calendar year in which the corporation is established. Thereafter, during every calendar year there is an annual fee which stands today 1,675 NIS ($450) or 1,262 NIS ($340) – if paid before March 31, of the relevant calendar year).
7. The application which is filed for establishing the corporation must include the Israeli identification number of the proposed shareholder/s and their addresses, the registered address of the corporation, and the name and details of at least one director. A foreign individual can also be a shareholder or a director in an Israeli corporation, however certain authenticated documents must be filed, which shall include a passport photo and address with notary or consular approval, or an Apostille. If the shareholder is to be a foreign company, then it is necessary to file its governing corporate documents, authenticated as above (and if in a language other than English then with a notarized translation).
8. There is no requirement to file a Certificate of Incorporation.
9. A private corporation must file Articles of Incorporation which shall set forth, among other provisions: the registered capital, how the capital is divided, the names of the shareholders and the number and types of shares which they shall hold, and what rights are attached to each class. The Articles shall also set forth the mechanics of how the corporation shall operate. The incorporator(s) may also decide not to file detailed Articles, filing a very basic document containing principally the provisions relating to the capital which is registered and identities of those person/entities to which the shares are issued, and in such a case the provisions of the Companies Law shall govern the mechanics of the operation of the Corporation. There is wide latitude as to the provisions which may be included in the Articles of a corporation, so long as they do not contravene some basic principles of the Law, such as the conduct of general assemblies of the shareholders, the approval of the annual accounts of the corporation and more.
10. A privately held corporation is not required to have an audit committee, nor to appoint external directors.
11. The names of all shareholders of a privately held corporation are available to the public from the records of the Companies Registrar. If another Israeli corporation holds shares in the corporation, then of course the names of the shareholders of that corporation as well are available to the public. If, however, an Israeli corporation is held by a foreign corporation then the shareholders of such a corporation are not public information in Israel, and the ability to know their identities depends on the laws of the foreign jurisdiction in which such company is registered.
12. A shareholder must declare if shares are held in trust for another, but the identity of the beneficial owner need not be disclosed to the Companies Registrar (other than as may be required by other governmental organizations to prevent money laundering or tax avoidance).
13. The names of the directors of a corporation, including foreign ones, are also public information. The names of the officers of a corporation may be filed but are not required.
14. Articles can be filed in Hebrew or in English. If filed in English, then a translation into Hebrew must also be filed. Articles may be filed in other foreign languages too, provided however that a Notarial a translation into Hebrew is provided.
15. Applications for establishing a new corporation are usually processed within a matter of a few days.

Some salient differences between Israel and Delaware privately held corporations:

A. Delaware requires the appointment of a registered agent for the receipt of process, which Israel does not.

B.  A registration of a new corporation in Delaware is done by filing a Certificate of Incorporation which Israel does not require.

C. The registration fee for establishing a new corporation in Delaware depends on the amount of capital which is registered.

D. The number of shareholders in a privately held corporation in Delaware is not regulated by law, unlike in Israel, however by the nature of corporate governance, a privately held corporation is not likely to have thousands or even hundreds of shareholders.

E. The identities of the shareholders of a Delaware corporation are not available to the public.

For more information on Corporate Structuring contact  Adv. Meir Fuchs

*This article does not compare limited liability companies (a frequently used form of legal entity in Delaware) as Israeli corporate law does not provide for such forms of incorporation.