Business in Israel – Foundation of a Company in IL Posted on June 27, 2012

Business in Israel

Hereby part II of the Israely Company Law from 1999 regarding registering company in Israel.

Part II: Foundation of a Company in Israel Chapter 1: Incorporation Article A: Right of Incorporation The right to incorporate 2. Any person may found a company, provided that none of the purposes of the company is illegal, is immoral or contrary to public policy. One-person company 3. A company can have a single shareholder. Article B: Legal Personality Legal personality of a company 4. A company shall be a legal personality having capacity for any right, duty or act consistent with its character and nature as an incorporated body.

Existence of company 5. A company shall exist from the date of its incorporation as set out in its certificate of incorporation, until

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its incorporation is ended upon its dissolution. Lifting the corporate veil 6. (a) Lifting the corporate veil shall take place in any one of the following ways: (1) attribution of rights and obligations of the company to one of its shareholders; (2) attribution of qualities, rights or obligations of a shareholder to the company. (b) Notwithstanding the provisions of section 4, the court may lift the corporate veil if a condition relating thereto is prescribed under any enactment, or if it is just and right in the circumstances of the case to do so, or if the conditions prescribed in subsection (c) prevail: (c) The court hearing a proceeding against a company may, in exceptional cases and for special reasons, lift the corporate veil if any one of the following conditions prevails: (1) the use of the separate legal personality of the company is intended to frustrate the intent of any law or to defraud or discriminate against any person; (2) in the circumstances of the case, it is just and right to do so, taking into account the fact that there was a reasonable basis for presuming that the management of the company’s affairs was not in the company’s best interest and that it involved the taking of an unreasonable risk in respect of the company’s ability to pay its debts. (d) The lifting of the veil in order to attribute the debts of the company to one of its shareholders shall be effected while taking into account the company’s ability to pay its debts. (e) Nothing in the provisions of this section shall prevent a court from granting other remedies, including the suspension of the rights of a certain shareholder in the company from being paid his debt until the company fulfilled all of its other undertakings. Restriction of employment 7. Where the court has ordered that the debts of the company are to be attributed to one of its shareholders under the provisions of section 6(c), or to one of its office holders under the provisions of section 54(b), the court may order that during such period as it may determine, which period shall be no greater than five years, such person may not be a director or general manager of a company nor be involved, directly or indirectly, in the founding or management of a company.

Business in Israel – Article C: Establishment and Registration of a Company

Application for registration 8. A person seeking to register a company shall submit an application to the Registrar in the form prescribed by the Minister, to which shall be attached: (1) a copy of the articles of association; (2) a declaration by the first directors that they are willing to serve as directors, to be prescribed by the Minister. Fees 9. (a) A person wishing to register a company shall pay a fee (hereinafter the “registration fee”) on submission of the application. (b) A company shall pay an annual fee every year. Certificate of incorporation 10. (a) The Registrar shall register a company if he considers that all the requirements of this Law in respect of registration, and any matter that is a precondition therefor, have been fulfilled. (b) The Registrar shall give every company a registration number, as provided in section 38(c), and shall enter it on the certificate of registration. (c) On registration, the Registrar shall deliver to the company a certificate of registration. (d) A certificate of registration delivered to a company shall serve as conclusive evidence that all of the requirements under this Law regarding registration, and any matter that is a condition thereof, have been fulfilled. (e) Nothing in the provisions of subsection (d) shall remedy any fault in the articles of association or preclude the need to remedy such fault.

Business in Israel – Article D: Purpose of Company

Purpose of company 11. (a) The purpose of a company shall be to operate in accordance with business considerations in realizing its profits, and within the scope of such considerations, the interests of its creditors, its employees and the public; may inter alia be taken into account; similarly, the company may donate a reasonable sum for a proper object, even if such donation is not within the scope of business considerations as aforesaid, if a provision for such is laid down in the articles of association. (b) The provisions of subsection (a) shall not apply to a company the articles of association of which provide that it was established for public purposes only, and such articles of association prohibit the distribution of profits to shareholders.

Business in Israel – Article E: Acts Performed by a Promoter

Approval of act 12. (a) A company may approve the act of a promoter performed on behalf of or in place of the company prior to its incorporation. (b) Approval ex post facto shall be regarded as authorization ab initio, provided that no right acquired by any other person (in this Article “a third party”) bona fide for value prior to the approval, is prejudiced. Status of a third party regarding a promotion 13. (a) Where a third party knows, at the time of an act referred to in section 12, of the existence of a promotion, such party may regard the promoter as his opposite number or may withdraw from the act, and claim damages from the promoter, in any one of the following events: (1) the company did not ratify the act within a year of the date of its being performed; (2) the circumstances show that the company is not likely to become incorporated, provided that the third party has so notified the promoter thirty days in advance; (3) the company did not ratify the act within thirty days of the date on which the third party so required. (b) Where the company has ratified the act, the promoter shall not have any rights or obligations in respect of it. (c) The promoter and the third party may contract out of the provisions of this section. Lack of awareness of promotion 14. Where the third party did not know of the existence of the promotion at the time of the act, the following provisions shall apply: (1) the promoter’s act shall oblige or benefit the promoter as the case may be; (2) once a company is incorporated, it may ratify the act, provided that such ratification is not inconsistent with the essence of the act, its conditions or the circumstances of the matter; where the company ratifies an act, the promoter’s act shall bind both the company and the promoter, jointly and severally, and shall benefit the company alone.

Business in Israel – Chapter 2: Articles of Association

Foundation of a Company in Israel

Business in Israel – Article A: Contents of Articles and their Alteration

Articles of association of a company 15. Every company shall have articles of association as provided in this Article. Validity of articles of association 16. The articles of association of a company as registered shall be effective from the date of its incorporation. Articles of association as a contract 17. (a) The articles of association shall be considered as a contract between the company and its shareholders, and between its shareholders themselves. (b) Alteration of the articles of association shall be effected in the ways provided in this Law. Details that must be included in the articles of association 18. The articles of association of a company shall contain the following details: (1) the name of the company; (2) the objects of the company; (3) details regarding the registered share capital, as provided in sections 33 and 34; (4) details regarding the limitation of liability, as provided in section 35. Details that may be included in the articles of association 19. A company may include in its articles of association matters relating to the company or to its shareholders, including the following: (1) the rights and duties of the shareholders and of the company; (2) provisions regarding ways of managing the company; (3) any other matter that the shareholders have seen fit to settle in the articles of association. Amendment of articles of association 20. (a) A company may alter its articles of association by a resolution passed by an ordinary majority at the general meeting of the company, unless the articles of association provide that a different majority is required, or if a resolution is passed in accordance with section 22. (b) Where there is a provision in this Law which may be contracted out of, or where there is a provision in the articles of association stating that a particular majority is required for the alteration of some or all of the provisions thereof, the company shall only be allowed to alter such provision by resolution passed at the general meeting with the same particular majority or proposed majority, whichever is the greater. (c) Where the shares of the company are divided into classes, no alteration shall be made to the articles of association that will affect the rights of any class of shares without the approval of a meeting of such class, unless otherwise provided in the articles of association; the provisions of subsections (a) and (b) shall apply mutatis mutandis to the passing of decisions in the meeting of the class. (d) Notwithstanding the provisions of this section, an alteration of the articles of association requiring a shareholder to purchase further shares or to increase the scope of his liability shall not bind the shareholder without his consent. Validity of alteration and reporting 21. (a) The alteration of the articles of association, other than alterations under section 40, shall be valid from the date of passing the resolution in respect thereof by the company, or on such later date as may be fixed by the company by resolution. (b) A company that has passed a resolution to alter its articles of association shall deliver the wording of the resolution to the Registrar, within fourteen days of the date of the resolution. Limitation on altering the articles of association 22. (a) A company may by contract limit its power to amend the articles of association, or provisions of it if a resolution to that effect is passed by the general meeting, by the majority required for the alteration of the articles of association. (b) A resolution passed as aforesaid in subsection (a) shall be treated as a resolution to alter the articles of association and the provisions of this Article shall apply thereto. Signature of articles of association 23. (a) The articles of association shall be signed by the first shareholders and the shares allotted to them shall be noted therein, as shall be the name, address and identity number of each such shareholder. (b) An advocate shall verify the identity of the signatories to the articles of association by his signature on the articles of association. Transitional provisions regarding memorandum and articles of association 24. A company incorporated prior to the commencement of this Law may: (1) alter the provisions laid down in its memorandum in the manner and subject to the conditions provided therefor in the Companies Ordinance as it stood immediately prior to the commencement of this Law, subject to the provisions of paragraph (5); (2) alter its memorandum or rescind it in the manner prescribed in section 350(a), (i), (j), (k) and (l); (3) alter the provisions laid down in its articles of association in a resolution passed at a general meeting by a majority of seventy-five percent of those present, or by such other majority as may be prescribed in the memorandum of the company or in its articles of association; (4) lay down in its articles of association, subject to the provisions of section 20(b), a provision regarding the majority required to alter the provisions of the articles of association, in a resolution made by a majority of seventy-five percent of those present at the general meeting, and by a larger majority if such is laid down in the memorandum of the company or in its articles of association; where such a new provision is laid down, the provisions of section 20(b) shall apply to its alteration; (5) prescribe in its memorandum, by resolution passed at the general meeting by a majority of seventy five percent of those present, a provision relating to the alteration of the majority required to alter provisions in the memorandum that the general meeting is authorized to alter; the provisions of section 20(b) shall apply in this regard, mutatis mutandis.

Business in Israel – Article B: Name of the Company

Choice of name 25. A company may be registered with any name, subject to the provisions of this Article, and the provisions of any law. Notation of Ltd. at the end of the name of a company 26. The name of a company whose shareholders’ liability is limited, as provided in section 35, shall include the notation “Limited” or “Ltd.” at the end of it. Misleading name 27. (a) A company shall not be registered with a name that is: (1) the name of a corporation lawfully registered in Israel, or so similar thereto as to be misleading; (2) a registered trade mark in respect of goods or services dealt with for purposes similar to those of the company seeking to be registered, or a name so similar to it as to be misleading, unless it is proved to the Registrar that the owner of the trade mark has agreed thereto in writing; for this purpose, “a registered trade mark” shall have the meaning attributed to it in the Trade Marks Ordinance [New Version], 5732-1972 . (b) Without derogating from the provisions of subsection (a), a company shall not be registered with a name which, in the Registrar’s opinion, might be deceptive or misleading. Name contrary to public policy 28. A company shall not be registered with a name that, in the Registrar’s opinion, might be contrary to public policy or to public sensitivity. Registrar’s authority to order change of name 29. (a) Where a company has been registered with a name that is not permitted under this Article, the Registrar may require the company to change its name. (b) Where the company has not provided the Registrar with notice of a resolution to change its name within four months from the date of the requirement set out in subsection (a), the Registrar may change the name of the company to such name as he may choose. (c) Where the Registrar decides to change the name of the company, he shall send the company a certificate of change of name, and the change shall be considered to have been made in accordance with a resolution of the company and the Registrar. (d) The Minister may lay down provisions regarding the publication of a change of name. Injunction 30. The court may, on the application of the company, order any person taking the company’s name or a name so similar to it as to mislead, or, on the application of any person harmed by the registration of a company with a name contravening the provisions of section 27, order the company, to cease using the name, unless the court is convinced that the defendant’s right to use the name takes precedence over the applicant’s right. Change of name 31. (a) A company may, with the approval of the Registrar, change its name, and the provisions of sections 25 to 30 shall apply, mutatis mutandis, to the resolution to change the name and to the requested name. (b) Where the Registrar has approved the change of name by the company, the Registrar shall register the new name in place of the previous name, and shall give the company a certificate of change of name.

Business in Israel – Article C: Objects of the Company

Notation of purposes of the company in its articles of association 32. A company shall indicate its objects in its articles of association by specifying one of the following objects: (1) engaging in any lawful business; (2) engaging in any lawful business apart from the types of business set out in the articles of association; (3) engaging in the types of business specified in the articles of association.

Article D: Registered Share Capital and Distribution Thereof

Registered share capital 33. The company shall determine its registered share capital, including the number of shares of each class, in its articles of association. Nominal value of shares 34. (a) Shares in the company may all be of nominal value or may all be without nominal value. (b) Where the shares in the company have no nominal value, their number alone shall be set out in the articles of association; where the shares in the company are of nominal value, the nominal value of each share shall be noted in the articles of association in addition to their number. (c) Where the shares in the company have no nominal value, the provisions of this Law in respect of registered or issued share capital shall apply, mutatis mutandis, such that the registered share capital shall be the number of shares set out in the articles of association, and the issued capital shall be the number of shares allotted by the company.

Business in Israel – Article E: Limitation of Liability

Limitation of liability 35. (a) The liability of shareholders for the debts of the company may be unlimited, and this shall be stated in the articles of association; where the liability of the shareholders is limited, the manner of limitation shall be set out in the articles of association. (b) Where the shares in the company are of nominal value, the shareholders shall be liable to pay at least the nominal value of the shares, unless the provisions of section 304 apply.

Business in Israel – Chapter 3: The Registrar of Companies

Business in Israel – Article A: The Companies Registry

Appointment and qualification of Registrar and Deputy Registrar 36. (a) The Minister shall appoint a civil servant, qualified to serve as a magistrate, to be the Registrar of Companies, and such person shall be in charge of the Companies Registry. (b) The Minister may appoint a government civil servant to be Deputy to the Registrar of Companies, and may authorize such person to exercise the powers of the Registrar. (c) Where the Registrar is precluded from fulfilling his duties, the Minister may authorize an employee of the Ministry of Justice to exercise all or any of the powers of the Registrar. Powers of the Registrar 37. (a) The Registrar shall determine whether the conditions and requirements laid down in this Law in respect of the following have been fulfilled: (1) incorporation of a company; (2) change of name of a company; (3) registration of a document; (4) merger. (b) The Registrar may, in order to ensure that the company is fulfilling its obligations under this Law, order it to produce for his inspection the registers and books that a company must keep and that are available for public inspection, or updated copies of such, within a period of no less than fourteen days from the date of demand. (c) Where the Registrar is of the opinion that the said registers or books are not up-to-date, he may order the company to update them within such period as he shall prescribe.

Business in Israel – Article B: Keeping of Registers

Keeping registers and receipt of documents 38. (a) The Registrar shall keep a register relating to every company and shall receive documents and reports for registration or filing in the company’s files, as shall be prescribed by the Minister. (b) The Minister may order that the delivery of documents and reports, registration or filing in company files, shall be effected by way of electronic communication only (hereinafter “electronic filing or reporting”). (c) The Registrar shall keep a register of companies in which every company shall be entered and shall give each company an identification number, and the Registrar may use a different type of numbering for different kinds of companies, as prescribed by the Minister. Submitting documents for registration 39. (a) Every document or report that is to be submitted to the Registrar shall bear the company’s identification number, and shall be signed by one of the office holders of the company, together with such person’s name and position, as confirmation of the fact that the details in it are correct and complete; for the purposes of this section, “office holder of the company” shall include the company secretary or any person authorized by the company for the purposes of this section. (b) Despite the provisions of subsection (a), a document or report submitted from a company in receivership or liquidation may be signed by the receiver or liquidator. (c) The provisions of this section shall apply in the absence of any different provision in this regard in any law. (d) Where the Minister has made a provision regarding electronic reporting, he may prescribe that the provisions of subsection (a) regarding the signature of an office holder shall not apply to documents and reports submitted in such way. Validity conditional upon registration 40. The following acts of the company shall have no effect unless registered: (1) a change in the company’s name pursuant to the provisions of section 31; (2) a change in the objects of the company. Copies as evidence 41. (a) A copy of any document held by or registered with the Registrar and certified by him shall be admissible in any legal proceeding as evidence, the evidentiary value of which shall be identical with that of the original document, and shall constitute conclusive evidence of the fact that the original document is in the Companies Registry. (b) Where the Minister has made orders relating to electronic filing, the provisions of subsection (a) shall apply to the printout of such reports; for the purposes of this section, “printout” shall have the meaning ascribed to it in the Computers Law, 5755-1995 . Negation of knowledge 42. The registration or existence of a document at a company or with the Registrar shall not, as such, constitute evidence as to the knowledge of its contents. Inspection 43. The registers kept by the Registrar in the Companies Registry shall be open for public inspection and any person may inspect them and receive certified copies of their contents, either through the Registrar himself or others authorized by the Registrar for such purpose, as prescribed by the Minister. Regulations 44. The Minister may prescribe the following: (1) arrangements for registration and filing and the manner of submitting documents and reports for registration and filing as aforesaid, including electronic filing or reporting; (2) the manner of keeping registers at the companies registry, and the public inspection thereof; (3) the forms which must be used for the purposes of this Law, and the details to be included therein, including the manner of transferring information by electronic reporting; (4) the manner of carrying out the Registrar’s obligations under this Law; (5) details with which a company or a foreign company must provide the Registrar in respect of every shareholder, or other holder of rights, and in respect of a creditor or any office holder of the company; (6) amounts that the Minister may prescribe for registration fees, annual fees, and other fees and impositions payable for acts and services that the Registrar provides under this Law; and the Minister may determine the amount of different fees and payments for different companies according to such criteria as he shall prescribe.

Business in Israel – Article C: Appeal

Appeal 45. (a) A person who feels aggrieved by a decision of the Registrar may appeal against such decision to the court. (b) The Minister may make regulations regarding the legal procedures for the appeal.

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Business in Israel

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