Registering a Company in Israel - The Complete Guide

Everything You Need to Know About Israeli Company Formation and Registration

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All rights reserved to Adv. Tamir Hodorov (c)

Hello and welcome to my guide. My name is Tamir Hodorov and I am a corporate lawyer with extensive experience and very in-depth knowledge.

I have been a member of the Israeli Bar Association since the end of 2015 and I work mainly in the field of corporations and securities.

Besides my education and experience as a corporate lawyer, I also graduated with a master's degree in business administration (MBA) from the Israeli Ben Gurion University, with a specialization in finance and securities, with an average grade of 95.53. This formal education allows me to see and manage the details that are both legal, accounting, economic and financial, at the same time.

My goal in this guide is to teach you what a is a company, who can open Israeli company, when you should open Israeli company, how to open Israeli company, how long it takes to open Israeli companyi, and what to do after the Israeli company is opened.

It is true that you can open Israeli company very fast without any planning, but after you finish this guide you will be able to plan very well the opening of your new company. You will also understand why it is recommended to go through the process of Israeli company formation together with the legal guidance of experienced corporate lawyers, based on in-depth knowledge and broad experience, and why it is worthwhile to open Israeli company only by adapting it to the exact current and future business needs of you and your partners.

This guide is logically divided into the most essential questions:

What?

Who?

When?

Why?

and How?

also, we will discuss:

What are the Steps for Israeli Company Formation / Israeli Company Registration?

How Long?

What to do After the Israeli Company Formation?

Annual Maintenance of the Company

Changes in the Company After its Registration

You can also jump right ahead to:

The Service We Provide

Ancillary Services for Israeli Company Formation / Israeli Company Registration

So let's get going.

What?

What is a "Company"?

A "company" is a concept that is not necessarily easy to understand at first glance. When people think of a company, they think of offices, and of people who work in them and talk on the phone and type on the computer, but the truth is that this is not true at all. It may be true that a company can have offices and employ employees, but they are not the company.

The truth is that a company is, after all, a legal entity, which means that it is an entity that does not exist in reality. It is like a ghost. You cannot see a limited liability company with your eyes. You can't hear or talk to a company. You can't make a company laugh. When they say "the company purchased", "the company sold", they actually mean the managers of the company who act on behalf of the company.

Unlike a flesh and blood person, a company is a legal entity, meaning it does not exist in physical reality but only in legal reality. Simply put, this means that the state pretends that this entity exists. As a result of this pretense, the company can have rights and obligations, like any real person, for example, to open a bank account in its name (which is separate from the bank account of the owner of the company), to buy or sell real estate, to own movable property such as a car or inventory, to sign contracts (through the company's representative) and have contractual rights, to own other limited liability companies, and also to take loans, to have revolving credit agreements in banks, to employ workers and more, all of this whether in the home state or abroad. A company can make money, lose money, sue, be sued, it can impose foreclosures or suffer them, it can receive fines, and can experience almost everything legal that a normal person can experience.

This is basically what "separate legal personality" means. That is, there are:

-The owner of the company, John Doe Cohen

-and the company itself, ABC Ltd.

And legally both of them are different and separate. John has a personal I.D number 1234567, and the company has a "private company number" 67890123 (P.C.N. is an abbreviation of a private company number).

What is P.C.N?

P.C.N is an abbreviation for a private company number. It's like a person's I.D number, but for companies. This is a unique number for a company.

What is a Limited Liability Company?

Ltd. is short for "limited liability" of the owners of the company. This means that the owners of the company have limited liability for the company's debts. Their liability is limited to the amount of their investment in the company, which can also be as little as ILS 100, as we will see in the chapter on "shares".

This means that in the event that the company becomes insolvent, the creditors can only recover the investment amount of the owners of the company, and they cannot sue them to collect the debt from the funds or assets of the owners of the company. For example, if the company owes a million Shekels to the bank, but the company only has half a million Shekels, the bank cannot sue the owner of the company to pay the balance of the debt. The reason is, (A) This is a separate legal entity, so just as David is not responsible for Joe's debts, so David is not responsible for the debts of company ABC Ltd., and (B) This entity is a limited liability company, that is, the liability of the owners of the company is limited in terms of the company's debt, which means even if the company goes into insolvency and liquidation (the company closes), the shareholders will not be obligated to pay the company's debts on its behalf.

The economic purpose of legally allowing a situation where the owner of the company has limited liability towards its debts, is to reduce the economic risks of the owner in order to encourage entrepreneurs to invest money in projects that contribute to the growth of the economy in the country. Thus, the entrepreneur knows that if the business fails, he is not required to risk all of his capital, but rather only the specific capital that he is willing to risk and which he injects into the company upon its formation.

A company does not have to be a limited liability company, but virtually in all cases the established company in Israel company a limited liability company, and this is the case not only in Israel but all over the world. A company that is not a limited liability company is a company that, in the event of the dissolution of the company, if it owes money beyond the amount of money or assets it has, the creditor can turn to the owner(s) and collect the balance of the debt.

Since a "non-limited" company in Israel is a rare type of company, there is no need to elaborate on it too much, but we note that a non-company in Israel is usually a law firm, an accounting firm, a company that provides medical services (a company owned by a doctor) and a few other rare cases.

From a logical point of view, there is no reason to establish a company that is not a limited liability company, and indeed the absolute majority of the established companies are limited liability companies.

What is a "Unveiling "?

This gap between the person and the limited liability company he owns is called in the legal vernacular the "corporate veil". It is actually a type of "legal wall" between the owner and the company, which limits the liability of the owner in the relations of the company in Israel with the world - with other companies, other owners of the company same, suppliers, banks and other creditors, etc.

In certain severe lawsuits, the court may do what is called "unveiling ", and impose financial liability on the owner towards the company's debts. This mainly happens after the company either commits scams, does not pay salaries to employees, or otherwise involved in other cases that are of similar severity.

What is the Difference Between a Company in Israel and a Partnership in Israel?

What regulates the existence of a partnership is not the Companies Act but the Partnerships Ordinance ("Ordinance" is a law from the days of the British Mandate in our territory).

One of the most prominent differences between a limited liability company and a partnership is the limited liability. A partnership does not offer limited liability to its partners towards creditors, and therefore each of the partners can be sued for the entire debt of the partnership, and give the payment out of his pocket, and then deal with the other partners.

Apart from that, there are almost no essential differences, and most things are similar:

• A partnership is also a separate legal entity.

• According to the law, a partnership must also be registered as a company,

• A partnership can also be called by its own name,

• A partnership can also be registered in VAT as an authorized trader separate from its partners,

• A partnership can also have rights and obligations and sign a contract on behalf of the partnership. For example, you can open a bank account to a partnership

• A partnership can also have participation percentages that are not necessarily equal for each partner, as can be done in the shares of a company in Israel

• A partnership can also exist between the partners for the purpose of certain businesses and not for the purpose of other businesses, etc.

What are Shares?

Shares, Shares, Shares!

According to our definition of "company", a company is something non-physical, that does not really exist in reality. So is a share.

Think about this metaphor: John Doe's body is made up of trillions of atoms.

Shares are like the atoms which make the right of ownership in a company. Since the right of ownership is not a tangible thing that can be felt with your hands, shares are also something unreal that cannot be felt with your hands. In other words, take the ownership right in the company, smash it into millions of particles, and these will be particles of the ownership right in the company. These particles are called "shares", and they reflect relative ownership in the company.

What is relative ownership? Think of it like a real estate partnership. If a husband and wife jointly own a 100 square meter apartment, that doesn't mean that each of them is entitled to any specific 50 meters, but rather that they each have 50% ownership of every centimeter and centimeter of the apartment. Similarly, a person who owns 10% of all the company's shares actually owns 10% of all the company's rights. This does not mean that if the company has ILS 1,000,000 in the bank, that he is entitled to ILS 100,000. It only means that that person owns 10% of each and every Shekel of these 1,000,000 Shekels.

On the day of the Israeli company registration, its first shareholder, or first shareholders, are also called "the founders" of the company.

What is "Par Value" of a Share?

On the day of registering a company in Israel, the founder of the company receives shares. However, to get these shares, he is required to invest in the company. And what is his investment? Each share has a certain monetary value which is specified in the company's constituting documents, and the founder of the company is required to invest the value of each share, which is stated in such founding documents. This value is called "par value" of a share. The investment's amount is the par value of a share, times the number of shares he wishes to receive from the company.

The person who drafts the constituting documents of the company is the founder of the company, and therefore the founder of the company is also the one who determines the par value of each share. He is also the one who determines how many shares he will receive on the day the company is established. If the founder of the company determines the par value of each share, and also how many shares he will receive on the day the company is registered, then the founder of the company determines what amount will his investment in the new Israeli company be. For example, if the par value of each share is ILS 200, and the founder of the company is interested in 50 shares, he is required to invest ILS 10,000 in the new company.

The founder's investment is the initial "equity" of the company.

In Israel, unlike countries such as Germany, Austria, France, Estonia, etc., there is no minimum equity requirement for actually registering a company in Israel. Also, unlike these countries, the founder of the company is not at all required to actually deposit the equity capital as cash in the bank In exchange for the shares he receives of the new Israeli company. The unpaid equity is actually registered as a debt of the company's founder to the company.

Here we actually find reference to the matter of "limited liability", because the liability for the company's debts by the founder of the company and holder of the first shares, is actually a limited liability, but that liability, however small, still exists. His liability is equal to the amount he invested, and if he has not yet invested it, then it is equal to the amount he still owes the company. For example, on the day the Israeli company formation, he received from the company 100,000 shares with a par value of ILS 1 each, and he never deposited these ILS 100,000. Why is this so important? Because it means that if, for example, the company fell into debt of ILS 3 million and enters For the insolvency and liquidation procedure, the shareholder will indeed be required to pay this 100,000 ILS (no more, because as mentioned, the shareholder's liability for the company's debts is limited). In other words, the company's creditors will be able to collect this ILS 100,000 from its owners, and the owner will indeed be demanded to pay the same ILS 100,000 that he never deposited. This is a very important point, and many lawyers miss it because they are simply not knowledgeable enough about limited liability companies, when determining the par value of each share at the time of the company registration in Israel.

In fact, on the day of the Israeli company formation, it can be determined that the company's shares will have no par value at all, if the company's founder so desires, and this has no adverse consequences for either the company nor the owner. The financial meaning of establishing an Israeli limited liability company of shares with no par value is that the founders of the company have no liability towards the company's debts - not even of ILS 100.

Par Value Per Share vs. Real Value Per Share

The fact that the par value of each share is determined on the day of its establishment does not limit the possibility of the company's owners to buy or sell shares for a higher amount. For the sake of illustration, on the day of the company's establishment in Israel, it can be determined that the par value of each share is 1 Agora, but it is possible to sell, for example, 1,000 shares to some founder or investor in exchange for a much higher amount per share, for example ILS 250 each. In this example, the real value of each share is 250 ILS, while its par value is 1 Agora.

What is Equity? What is the Difference Between Equity and Debt?

"equity" is money that belongs to the company. The company does not ever need to return equity to anyone, and it does not pay interest on it.

"Debt" is money that does not belong to the company. The company has to repay a debt at some point, and it pays interest on it.

What is Share Capital?

Today, "share capital" is an accounting term only, and it is related to the par value of the share and not to its real value.

For example, suppose that a share is sold at a real value of 250 ILS, and suppose that the face value of each such share is 1 Agora.

And suppose 1,000 shares were sold to an investor.

In the financial statements detailing the company's assets and liabilities (called the "balance sheet"), there will be two lines. The first line will be "share capital", in which the value will be 10 ILS (the calculation: 1,000 shares, times 1 Agora, equals 10 ILS). The second line will be "Share Premium", and ILS 249,990 will be written on it, which is the entire amount in excess of the par value paid for the shares (calculation: 1,000 shares times ILS 250, minus ILS 10, equals ILS 249,990).

What is the Authorized Share Capital?

"Authorized Share Capital" is a value which is stipulated in the constituting documents of the Israeli company, which determines the total capital (according to the par value of each share) that is allowed to be raised through the sale of shares. To clarify, this is not capital that was actually raised, but rather the maximum amount of money that the company is allowed to raise through the sale of shares, considering their par value.

For example, if the authorized share capital of company ABC is 2,000,000 ILS, and the par value of each share is 200 ILS, then the maximum amount of shares allowed for sale is 10,000 shares. Therefore, it is not possible to sell more than this amount of shares in company ABC. Due to the fact that shares are sold according to their real value, today the authorized share capital only reflects the maximum number of shares that can be issued, numerically.

On the day of company registration in Israel, the founder who establishes the Israeli company also determines the authorized share capital.

What is the Issued and Paid-Up Share Capital?

"Issued and paid-up share capital" is capital that actually enters the company in exchange for the sale of shares.

An "issuance" is the creation of something of some monetary value that can be used as a means of payment or to store value. For example, the word "issuance" is used when talking about the creation and delivery of stocks, bonds (bonds, a type of loan), banknotes, gold coins, and even credit cards. The word "issuance" is used even for new virtual currencies (cryptocurrency).

Therefore "issued and paid-up share capital" is the capital actually raised through the sale of shares. For example, it is possible that the authorized share capital is 10,000 shares, but in practice only 50 shares may have been sold to the founder of the company and to all the investors who came after him/her, meaning that a share capital of only ILS 1,000 was raised. In other words, the difference between "authorized share capital" and "issued and paid-up share capital" is that issued and paid-up share capital refers to how many shares have been sold to date in the company, while authorized share capital refers to the maximum number of shares allowed to be sold in this company.

This value basically reflects how many shares are in people's hands at the moment. This parameter changes as more shares are issued. Therefore, first of all, the issued and paid-up share capital is the amount of shares which were sold to the founder(s) of the company on the day of its establishment, and then this amount is updated as more and more shares are sold by a company to investors or other shareholders who join in with the company.

A distinction must be made between " issued share capital (but not paid-up)" and "issued and paid-up share capital". The difference is one and only: did the shareholder who received the shares actually paid for the shares? As long as the shareholder received shares but did not pay for them, the capital associated with the shares delivered to the shareholder is still considered a debt and is therefore "issued share capital (but not paid-up)". In this situation the shares were indeed issued, but their cost is still an unpaid debt. Once the shareholder has paid for the shares he received, this share capital must be treated as "issued and paid-up share capital". Another term is "Issued and outstanding share capital", or "I&O share capital" for short.

What is a Public Company?

A public company is a company in Israel that has turned to the public to raise funds, for financing its business needs. The financing can be for investment needs, or for the needs of current activity.

The financing is done according to a "prospectus" - a very long document (actually the size of a book of several hundred pages), in which the company "opens all the cards" and tells about itself, about the securities it plans to issue to the public, and what it intends to do with the money that it will raise.

The public money is given in exchange for securities - usually stocks or bonds.

It is not possible to raise capital from the public if you are a sole proprietor. Only a company in Israel can raise capital from the public.

What is the Difference Between a Sole Proprietor and a Company?

A sole proprietor, or "sole trader" as he is sometimes called, is actually a flesh-and-blood person who has a business. He can own a kiosk, he can sell watermelons, or trade diamonds for that matter. Compared to the sole proprietor, the company is a separate legal entity, meaning it is not a physical entity.

Profits: Pay Slip, Invoice Or Dividend?

The Israeli company is a separate legal entity and therefore its profits are not the profits of its owner. How then can the owner benefit from the profits of the company which he owns? He has to withdraw the profits from the company's pocket to his own pocket. There are three ways to do this.

Pay Slip

The simplest way to enjoy the company's profits is to withdraw a salary from the company. The director of the company, who can also be the owner, can make the company hire himself as CEO. When you think about it, it may seem a little strange, but this is the legal reality. The owner is also the director, and he decides on behalf of the company to hire himself as an employee CEO of the company, and he also determines his own salary. The happy employee will receive a regular pay slip, by which he will pay social security, health tax, income tax, and legal deductions.

Issuing an Invoice for a Service

The second way to benefit from the company's profits is through issuing a tax invoice, as a sole proprietor, for management services to the company.

The sole proprietor is registered with VAT, and issues an invoice to the company once a period (let's say once a month, but it's not mandatory), in exchange for receiving a payment, the amount of which can vary.

The advantage of this method is that the tax on these revenues from the management services can be offset by expenses that the individual trader can deduct, as part of the provision of his management services. Also, the owner can adjust the payment amounts as he wants, and he can also freely play with the frequency of the payments as he wants. For example, he can pay himself a salary only once every six months, or as many as three times a month, etc.

Dividend Distribution

The third and last way to enjoy the company's profits is by dividend distribution. "Dividend" is a sum of money from the company's profits, which the company decided to distribute to the shareholders from its bank account. It must be remembered that a company is a separate legal entity, and therefore the bank account of the company is not the bank account of the owner of the company. Thus, a "dividend" is an amount of money that the management of the company decided to distribute to the shareholders, from the bank account of the company, to the bank account of the shareholders.

It must be remembered that dividend distribution is a distribution to all shareholders in a manner proportional to the amount of shares that they hold. Therefore, all shareholders will receive a dividend, and it cannot be decided that one will receive and the other will not. For example, if Joe owns 75% of the company's issued and paid-up share capital, and Dave owns 25% of the company's issued and paid-up share capital, and the company's management decided to distribute ILS 100,000, then Joe will receive ILS 75,000, and Dave will receive ILS 25,000. A dividend cannot be paid to one without paying a dividend to another.

As of 2024, the amount of tax paid on dividends is at a rate of 30%.

Some important things about dividend distribution: 

• Legally, only profits can be distributed! It is not possible to distribute funds originating from investments, because an investment is not an income from a business and therefore investment funds are not considered profits that may be distributed (in fact it is possible but only with the approval of a court).

• A dividend can only be distributed in an amount whose distribution to the shareholders will not cause the company to enter into financial difficulties that could endanger its economic viability. In other words, a dividend can be distributed to the shareholders only if the company can meet its current obligations and will not run a risk of insolvency (as mentioned, in fact, a dividend can be distributed even without this condition being met, but only with the approval of a court)

• Dividend income is a form of income from which expenses cannot be deducted. In other words, a person who receives a dividend cannot reduce his tax payment by deducting business expenses.

• No social insurance or health tax are paid on dividend income.

Who?

Who May Establish a Company in Israel?

Any natural person may establish a limited liability company in Israel, as long as he has some identification document. Therefore, a foreign citizen may also establish a company in Israel, using his passport.

Also, any corporation may register a limited liability company in Israel. The meaning is that a limited liability company, in any country, can also establish a new limited liability company in Israel. But not only -  Partnerships can also register a limited liability company in Israel, and even associations with certain restrictions.

Any person over the age of 18 may establish a company in Israel, provided that he does not have certain financial limitations such as bankruptcy procedures or consolidation of any problems with forclosures.

What is the Minimum Number of Directors Required to Open Israeli Company?

To register a limited liability company in Israel, there should be a minimum of one director only.

What is the minimum Number of Shareholders of a Company in Israel?

Only one person can own the entire Israeli company.

Can an Owner of a Company in Israel be Both a Director and a CEO?

Yes, an owner of a company in Israel can be both a director and a CEO. The roles do not contradict each other, and he/she will manage the company in the different "hats".

What is a "Sole Person Company"?

A "sole person company" is a company in which one person (in flesh and blood, not a limited liability company) holds all the hats: he is the sole shareholder, and also the sole director, and usually the CEO as well, although the latter is not mandatory. He/she does not have to be an Israeli citizen, but rather he/she can be a foreign citizen.

In order to open such a company, the process is a little easier. There is a structured form that contains the application for registering a limited liability company in Israel, the standard articles of association (we will talk about it later), the declaration of the first shareholder (we will talk about it later as well) and the declaration of the first director (we will talk about it later too) - all in the same form, on a single page.

When?

When Should you Open Israeli Company?

Well, the answer to this question depends on your needs.

If you are an Israeli entrepreneur who needs to raise money to finance a certain project in Israel, you have to sell part of the ownership in the project in exchange for financing. As mentioned, shares are parts of the ownership right in the company, and therefore what you need to do is actually sell shares. Shares do not exist if the company does not exist, so therefore you as an entrepreneur should first establish a company in Israel.

As an Israeli high-tech entrepreneur, you may be entitled to grants from the state of Israel. One of the basic conditions for most grants in Israel is that the business is owned by an Israeli company and not by the sole proprietor.

Of course, a limited liability company should be registered when there are several partners who wish to enter into the venture together, but who also want to have limited liability for the company's economic risks, that is, the partners wish to benefit from the "limited liability" feature of the limited liability company.

It is worthwhile to establish a company in Israel also when your income as an individual is much greater than your personal consumption, and you have investments that you are interested in making. As a caveat, if you are an Israeli individual, a company in Israel not suitable for real estate investments or the capital market. That is because in the field of real estate and the capital market, an Israeli individual has tax benefits that an Israeli company does not.

Another situation that is particularly suitable for starting a company in Israel is by practicing certain lines of business where there is a high risk of claims from customers. For instance, if you are interested in running a restaurant, it is possible that one of the customers will eat food that he is allergic to. Such a customer can sue you as the owner of the restaurant, and you will owe a large compensation. On the other hand, if the restaurant is owned by a company in Israel that you own, well, the customer will be forced to sue the company, which, as mentioned, you have limited liability towards. This is also true for the field of manufacturing or selling medicines, and other fields that are exposed to lawsuits, such as insurance companies.

Why? What are the Advantages of a Company in Israel?

 Below is a breakdown of the main advantages of establishing a limited liability company:

Separate Legal Entity

As we said, a limited liability company is a separate legal entity, and therefore it is separate from the owner. The "corporate veil" exists between the company and its owner. This means that the company owns the restaurant; it owns the drug manufacturing plant; it owns the building; it owns of the patents or copyrights; it is the employer of the employees, etc., all separate and independent from the owner of the company itself.

Limitation of Liability

The company protects its owners from the economic risks involved in operating the business that the company operates. This is a huge advantage that makes it easier for entrepreneurs to invest in establishing businesses that will contribute to the economy in which they exist.

Except in very rare cases where the court does what is called "unveiling ", the shareholders cannot be required to "foot the company's bill". This means that when you choose to run a high-risk business, it is better to run it as a limited liability company.

Status and Image

A company in Israel has costs and therefore the very fact that you own a company in Israel is viewed upon as if your business earns enough to make it worthwhile for you to manage it by a limited company. In addition, managing the business through a company in Israel conveys to suppliers and customers that this is a serious and stable business.

Fundraising

One of the reasons why it is worthwhile to establish a company in Israel is in a situation where an entrepreneur is required to raise money for a certain profitable project. In such a situation, he/she should actually sell shares of the company, which alone will be the owner of the aforementioned profitable project. No investor will agree to invest money in a project in which he does not have ownership, and the way to obtain this ownership is through the purchase of shares in the company in Israel that owns that project.

Bringing in Partners and Removing Partners

A company in Israel provides great flexibility in managing the business in relation to existing and future partners. The way to bring in partners is to grant or sell them shares, and the way to remove partners is to take or buy-out the shares from them.

A Company Never Dies

Because a company is not a physical entity, it cannot break up or die. A company in Israel continues to "live" forever, even if its owners die. If sometime in the future there will be imposed an inheritance tax in Israel (which currently doesn't exist), you will understand why managing the business through a company in Israel is so important.

Tax Benefits

Most areas of occupation should be managed through a company in Israel, provided that the business earns enough.

A company in Israel has important tax advantages, which are particularly evident in situations where the business earns significant amounts. Below are some of the advantages.

A company in Israel does not pay social security and health tax - according to the law, who he must pay social security and health tax is the individual, whether he/she is an employee or self-employed. Therefore, a company in Israel is not required to pay any social security or health tax. why? Because the company is a legal entity, which is not physical. Therefore, it cannot get sick. It can't be unemployed. It doesn't need to eat. It doesn't need clothes or shelter. Therefore, it also does not make sense for it to pay any social security that it does not need, and health tax when it does not have a body that can be sick.

All the amounts that the sole proprietor normally pays for social security and health tax are spared when the activity is managed by a company. In fact, the payments of social security and health tax are only paid by the employee through his/her salary or by the sole proprietor following his/her salary income, and therefore the owner of the company spares health and social security fees for every shekel that he/she manages to keep in the company, and does not withdraw as salary or wages.

A company in Israel has a lower maximum tax rate - above a certain level of profits, the effective rate of tax paid by the individual is lower in the case of a company in Israel, than what he/she would pay on the profits if he/she were operating as a sole proprietor. We will explain.

The tax rate for an individual varies according to Section 121 of the Revenue Ordinance, and starts at 10% but can reach a maximum tax rate of 50%. It is true that the effective tax rate is generally lower than that, but as the sole proprietor's income increases, the effective tax rate gets closer and closer to the limit of 50%.

On the other hand, the corporate tax rate is 23% as of 2024, and when combined with a 30% dividend, this amount to only 46.1%. That is, when we talk about profits in the big numbers, we are talking about a difference of a whole 3.9% in favor of activity through a company in Israel.

Two-stage taxation - after the company pays corporate tax, the owner can withdraw the remaining profits, provided he pays a tax of 30%. But does the owner have to withdraw all profits? Of course not. The owner can withdraw a meager salary at a marginal tax rate of only 10%, and leave the balance in the company, or he/she can also refrain from withdrawing a salary at all.

Leaving funds in the company provides a clear advantage in investments for revenue growth. Instead of paying 50% on each Shekel in a way that leaves us with only 50 Agoras, it is possible to pay only 23% on each Shekel in a way that leaves us with 77 Agoras, and thus it is possible to invest more money and receive more profits from these investments. And again, the profits that will grow from this investment can be invested again, and generate even more profits. The company in Israel can register new limited companies and establish other businesses that will generate additional profits, and so the wheel continues. It can be said that by avoiding the withdrawal of the company's profits, the investment potential of a company in Israel is more than double that of the sole proprietor!

Of course, the money does not have to be allocated to investments outside the business, but rather it can be invested in the growth of the business itself, for example in marketing, advertising, purchasing additional assets for the business such as a more efficient, more economical plant or equipment, etc.

In conclusion, a sole proprietor is burdened by tax on all his profits, even if he did not use them. On the other hand, the owners of a limited liability company in Israel can withdraw profits from the company as a salary, as a payment on an invoice, or as a dividend, and pay tax only on the income from these withdrawals.

Therefore, on the assumption that the owner of the company does not withdraw all its profits, it is better to manage the business activity by using a company (and this is as long as the investments are not in real estate or the capital market, where the individual investor has significant tax benefits compared to a corporate investor in Israel).

The corporate tax is a uniform tax that does not change - as stated above, the tax rate of a sole proprietor varies according to his profits, but the corporate tax rate does not change according to the level of its income, which greatly simplifies the calculation of net profits.

A limited liability company can deduct the interest expense of loans from its tax liability – much to the detriment of the sole proprietor, if you have a loan that you took for the purpose of investing in a business, you cannot deduct its interest expense from your tax basis. This means that if you took a loan to invest in the creation or purchase of a business, you cannot deduct the interest expense from the income of the business. This is the view of the Israeli Tax Authority, which is based on the grounds that when you are an individual it is impossible to know whether you used the loan money for private needs, or for business needs. Therefore, the Israeli Tax Authority does not allow to deduct the paid interest as an expense, from your tax basis.

This is a distinct situation of tax inefficiency, and it can also be a very serious situation. why? The problem is especially evident in the situation of high incomes, when then the tax rate is extremely high.

Let's assume that all your income as a sole proprietor is ILS 600,000 per year,

Let's say your tax rate is 40% for the sake of simplicity

Let's say that your interest expense is ILS 250,000 a year, and let's say that this is your only expenses for the year.

If you cannot deduct the interest expense, you will pay a 40% tax on a profit of 600,000, even though you actually only earned 350,000 because you had that interest expense. Therefore, it turns out that even though you are only supposed to pay tax at a rate of 40%, you actually pay tax at a horrific rate of 68.6%!

Here is the calculation: 40% of 600,000 is 240,000, and 240,000 of 350,000 is 68.6%.

You actually pay tax in the amount of ILS 240,000 when you should only pay tax in the amount of ILS 140,000.

And now add on top of that a payment to the Social security for a profit of 600,000 instead of a profit of 350,000...

This is not the case with a company in Israel. A company in Israel has no private needs because it is not a real physical entity, and therefore if a company in Israel takes a loan from the bank, an insurance company, or even from the public through the issuance of bonds to the public, it can deduct the interest expense from its tax basis.

Therefore, let's assume that a company in Israel brings in ILS 600,000 a year,

And let's assume that the tax rate of a company in Israel is 23%

And let's assume that the company's interest expense is ILS 250,000, and let's say that this is the company's only expenses for the year.

The company will be able to deduct the amount of interest expense from its income, and pay tax only on the net income, that is, on ILS 350,000. The tax amount in this case will be ILS 80,500 instead of ILS 138,000.

And in a company in Israel there is no obligation to pay social security...

Tax benefit when the company in Israel is held by another company in Israel - when you establish a company in Israel, and then this company in Israel establishes another company in Israel or receives/buys shares in another Israeli company, you can make a dividend distribution of the profits of the subsidiary to the parent company, with a dividend tax rate of 0%. Yes, this is not a typo, the tax rate on dividend distribution is 0%. For many years, you will be able to invest in this way the funds received from company A in company B or company C in the same group.

Disadvantages of Starting a Company in Israel

Establishing a company in Israel also has disadvantages and it is important to mention them so that the founder of the company has the complete picture.

First of all, since a company is essentially a legal entity, a lawyer must be used from time to time. The amount of this help varies according to the needs of the business and the required legal activity.

In addition, a company's reporting obligations to the Tax Authority require regular accounting services.

Also, there is an annual fee that must be paid every year. The annual fee increases every year by several Tens of Shekels and this must be taken into account. As of 2024, the fee is 1675 ILS.

Since failure to do one of these will certainly result in fines, it is advisable to understand that opening a limited liability company is ultimately a matter of responsibility. Like giving birth to a child, you could say.

The company must also have a local registered address, and in case it is leased, it has annual costs as well.

How? How to Register a Company in Israel? 

The Israeli Companies' Registrar

In order to establish a company in Israel, the company must be registered with the Israeli Companies' Registrar. The Israeli Companies' Registrar is the government body in front of which you work to register companies in Israel, and also to liquidate them. To register a company in Israel, you must submit the documents required to open the company to the Israeli Companies' Registrar. In the following chapters we will discuss the documents.

A good word about the Israeli Companies' Registrar: As someone who has been working with the Israeli Companies' Registrar for many years, we must point out that the Israeli Companies' Registrar is one of the most efficient government divisions in the country. The representatives of the Israeli Companies' Registrar are very professional, know full answers and explain well. They are very fast, and they are also kind and patient. In short, a very high standard of service.

Is There a Fee for Registering a Company in Israel?

When you establish a company in Israel, you must pay a state fee for company registration. As of 2024, the registration fee is ILS 2412, and the amount is updated slightly each year upwards.

What are the Steps for Israeli Company Formation / Israeli Company Registration? 

Choosing an Israeli Address for the New Company

During the Israeli company formation / Israeli company registration, the registered address of the new company must be given, for the purpose of receiving letters. The company address does not have to be an office address, but rather it can be the address of the Israeli owner of the company. This is actually the option that most beginning Israeli entrepreneurs choose. They register the company address at their home address.

Another option is to register the company's address at the address of the law firm that registered the company in Israel. Since one address can serve an unlimited number of companies, the law firm that assisted in registering the company can be the company's registered address.

How to Choose a Name for the New Israeli Company?

New company names are required to be approved by the Israeli Companies' Registrar.

Choosing the name for the company seems at first glance like a simple task, but those with experience know that this is not the case.

First of all, there are restrictions on choosing names. For example, the name of the new company cannot be similar to the name of another previously registered company in Israel, as this can cause confusion between the two companies.

In addition, it is not possible to register a company in Israel with a name that is a trademark registered with the Israeli Trademark Registrar. That is, it is impossible to register a company in Israel with a registered trademark name. The Israeli Companies' Registrar is connected online to the Israeli Trademark Registrar, and such an application for registering a company in Israel will immediately be refused. This is one of the reasons why it is worthwhile to be accompanied by a lawyer to establish the new company in Israel.

It is also not possible to use a name that may cause fraud or mislead the public.

Another restriction on the choice of name is that it is not possible to choose a name that may harm "public order" or public feelings. A person who requests to register a company in Israel with the name of the Western Wall Ltd. will probably receive a refusal from the Israeli Companies' Registrar to his request to register a new company.

As part of the process of Israeli company formation / Israeli company registration, the founder is required to offer 3 optional names in descending order of priority. First will be the name you want the most, then the name in second priority, and finally the third priority name. The Israeli Companies' Registrar will not accept a company for registration without three optional names, and therefore the founder of the company is required to offer three alternatives. Thus, in the case where the first name chosen for the establishment of a company already exists for another company, or is similar to it, the Israeli Companies' Registrar will be able to choose a name from the alternate names which were provided by the founder of the new company in Israel. The goal here is to optimize the work of the Israeli Companies' Registrar, and to avoid a situation where the Israeli Companies' Registrar has to refuse an application, only later to receive a revised application to register a new company, then refuse it again, then again receive a revised application, and so on.

Before registering a company in Israel, it is recommended to check in advance what the chances are that the chosen name will either be taken or available. Therefore, when you enter the Israeli company registration phase, it is recommended to have three options that have already undergone a preliminary examination to increase the chances that the name you are interested in will really be yours.

If the company is a limited liability company, in any name you choose, you must add the abbreviation "LTD." at the end.

Company Name in English

Every company in Israel is required to have a Hebrew name. In addition to the Hebrew name, the company can also have an English name. The English name will be written on the certificate of incorporation below the Hebrew name. If the founder of the company did not make a request that the new company in Israel have an English name, the certificate of incorporation will be received with the Hebrew name only.

If you also want an English name, the English name must be a translation of the meaning of the name in Hebrew, or a phonetic spelling of it.

For example:

A company called in Hebrew "Refrigerators and Air Conditioners Ltd" could have one of these two names in English:

-Refrigerators and Air Conditioners Ltd (literal translation to English)

-Mekarerim Vemazganim LTD (phonetic spelling)

Who will be the First Shareholders?

Before Israeli company formation / Israeli company registration, it is necessary to decide who will be the first shareholders, which are the founders of the company.

It can be a single person, and it can be 2 people or 51 people. The founder of the company can be a company in Israel + a single person, two limited companies, 10 limited companies, or any combination of these.

Moreover, those who receive shares can immediately transfer them. For example, a lawyer or CPA can open the company and immediately after transfer the shares to the client.

It is also possible that a single person opens the company and immediately after issues shares to his partners.

There is complete flexibility in this regard.

In addition to defining the identity of the first shareholders, it is required to determine what will be the percentage of holdings of each of these company founders in the company's shares. As long as it is one company founder, he will own 100% of the company's shares regardless of the amount of shares issued to him, because every share that is issued, will be issued only to him because he is the only founder. But if, for example, there are two first shareholders, it is necessary to decide how to divide the shares between them. Should they be divided 50-50? 75%-25%? No matter how the shares are divided, the total holdings of all the founders of the company will be 100% of the issued shares.

You should know that when you register a company in Israel, you do not stipulate what percentage each person receives, but rather how many shares each person receives. For example, if 1,000 shares are issued to Joe and 1,000 shares to Dave, their holdings will be 50%-50%. But if 1,000 shares are issued to Joe and 1,000 shares to Dave and 1,500 shares to Simon, their holdings will be:

28.57% to Joe

28.57% to Dave

42.85% for Simon

This is an initial form of a "capitalization table" ("Cap Table"). When there are many shareholders, a detailed capitalization table in Excel is required which calculates the amounts of each shareholder's shares and the relative percentages that each shareholder holds. This is another point where an experienced corporate attorney becomes very useful to the client.

In the process of opening a limited liability company, the shareholders declare and undertake that they have no restrictions on establishing a company by virtue of various laws, a bankruptcy order or an insolvency law. We will not go into these laws, but let's say that those whoever is restricted from registering a company in Israel knows he/she is limited to establish a company in Israel. And if you don't know, pick up the phone and we'll check your situation as part of the process of registering a company in Israel.

The first shareholders sign a document called "Declaration of the first shareholders", which is required to open the Israeli company.

Who will be the First Directors?

As in the case of the determining of the first shareholders, the determining of the first directors is also a process that allows complete flexibility.

A director of the company does not have to be a shareholder, and a shareholder does not have to be a director, although in most cases this is the case, and both can be one and the same person. For example, if there are two founders of a company, Joe and Dave, then Joe can be a shareholder and also a director, and Dave can too be a shareholder and also a director. The same goes in the case of three people, and so on.

So, there is full flexibility here as well.

In the process of registering a limited liability company in Israel, the first director or directors declare that they are not limited to serve as directors by virtue of any laws, but there are additional restrictions. Here the significant limitation is that those who apply to serve as directors cannot also be directors in another company which is in a status of "bad standing". A company in a "bad standing" status is a company that does not meet its annual obligations: does not pay an annual state fee, and does not submit an annual report to the Israeli Companies' Registrar. The "bad standing" status of a company can be resolved very easily - paying annual state fees on time and submitting annual reports to the Israeli Companies' Registrar on time.

The first directors sign a document called "Declaration of the first directors", which is required to open the Israeli company.

Drafting Company Articles of Association

The company's articles of association constitute the central and essential incorporation document of the company. The company's articles of association are actually a document that specifies the rules of conduct of the company itself, and the shareholders in relation to the company. It can be said that this is a type of contract between the founders of the company, which defines exactly what is allowed to be done in the company, what is prohibited, and how to do things in the company. However, regarding changing the articles of association after the opening of the company, unlike a normal contract, the general situation is that the articles of association can be changed by a simple majority of the shareholders, without the need for unanimous consent of all shareholders.

The company's articles of association are the most basic document of the company, without which there is no company. Every company has articles of association, and it must contain at least 4 important details:

√ The liability of the shareholders to the company's debts. In the company's articles of association it is required to determine whether the shareholders have limited liability or not. In a limited liability company, the liability of the shareholders towards the company's debts is limited. That is, the company is a limited liability company.

√ Company name. In the articles of association it is required to determine what is the name of the company. The name must be in Hebrew only, and it is not possible to combine English with Hebrew. For example, the name of the company cannot be "שמעון Investments Ltd". It must be in Hebrew only. The company can also have a name in English, but it must have a name in Hebrew which does not include English letters or words.

√ Company goals. Today, in Israel it is common to write that the company's goals are to "engage in any legal occupation". This is a generic goal that includes all the possible occupations which exist or will exist, and which gives maximum flexibility to the new company. In other words, there is no need to specify in the articles of association exactly what the company intends to do.

√ The authorized share capital of the company. In this detail, the founder of the company is required to determine the authorized share capital of the company, the type of shares (the simple and common type is "ordinary shares"), and what is the par value of each such share. As recalled from the chapter that describes the authorized share capital, the authorized share capital is the maximum amount of money that is allowed to be raised through the company's shares, and as recalled from the chapter that describes the par value of each share, the par value is the amount that the buyer of the share is required to pay to the company in exchange for receiving it. The company's shares can have a par value or no par value.

In this context it should be noted that there can be more than one type of shares in the company. This is not the place to go into detail about the different types of shares, but we will just note that the place to make special solutions with your company for your special needs is here, through the drafting of custom articles of association by a corporate attorney who thoroughly understands the different types of shares.

In a private company, it is possible to stipulate in the company's articles of association that there will be a maximum number of shareholders, and it is customary to state that the maximum number of shareholders allowed is 50. However, this limitation is not mandatory, and it can be stated in the articles of association that there is no limit to the number of shareholders in the company. Rather, there are situations where it is required to remove this limitation.

The company's articles of association also stipulate a ban on offering shares to the public (a situation when the company actually becomes public).

Another thing that is important to include in the articles of association is that any transfer of shares in the company will only be valid if it has been approved by the company's board of directors. The idea is to prevent a situation where any shareholder can sell or transfer his shares to whoever he wants, without any control.

Using "Standard Articles of Association" vs. Drafting Custom Articles of Association

In the process of opening a company, you can use the "existing articles of association", that is, a generic short articles of association with 6 sections proposed by the state. Indeed, in some cases the existing articles of association will be sufficient.

In the case where the standard articles of association are in use, there will be many sections of the companies law that will apply to the conduct of the company - sections such as the procedure for decision-making by the shareholders, the procedure for decision-making by the board of directors, with what majority can a decision be taken to liquidate the company (close the company), and many other procedural sections.

However, in cases where there is an intention to raise capital through the sale of shares, for example in startup or real estate companies, and in cases where the company intends to carry out significant economic activity, it is highly recommended to draft custom articles of association for the company, which will take into account all the future needs concerning the shares, the shareholders, the board of directors, and the relations between all of these. Almost any procedure can be redefined in the custom articles of association, so that the procedural provisions of the Companies Act will no longer apply to the company.

There can be defined, among other things:

√ The rights and obligations of the shareholders

√ Any provisions regarding the ways of managing the company

√ Determining the minimum and maximum number of directors, the ways of appointing a director, the ways of dismissing directors, the ways of making decisions in different company levels, and more.

Before registering a company in Israel, you and we should think about the various situations that will be relevant later on, and handle them beforehand within the custom articles of association. In the simplest example: if you had 10 shareholders and you were required to hold an annual meeting, would you want to gather them all physically each time? Or would it have been more convenient for you to have a video meeting with everyone? This action is required to be arranged for in custom articles of association, otherwise the resolutions made by the company by way of having a video meeting, will have no legal effect.

The custom articles of association are not mandatory, but they are highly recommended, because the articles of association in themselves are a very important component of the limited liability company. We can draft custom articles of association for your new company in Israel, based on our experience and expertise in the industry in which the new company intends to operate. This is especially true for companies that intend to be highly active in the future. Also, if the founders of the company signed on a founders' agreement (see chapter below), the incorporating lawyer should make sure that the company's custom articles of association reflect whatever is stated in the founders' agreement.

Custom articles of association cannot be submitted to the Israeli Companies' Registrar without an Israeli lawyer, because the signatures at the end of the articles of association must be verified by a local Israeli lawyer.

At the end of the articles of association, there will be a table of the first shareholders, in which the names of the first shareholders, their address, and their identification number will be indicated (Israeli I.D number for an Israeli citizen, P.C.N for a company, or a passport number + country of issue for a foreign citizen). In addition, there will be indicated how many shares will each of the first shareholders receive (this is the "issued and paid-up share capital, described above). Each shareholder will sign in the appropriate line.

The first shareholders sign the company's articles of association, which is required to open the Israeli company.

Submission of all Documents to the Israeli Companies' Registrar

After the three documents are prepared, it is time to submit them to the Israeli Companies' Registrar, along with an application for registration of a new limited liability company in Israel.

The three documents required to be submitted:

·       Declaration of the first shareholders

·       Declaration of the first directors

·       company articles of association

Before submitting the application for registering a company in Israel, the registration state fee for a new company must be paid, which as of 2024 is ILS 2,412.

In the application will be specified all the details we discussed in this guide: three names in Hebrew, three names in English (optional), company address, authorized share capital, who are the first shareholders, who are the first directors, how many shares the first shareholders receive, etc.

The Company was Registered. What do you Get From the Register of Companies?

Certificate of Incorporation: After the application for registration has been submitted to the Israeli Companies' Registrar, he will register the company after finding that all the requirements according to the Companies Law have been met. The end of the registration process of the new company in Israel is that the Israeli Companies' Registrar issues a "certificate of incorporation" for the shareholders. The certificate of incorporation is like the company's identity card, or rather the company's birth certificate, which indicates the date of incorporation, and the company's registration number. The registration number is actually the P.C.N. The certificate of incorporation is a legal document which indicates that the company "exists" (in the legal world, not physically).

Congratulations, your new Israeli company formation is over and the Israeli company is open.

P.C number: The company's P.C.N will be noted on the certificate of incorporation. P.C.N is an abbreviation of "private company number", therefore "P.C. number" is "private company number". This is a unique identification number for the company.

Certified copy by the Israeli Companies' Registrar of the articles of association: the submitted articles of association will receive a stamp from the Israeli Companies' Registrar, which indicates that the articles of association have been submitted to the company file on the records of the Israeli Companies' Registrar. These articles of association will be available to anyone who wishes to view the company file from the Israeli Companies' Registrar.

Founders' Agreement to Start Up a Company

In case there are at least two founders who wish to register a company in Israel together, it is recommended to draw up a founders' agreement, and not just custom articles of association.

The founders' agreement is an agreement between the future shareholders, which binds them to each other on things that have no place in the company's articles of association. For example, while in the company's articles of association it is possible to stipulate things concerning the question, for example, of what majority of the shareholders is required to make a decision on the dissolution of the company (closing the company), in the founders' agreement it can be stipulated that the founders are required to try to resolve the substantial conflicts between them in an amicable manner before resorting to the dissolution of the company.

Remember, the articles of association discuss the relationship between the founders and the company in terms of ways of conducting or carrying out legal actions such as making decisions in the company, what type of shares the company has, how many shares can be issued, etc., but the founders' agreement discuss relations between the founders and the company from an economic and financial point of view, and therefore their rightful place is in the founders' agreement.

Because the shareholders will also be, in all probability, the first employees of the company, the founders' agreement provide for the division of roles between all founders, what roll each founder has, how many hours a month he/she will do it, what will be the minimum or maximum salary, etc.

A good founders' agreement will also talk about ways of financing the company during its first steps, when to distribute profits from the company to the shareholders, and other issues related to the core of ownership issues in the company and the return to the owners from their investment in it.

For example, if you want each founder to pay a loan of ILS 100,000 to the new company, or to work in the company at least 40 hours a week, or to receive a maximum/minimum salary in the first year, etc., the place where these obligations and rights should be provided for is in the founders' agreement, not in the company's articles of association.

In the founders' agreement for founding a technology company, there will be clauses which discuss the transfer of ownership of the intellectual property, from the founders as individuals, to the company. This section is extremely critical for a company which wishes to raise money from investors in the future. Founders' agreements also usually stipulate confidentiality and non-competition clauses for the entrepreneurs in the company's activities, meaning that they will not use the company's trade secrets for their personal benefit, and that they will not "steal" customers or work from the company.

Another positive feature of the founders' agreement is that it is not part of the company's constituting documents and therefore it is not in the company's file at the Israeli companies' registrar. In other words, the founders enjoy confidentiality or at least maximum privacy as far as the founders' agreement is concerned.

Stages of Registering a Limited Liability Company in Israel (summary)

√ Choosing the name for the ne company.

√ Choosing a company registered address.

√ drawing up a founders agreement (optional)

√ drafting custom articles of association (optional)

√ Determining the identity of the first shareholders, and the amount of shares they will receive; there can be a sole shareholder.

√ Determining the identity of the first directors; They can also be the shareholders, and there can be a sole director.

√ Signing 3 documents: statement of the first shareholders, statement of the first directors, and the common or custom articles of association.

√ Submitting the application to open Israeli company, together with the 3 documents, and paying a incorporation fee of the state.

√ The Israeli Companies' Registrar registers the company and issues a certificate of incorporation, a unique P.C.N. and certified copy of the articles of association.

How Long?

How Long does it Take to Start a Company?

Opening a company in which there will be more than one shareholder, or in case the shareholder and the director are not one and the same person, the time to incorporate the company will be approximately two days from the moment of submitting the application to open a limited liability Israeli company, to the state.

In the case of a "sole person company" (as defined above), if all the documents are in order and the application to open a limited liability Israeli company is in order, then if the application was submitted by 9:00 a.m. on Sunday-Thursday, the Israeli Companies' Registrar will issue a certificate of incorporation by 8:00 p.m. As we said above, in our opinion a The Israeli companies' registrar is the most efficient division in the country.

However, in many cases the amount of time needed to establish a company is very long, and in most cases the reason is the founder of the company or the lack of experience in opening limited liability companies in Israel.

What Can Delay an Application to Open Israeli Company?

Below are a number of things which can greatly delay the process of Israeli company formation / Israeli company registration:

-Poor choice of a name. For example: the founder of the company tries to register a company in Israel with a very general name like "Electric Vehicles Ltd".

This is the most common reason. As a matter of routine, those who open a new company are required to check the availability of the requested name before attempting to open the company.

-Mistakes in data entry. For example: the forms say that the authorized share capital is ILS 10,000 and consists of 100,000 shares with a face value of 10 Shekels each, but the person who submits the request to open the company and enters the data does not know the difference between share capital and shares, gets confused and writes that capital The registered shares are ILS 100,000.

-Error in spelling names: the lawyer who enters the request to establish a company in Israel must write the name of the shareholders or directors exactly as it appears on the identity card. A mistake in one letter, an overlooked middle name, or even an unruly dash in the name is enough to stall the registration process of a company in Israel.

-Using old forms: the Israeli Companies' Registrar occasionally changes his forms for opening a company. Using old forms will result in the rejection of the application to register a limited liability company in Israel by the Israeli Companies' Registrar.

- Use of documents that are not properly certified: in the more special cases, for example if one of the first shareholders is a foreign citizen, it is also required to submit a photocopy of his passport. The passport must be valid for at least 6 months ahead, and the photocopy of the passport must be certified according to the instructions of the Israeli Companies' Registrar. If the photocopy of the passport is not certified as required, this will delay the process of registering the company in Israel.

What to do After the Israeli Company Formation?

After opening the company, three main actions must be performed immediately:

-Preparation of "Authorized Signatory Protocol"

-Opening a current bank account for the new company

-Opening cases at the Tax Authority.

Drafting of an Authorized Signatory Protocol

Since the company is not really a real person or a real body but a legal entity, it cannot make decisions because it has no mind or desires. Therefore, all wishes and all decisions are the result of the wishes and decisions of its managers and owners. For example, if the company decides to hire an employee, the CEO is the one who signs the agreement, on behalf of the company.

An "authorized signatory protocol" is a legal document which records the company's resolution to grant authorization to a certain person or persons to sign on behalf of the company and bind it for a specific legal purposes, such as a contract.

An authorized signature protocol is not part of the necessary documents to open the Israeli company, and is therefore one of the first documents that are drafted after registering the limited liability company in Israel.

The protocol is drawn up by a lawyer and he/she certifies the signature of the directors on it. It is not possible to create an authorized signatory protocol without a lawyer.

How to Open a Bank Account for an Israeli Company?

To open a bank account for the new Israeli company, the founder of the company is required to go to the bank with the certificate of incorporation and ask to open a bank account for the company.

The bank will ask general questions such as what the company intends to do, what the estimated turnover will be, and then send you forms to open a bank account for the company by email. So, you forward this email to the Israeli lawyer who opened the company for you. We will fill out the forms for you to the end, and certify your signature on them.

The bank will request company documents:

-Certificate of incorporation, verified as faithful to the original by a lawyer

- Articles of association, verified as faithful to the original by a lawyer

- Protocol authorized to sign in the company, signed and verified by a lawyer.

You will also need to prepare a company stamp. But don't worry, because the simplest stamp will suffice. How do you make a stamp? Just come to the place of stamps with a copy of the certificate of incorporation, and say "I need a stamp for this company". That's all!

After preparing the forms and the company stamp, you will take the forms with you to the bank, along with the company stamp which you prepared, and after an hour or two you will receive an account confirmation letter, which you will later need to open files for a company at the Israeli Tax Authority.

Congratulations, the bank account is open.

For Foreign Citizens

To open a bank account for the new company remotely, without physically coming to Israel, we can receive signatory powers from the company, and we can open the account on the company's behalf.

Registration of a New Company with the Israeli Tax Authority

The registration of the new company with the Israeli Tax Authority basically ties together all the actions we did in a nice and clean way. The end of the registration with the Israeli Tax Authority is actually the issuance of an "authorized dealer" certificate to the new company. In VAT, the opening of a company file is carried out by filling out a registration form, as well as by submitting a certificate of incorporation, company articles of association, authorized signatory protocol, an account confirmation letter, a photocopy of the ID card of the directors of the company, and a lease contract if the company rents any space. Registering the company for Income Tax is a simpler procedure.

The process of Israeli company formation / Israeli company registration with the Israeli Tax Authority is carried out independently by an accountant of your choice.

At this point the company can start selling and issue tax invoices legally.

Annual Maintenance of the Company 

Annual Report

Every year, each company must submit an annual report to the Israeli Companies' Registrar. In the annual report, the company actually declares whether there have been any changes at the most fundamental level: whether the company's registered address has changed, whether the shareholders have changed, whether the amount of shares in their hands has changed, whether the directors have changed, whether the address of any of these has changed, etc.

The annual report is very important, because the Israeli Companies' Registrar severely punishes companies which do not submit it. The Israeli Companies' Registrar has the authority to impose a fine of ILS 8,000 for not submitting an annual report for a few years. If the company is no longer active, it will not be possible to dissolve It (close it) without paying this fine. Therefore, it is a pity not to submit an annual report to the Israeli Companies' Registrar.

An annual report can be submitted by a lawyer or an accountant, and also by a company director, but it is highly desirable and recommended that it be submitted by the company's lawyer, who leads and guides those changes in the company that are relevant to the report.

Annual Fee

A company must pay an annual state fee to the Israeli Companies' Registrar every year, starting on January 1st of the year following the year of its foundation.

As of 2024, this fee was ILS 1,614. It is worth noting that if the fee is paid by March 31st, the fee is reduced by several hundreds of Shekels.

Every company must submit an annual report and pay an annual state fee, and it doesn't matter if it is an active company or not. A "bad standing" company is a company that does not meet its annual obligations: does not pay the annual state fee, and/or does not submit an annual report to the Israeli Companies' Registrar. For a certain period, warnings will be received. After that, the company's public status will change to "law-breaking". Fines will be imposed, and finally foreclosures. And all this when the "bad standing" status of a company can be solved so easily - paying state fees and submitting annual reports to the Israeli Companies' Registrar.

Changes in the Company After its Registration

After opening the company, sometimes the shareholders need to make changes in the company. Everything can be changed in the company, even after its opening. We will now discuss several common changes.

Is it Possible to Change the Address of the Company?

At any time, it is possible to file to the Israeli Companies' Registrar a change of address of the company.

Is it Possible to Change Company Directors?

At any time, it is possible to file to the Israeli Companies' Registrar the dismissal of director(s) or the addition of director(s).

As mentioned, the minimum number of directors in a company in Israel is 1, but there can be interesting legal situations where all the directors on the board have been either dismissed or resigned. Such situations require a lawyer to handle them carefully.

Is it Possible to Change Shareholders in the Company?

The shareholders of the company can be changed at any time.

Adding new shareholders and removing existing shareholders is done by one of two ways:

- transfer of shares,

- Allotment of shares.

A share transfer is a transfer of shares from shareholder A to shareholder B, who can be a new or existing shareholder. On the other hand, the allocation of shares is the delivery of shares by the company to a shareholder, which can be a new or existing shareholder.

For example, transferring shares from Joe (an existing shareholder) to Dave (a new shareholder), so that some of the shares will be with Joe and some of the shares will be with Dave, will result in two shareholders: Joe and Dave. On the other hand, the transfer of all of Joe's shares to Dave will cause Joe to be deleted as a shareholder. The total amount of issued shares will not change. There were 100,000 shares and 100,000 shares remained, because they just changed hands.

Allocating shares to Dave will essentially be the creation of new shares and handing them over to Dave from the company. The total amount of issued shares will increase, at an amount equal to the amount of shares allocated to Dave. There were 100,000 shares and now there are 100,500 shares.

Is it Possible to Change the Name of the Company?

Yes. A name change is carried out as part of a change in the company's articles of association. As in the stage of Israeli company formation / Israeli company registration, here too it is advisable at this point to check that the requested name is indeed available.

Is it Possible to Change the Company's Articles of Association?

The company's articles of association can be changed at any time. Changing the articles of association is done by replacing it, that is, submitting a new version to the articles of association. For example, a person who opened a company with the standard articles of association, as defined above in the relevant chapter, and then, realizing that it was worth preparing special articles of association, that person can at any time make improvements to the articles of association, or replace it altogether.

Companies that wish to raise funds from investors should know that in order to change the articles of association, it is necessary to obtain the consent of the majority of shareholders, and therefore it is easiest to change the articles of association when there are still as few shareholders as possible. In other words, you should replace the standard articles of association with custom articles of association before starting to raise investments funds. From experience, investors view the existence of custom articles of association as more serious.

Sometimes changing the articles of association is an action at the initiative of the potential investor and according to his demand, before the investment and as a condition for it, and this is to allow him to gain more control of the company and protect his investment.

Is it Possible to Change the Authorized Share Capital?

The authorized share capital can be changed at any time. To change the authorized share capital, you only need to do a few simple actions, and there is no need to change the articles of association.

Is it Possible to Split Shares?

A "share split", simply put, is the act of turning each share into two or more shares. A 1 for 10 split will make each share into 10 shares. This means that if a shareholder held 536 shares, after the split he will hold 5,360 shares.

The split is actually the reduction of the par value of each share. for example, if the authorized share capital is 1,000,000 ILS and it consists of 1,000,000 shares with a par value of 1 ILS each, then a 1 to 10 stock split will not change the authorized share capital (it will remain 1,000,000 ILS), but rather after the split it will consist of ILS From 10,000,000 ordinary shares with a par value of 10 cents each.

Because of the change in the par value of each share, a stock split operation requires a change in the articles of association.

All changes must be reported to the Israeli Companies' Registrar in the ways and times as dictated by laws and regulations, otherwise the Israeli Companies' Registrar may impose fines on the company or its directors.

The Service We Provide

Israeli Company Formation / Israeli Company Registration

If you have come this far in reading the guide, I hope you already understand that you are in good hands for registering a company in Israel. We will register a new company in Israel quickly and efficiently for you. You are invited to Contact us now free of charge to receive initial legal advice regarding Israeli company formation / Israeli company registration, by phone 052-5690866 or by WhatsApp, or by contacting us in "Contact" through the website.

We will accompany you from the beginning of the process to the end. We will assist you and guide you in choosing a name for the new company according to our best experience, answer all your questions, and offer you solutions if necessary. From your side, all you have to do is provide us with the data about the business, and have a video meeting. After the meeting, we will provide you with all the relevant documents electronically, and the process will end with the registration of the company in a short time and in an efficient manner.

Immediately after opening the company, we will prepare a authorized signatory protocol for you, so that within a few hours you can already operate through the new company.

The next step will be that we will send you to your preferred bank branch to receive account opening forms. We will fill out your account opening documents and give them to you so that you can open the bank account.

When you contact Hodorov Law Firm, you will find professional assistance that expresses a lot of experience, efficient and high-quality solutions for registering a company in Israel, with a minimum of time and costs. Contact us today to start the immediate process of Israeli company formation / Israeli company registration.

√ Legal advice throughout the process of opening Israeli company.

√ We will prepare for you all the necessary documents for opening the company: declaration of first shareholders, declaration of first directors, and company articles of association.

√ We will perform signature verification by a lawyer as required by law for all documents

√ Pay the Israeli Companies' Registrar the lowest possible fee for registering a new company.

√ We will submit the application for opening a limited liability company via the Internet - this is the fastest way to establish a new limited liability company.

√ You will get the benefit of our extensive experience in opening a limited liability company and ongoing company management.

√ You will receive a certificate of incorporation that contains H.P. Within a few days from the moment of submitting the application for Israeli company formation / Israeli company registration.

Contact us now free of charge to receive initial legal advice regarding the Israeli company formation / Israeli company registration by phone +972-52-5690866 or on WhatsApp, or by contacting us using "Contact" page on this website.

Ancillary Services for Israeli Company Formation / Israeli Company Registration

Introduction to an Accountant

If necessary, we can introduce you to accountants, at no additional cost. We know accountants at different price levels, and with different expertise in different areas of practice. From international taxation to crypto taxation, from small clients to large clients, we will know to which accountant to introduce you. The introduction to the accountant is free and without cost.

Drafting a Founders' Agreement

If there is more than one founder, it is highly recommended to draw-up a founders' agreement. We have a great experience in this field and we will draft a professional founders' agreement for you. Our agreements are clear, correctly divided. Our agreements are clear and unambiguous. Our agreements are accurate to your needs and not loaded with frills.

We will be able to prepare a practical founders' agreement for you, which will exactly handle the issues which are important to you.

And all this at competitive prices.

For more information on drafting a founders agreement click here.

Drafting Custom Articles of Association

If the new company needs the drafting of custom articles of association, we can draw up articles of association that will suit the company you want to establish.

We have a lot of experience in that field and we will prepare custom and professional articles of association for you. Our articles of association are correctly divided, with a logical order between the topics. In addition, we include in the custom articles of association clauses which adapt the conduct of the new company to the 21st century.

Providing Ongoing Support and Advice to the Business

The benefit of receiving ongoing legal support and advice for your new business is very great. There is nothing wise like having experience, but in the field of limited liability companies, in-depth knowledge is also required and not just experience. The benefit from experience without knowledge is low and much inferior to the benefit that is produced from knowledge that is applied with a lot of experience. Therefore, the legal advice you will receive from us is of very high value to you.

Trademark Registration

If you think one step ahead about marketing your product, you must understand that it is also worth thinking about registering a trademark that will be part of your brand. The trademarks of the company can be a trade name of the company itself, a trade name of the specific product or service, the logo of the company, the slogan of the company, the slogan of the product, or the color(s) of the product.

After opening the company, we can register a trademark for you in Israel, and also in any market where you want to market the product or service.

For more information on trademark registration click here.

Drafting an Employment Agreement / Service Provision Agreement for the New Company

In the section of "Pay slip, invoice or dividend?" Above, we discussed three ways to live off the company or benefit from its profits.

In the case of a pay slip, we can prepare an employment agreement for you, and in the case of an invoice (in the case of a sole proprietor) we can prepare a management service agreement for you.

These agreements will reflect the income you wish to receive, in a way that will also take into account your and the company's future needs. These agreements can also take into account feedback from your company's accountant.

Drafting Additional Contracts in the Relevant areas of Your New Business

There are several contracts that may be needed by the company during its operations, among them:

-          Investment agreement

-          A loan agreement between the shareholders and the company, or between the company and an third-party lender

-          Distribution agreement

-          Office rental agreement

We have experience with all types of agreements, at any level of complexity.

Contact us now free of charge to receive initial legal advice regarding Israeli company formation / Israeli company registration, by phone 052-5690866 or by WhatsApp, or by contacting us in "Contact" through the website.

The Relevant Legal Acts 

• The Companies Act, 1999-55

• The Company Regulations (Reporting, Registration Details and Forms) 2007-1999

• The Companies Regulations (fees)

• The Partnerships Ordinance.

  
  

The text in this guide is not legal advice, nor is it tax advice. The text is not a substitute for binding individual counseling.

Contact us now free of charge to receive initial legal advice regarding Israeli company formation / Israeli company registration, by phone 052-5690866 or by WhatsApp, or by contacting us in "Contact" through the website.