By Simon Weintraub and Adrian Daniels
Establishing a business in Israel is a relatively simple and straightforward process. When setting up a business, there are generally three types of legal structures to consider, namely a company (subsidiary), a foreign branch or a partnership. There are no residency or nationality requirements to establish or even maintain any of the above legal structures. Moreover, with the exception of a limited number of strategic industries (such as banking, insurance, and defense), there is little government intervention or limits on foreign control and investment.
The structures and mechanisms of Israeli business entities will be familiar to anyone with experience in other Common Law based systems in North America or in Europe. Israeli corporate law has it origins from the English Companies Act and over time, has been modified to take into account modern corporate law developments, principally in the United States. Israeli corporate law is strongly supported by a robust and specialised court system which routinely adjudicates complicated points of law and also enforces foreign judgments as a matter of routine.
- Company (subsidiary):
An Israeli company, like many of its international counterparts is a separate and distinct legal entity from its shareholders. Companies in Israel are overseen by a board of directors who have certain duties of care and loyalty to the Company, and are managed by their executive officers who are subordinate to the board of directors. The shareholders of an Israeli company, who have limited liability limited solely to their shares, elect the members of the board. The corporate veil between the company and its shareholder may only be pierced in extreme situations such as fraud. A company is subject to taxation for both earnings on the corporate level and for any dividends or other distributions on the shareholder level.
From a practical perspective, setting up a company is relatively simple. The Israeli Registrar of Companies (the “Registrar”), the government body responsible for the incorporation of corporate entities, allows a company’s local legal counsel to electronically file incorporation documents, along with satisfying ongoing reporting obligations.
The incorporation of a company requires the filing of the company’s initial articles of association and other incorporation documents with the Registrar. This process can be completed digitally by the company’s counsel and typically is completed within a few days. Once incorporated, companies are subject to various corporate governance requirements. These include the appointment of auditors, ongoing Registrar reporting obligations and minimum shareholder and board meetings (unanimous written consents in lieu of meetings are permitted).
- Foreign Branch:
A foreign corporation that seeks to conduct business in Israel must register with the Registrar as a Foreign Company. A Foreign Company does not constitute a separate legal entity distinct from the overseas entity. The registration process typically can be completed within a couple of weeks and consists of submitting various corporate documents of the original entity to the Registrar and executing a power of attorney in favour of a person regularly residing in Israel, authorising him or her to act in its name and accept judicial documents and notices on its behalf.
It should be noted that since a Foreign Branch is considered part of the same legal entity as the overseas entity which set it up, there often are bureaucratic hoops through which the overseas entity must jump upon incorporation and even in its on-going business. Examples of this may include the provision of board resolutions (and sometimes shareholder resolutions) of the overseas entity authorising actions that need to be taken, as well as delivery of other corporate documents and certifications of the overseas entity. By way of example, Israeli banks often require original or certified original copies of resolutions approving the setting up of a bank account. Furthermore, local lawyers are often required to certify such requirements and are unable to do so for foreign entities which require further complications and costs.
Israeli law provides for only two types of partnerships: (i) general partnerships and (ii) limited partnerships. In a general partnership, each partner is jointly and severally liable for the acts of his or her partner, while a limited partnership consists of at least one general partner with unlimited liability and limited partners with limited liability restricted to their capital contributions to the partnership. Partnerships are separate and distinct legal entities, which are regarded as pass-through entities for tax purposes.
Both general and limited partnerships must register with the Israeli Registrar of Partnerships (“Registrar of Partnerships”), a process which can take several days. The registration process requires, inter alia, the filing of the identity of the partners and, in the case of a limited partnership, the partnership agreement and the partners’ capital contributions.
It is important to be aware that filings with the Registrar and Registrar of Partnerships are publically disclosed. Consequently, information such as the identity of directors and shareholders, or the identity of partners, is publically available. It should be noted that most such public filings are declarative in nature and therefore the public database cannot be relied upon for example to prove the legal shareholders of a company as many companies are not up to date in their filings.
Among recent regulatory developments, two new legislative reforms are likely to have a significant impact on foreign businesses operating in Israel in 2018:
- Restrictive Trade Practices Law, 5748-1988 (the “Restrictive Trade Practices Law”): A recently proposed amendment to the Restrictive Trade Practices Law contains far reaching reforms in Israeli antitrust and competition law, which while extending the reach of the law, are also intended to streamline the current processes.
The amendment contains three central reforms. Firstly, while currently for a foreign corporation or partnership to fall within the merger control regime, the foreign entity must satisfy a jurisdictional nexus requirement (such as holding a significant position in an Israeli company), the proposed legislation abolishes this requirement. Under the proposed amendment, foreign entities are subjected to the merger control regime solely based on the same market share and turnover thresholds applicable to Israeli entities. Secondly, the proposed amendment would replace the current NIS 150 million combined turnover threshold for being subject to the provisions of the Law with an increased NIS 360 million threshold. Lastly, the amendment seeks to streamline the review process of restrictive arrangements. Presently, the Israel Antitrust Authority has 90 days to review an application for an exemption of a restrictive arrangement. The proposed amendment would expedite this process by reducing the review period to 30 days, with a total cap of 120 days on any additional extensions.
- Financial Services Supervision (Regulated Financial Services) Law, 5776-2016 (the “Financial Services Law”): This newly enacted law imposes a mandatory licensing requirement and regulatory regime on various non-institutional financial services providers such as lending institutions which are not banks. The Financial Services Law applies to two classes of financial services: financial asset services and the extension of credit. Financial asset services include the exchange and management of cash, checks, promissory notes and virtual currency. While the extension of credit includes the provision of loans, guarantees and other credit facilities. In addition to licensing requirements, financial service providers are subject to ongoing regulation including corporate governance requirements and restrictions on corporate control and dispositions of equity. The Financial Services Law exempts many types of financial institutions such as banks and insurance companies but unfortunately did not provide exemptions for foreign entities. There are draft regulations currently proposed to extend this law to foreign entities, however such draft regulations have not yet been formally adopted. The ramifications of this law currently impact on the ability of foreign financial institutions to loan money to projects in Israel without obtaining a license.
Investment Issues and Pitfalls:
A foreign entity or individual investing in Israel for the first time is likely to find the transaction documentation familiar and readily comprehensible. Investment documents are frequently drafted in English and follow international trends and practices, and in some sectors, particularly the technology sector, companies are run with a view to foreign investment and, therefore, most if not all corporate and commercial documents from inception are drafted in the English language. Further, Israeli law provides for favorable tax treatment of foreign investors.
Typically, the more sophisticated venture capital type investments involve three principal documents, a share purchase agreement, articles of association, and an investor rights agreement. The Share Purchase agreement will include the commercial terms of the investment, the representations and warranties of the parties, and any post closing covenants. The articles of association, which are the central organisational document of a company, will contain the various shareholder rights and preferences and include a description of the rights of the shares as well as the relationship between the shareholders. Typical provisions include dividend and liquidation preferences, anti-dilution protection, board composition provisions, and veto rights. The Investor Rights Agreement typically includes financial and information rights, as well as United States style share registration rights.
Two potential pitfalls are of particular importance when investing in an Israeli business. The first relates to the Israel Innovation Authority (formerly the Office of the Chief Scientist) (the “IIA”). The IIA is a governmental body charged with providing financial support to private sector entrepreneurs for research and development activities. Many Israeli companies take advantage of this source of funding.
The IIA generally finances the recipient company’s activities through the providing of government-grants, which become repayable by way of royalty payments from future sales, if any, using the funded technology. These grants are attractive to companies since they are only repaid through future sales, if any, and the investment does not dilute the shareholdings of the company. While the receipt of such funding does not limit the amount of foreign investment a company can raise, it does, however, subject it to certain sale or technology transfer restrictions which have important implications for technology related transactions between Israeli and non-Israeli entities. Know-how developed under research and development programs funded by the IIA, as well as manufacturing activities, are subject to certain restrictions on their export outside of Israel including the ability to manufacture outside of Israel. Overseas transfers of know-how, which include both outright transfers of ownership and out-licensing arrangements, are subject to IIA approval and payment of a “transfer fee.” which in some cases can be up to six time the amount of the original grant. Similarly, the export of manufacturing activities requires IIA approval and payment of increased royalties. Accordingly, part of any due diligence process conducted by a potential foreign investor, should include questions regarding possible IIA funding and a thorough review of such funding where it exists.
A second potential pitfall foreign investors should be cognizant of is their tax liability when selling stock in Israeli companies. The Israeli Income Tax Ordinance grants non-Israeli resident individuals and entities a broad exemption from capital gains tax upon the sale of securities in Israeli and Israeli-related companies. Unless an investor formally applies for this exemption from the Israeli Tax Authority, there is an obligation to withhold tax even for a foreign entity upon the sale of securities. While obtaining the exemption is relatively straightforward, the process can be lengthy and costly.
Israel has a strong corporate governance regime along with well-established rule of law and an independent and effective court system. Israeli companies are, therefore, well respected internationally, with many listed on leading foreign exchanges. Israeli companies are also subject to favourable tax rates and although tax rates may soon fall in the US, Israel may follow suit. Further, Israeli investment transactions follow international trends and practices, allowing for relatively seamless transitions into the Israeli market. While setting up an Israeli business is rather familiar for investors coming from most Western countries, there are certainly issues that arise which are unique to Israel and it is, therefore, important to seek competent local legal, tax and accounting advisors when commencing operations in Israel.
The authors of this article, Simon Weintraub and Adrian Daniels, are partners in the International Department of the Israeli law firm Yigal Arnon & Co. Simon and Adrian specialise in representing interests of foreign companies in Israel foreign funds and individuals who invest in Israeli companies.
Board Report Highlights Complex Decision-Making Process Across Banking and Finance sector
‘The State Of Decision-Making’ report from Board, reveals business decisions made in silos without modern planning tools
A third (33%) of Banking & Finance decision-makers believe decisions made in silos, despite majority (63%) of decisions being implemented worldwide
More than half (57%) of Banking & Finance decision-makers rely on spreadsheets for decision-making despite modern planning tools now available
The #1 decision-making platform, has today released ‘The State Of Decision-Making’ report focussing on how UK organisations make their important business decisions.
Based on a survey of 500 senior decision-makers, across industries including, Banking & Financial Services, Consumer Goods, Manufacturing, Pharmaceutical, Professional Services, Retail, and Transport & Logistics, ‘The State Of Decision-Making’ report from Board shows that today’s business decision-making process is increasingly complex, with multiple departments and seniority levels all responsible for some form of decision-making, leading to a lack of cohesion between units and a waste of business resources.
‘The State Of Decision-Making’ research found that while a clear majority of respondents (63%) working within the banking and finance sector say the important decisions they are responsible for get implemented globally, the decision-making process itself is not joined-up across the business, with one third (33%) also saying that crucial business decisions are made in departmental silos.
The research, conducted on behalf of Board International by independent research organisation 3GEM, also asked respondents the tools they use to make decisions and, while almost every action within an organisation today will lead to the creation of new data, it seems many businesses are not using the crucial insights which data can provide to make important decisions.
More than half (55%) of respondents in the banking and finance industry said they were making business decisions based on data and insights, but ‘gut feeling’ decisions are still made by up to 44% of companies. What’s more over half (57%) of the sector’s companies still rely on spreadsheets to aid their decision-making, despite more modern and reliable tools now available.
“In today’s fast-paced, data rich and evolving business environment, making quick and effective decisions is critical to both compete and survive,” explains Gavin Fallon, Managing Director for UK, Nordics & South Africa at Board International. “Important decisions are being made at any one time across multiple business functions, but all too often, important decision-making is disconnected, modular or fragmented.”
The research also asked respondents about the challenges banking and finance decision-makers face at their organisation, with nearly a third (29%) citing a lack of available data and insights and one quarter (25%) citing the fact there are too many people in the decision-making process as their biggest frustrations. However, industry decision-makers believe that the process can be improved with the introduction of new technology, with the majority (57%) of respondents saying this would make their decision-making better, while 41% also felt increased use of data and insights would help.
“Businesses have to plan every day for a far more uncertain future and set themselves up to prepare for change and keep changing against the backdrop of a more volatile and uncertain marketplace than ever,” continues Fallon. “A bad decision can have wide-ranging impact across the whole organisation and no business can afford to waste time and resources on bets that may or may not come off. As the business environment increases in complexity, the ability to not just react, but predict, in real-time, becomes more important than ever.”
Reinventing Your Digital Marketing Strategy Post-Covid
By Paige Arnof-Fenn, Founder & CEO Mavens & Moguls
I started a global branding and marketing firm 19 years ago. Marketing is a term that means different things to different people so it helps to clarify whether you are talking about market research, PR, social media, advertising, promotions, guerrilla marketing, strategy, analytics, SEO, SEM, B2B, B2C, content, etc. There are so many tools in the marketing toolkit today but I think it is redundant to say digital marketing because truly everything has a digital element since everyone is accessing and interacting with your brand online, through their phone or via the website at some point. In the old days there was print, TV, radio, direct mail and outdoor those were your only options but today technology runs our lives so everything is digital eventually. If digital is not part of your strategy then you would not be relevant so digital marketing is marketing in 2020.
As far as digital goes I am a big fan of SEO, social media especially LinkedIn and Content Marketing. Because we are always online now 24/7 it is easy to get sucked into it but you do not have to let it run your life! My advice is to pick a few things you enjoy doing and do them really well. You cannot be everywhere all the time so choose high impact activities that work for you and play to your strengths. It does not matter which platform you choose just pick one or 2 that are authentic to you. It should look and sound like you and the brand you have built. Whether yours is polished or more informal, chatty or academic, humorous or snarky, it is a way for your personality to come through. Everyone is not going to like you or hire you but for the ones who would be a great fit for you make sure they feel and keep a connection and give them a reason to remember you so that when they need your help they think of you first.
There have been a lot of changes in the past few months due to the virus crisis but one thing that has not changed is that smart technology still runs our lives today and it is hard to stay on top of the latest tools and platforms to take advantage of current trends so you may feel lost, confused or frustrated by all the options and noise in the market today. There will be new tools and technologies coming for sure but here are some digital strategies to include in your plans to grow your audience:
* Smart speakers and voice search are growing in importance so being able to optimize for voice search will be key to maximize the marketing and advertising opportunities on Siri, Alexa, Google Home, etc. I predict that the brands that perfect the “branded skill” with more customer-friendly, less invasive ads are going to win big. Are you prepared when customers ask your specific brand for help like “Alexa ask Nestle for an oatmeal cookie recipe” or “What is the best Mexican restaurant in Boston?” if not you are missing a big opportunity!
* Live video grabs attention – live streaming is available on every major social media platform and it is only getting bigger to hook in users with short attention spans, in a mobile first world, you have less time to grab people, attention spans are shorter than ever so video will be used even more, show don’t tell for maximum impact, rich content drives engagement.
* Interactive marketing makes it stickier — brands will drive engagement even more with polls, surveys, quizzes, contests, interactive videos, etc. to grab audience attention even quicker
* AI-powered chatbots cut costs and convert visitors into leads by encouraging themed content to answer FAQs with voice search-friendly semantic keyword phrases, is your content strategy ready?
* More confidence in trusted content, friends and influencers than advertising – the world has been moving this way for years with people seeking their friends’ and influencers’ opinions and advice online on what to buy, where to go, and what to do more than a paid ad or fancily packaged content. Customers are savvy today they are happy to buy what they want and need but they do not like to be sold things. Curated content and ideas from a trusted source beat paid content every time. Partnering and building relationships with the right influencers with content that is co-created helps brands scale and grow faster and amplify and boost their message.
* Authentic relationships beat marketing automation — technology runs our lives more than ever but it is relationships that drive business and commerce so people will find more ways to connect in-person to build trust and strengthen connections. Make sure you offer several ways to talk with them and get to know them. Algorithms can only tell you so much about a customer, transactions are driven by relationships. Use automation where you can but do not ignore the power of the personal touch.
* Big data is getting bigger but customer conversations are key to best insights for content. Talking directly to your customers to get first-hand in real-time their experience and knowledge will be a priority and competitive advantage to get the messages right.
* Content will match the buyer’s journey and understanding that journey will inform how to attract, engage and convert customers and which keywords and topics are used.
* Influencers will continue to rise in prominence so partnering and building relationships with the right influencers with content that is co-created helps brands scale and grow faster and amplify and boost their message.
Banking beyond the office
By Tim Hood is the Associate Vice President for Hyland in EMEA.
Following months of unprecedented challenges, the global financial community is beginning to get a sense of COVID’s long-term legacy. And while the current situation still has some way to run, the prospect of a rapid bounce back to the old normality looks doubtful.
Over the last six months, a wholesale review and reinvention of a raft of working practices has taken place.
Fortunately, the financial sector was able to adapt relatively quickly to this altered reality because compared to some, it was well down the path to digital transformation.
And as the work-around solutions using technology that was never intended or designed for remote working have been refined or replaced, many firms are finding that these new ways of working are actually working well.
That’s evidenced by the fact that ‘return to office’ dates keep rolling back, with a number of institutions not expecting staff to return to the office until the beginning of 2021, at the earliest.
However, the social distancing measures that remain in place will undoubtedly continue to have a major impact on the traditional office space. With almost half of British workers now working from home according to the Office for National Statistics, how many will want to return to the office, having been free of their daily commute for the last six months? In a recent survey by the Centre for Economics and Business Research (CEBR), one-third said they wanted to continue working from home.
And as homeworking protocols become ever more embedded, that could see many functions where remote oversight is possible, never return permanently or totally to a central office.
So, with homeworking seemingly here to stay, for a large number of organisations the new norm is likely to be a blend of remote and office-based working.
In uncertain times, one of the most critical business skills is the ability to adapt. Just because we have always done things that way is no longer a valid line of thinking. So, when it comes to matters like remote working, it’s time for a more flexible mindset.
Some banking leaders are beginning to acknowledge the changing reality. Barclays CEO Jes Staley said that corporate offices “may be a thing of the past.” JPMorgan, Goldman Sachs and Morgan Stanley are also proving to be trend-setters in the reassessing the future shape of offices and flexible working.
Of course, effective remote working depends on people having access to accurate, up-to-date information.
That may require reprioritising investment to ensure more appropriate technology solutions are in place. Believe me when I say that accelerating digital transformation is no mere nicety, but a prerequisite for corporate survival over the coming months and years.
Of course, every organisation is different and will have to review its existing systems and procedures before implementing any major technological changes. But I would say that there are several core components required to help ensure future resilience.
As a minimum, there should be the establishment of a content services hub to centralise document storage and workflows in a single location, with a user interface that’s consistent – whether you are logging on from your dining table at home or at your office desk.
This will remove potential information silos where data gets stuck, and also prevent the creation of multiple document versions that inevitably follows.
Next, look to introduce intelligent automation where you can, to accelerate improvements in document storage and workflows.
Then, look at shutting down any redundant or unnecessary systems and applications. This is an opportunity to streamline operations by ensuring business-critical information, which may be spread over several dozen apps in some corporate organisations, is uniformly updated and easily accessible. When staff have to search for important documents across multiple locations, they end up frustrated and prone to making mistakes that result in delays and poor customer service.
Though the immediate response to COVID-19 may have had a short-term adverse effect on many in the financial sector, longer-term it can be the catalyst that enables the creation of a truly digital workplace that seamlessly melds together a flexible, distributed workforce with a much streamlined corporate space.
Achieving that will require organisations to carefully chose the correct technology solutions. If they can do that, then our brave new world may not be so scary after all.
Board Report Highlights Complex Decision-Making Process Across Banking and Finance sector
‘The State Of Decision-Making’ report from Board, reveals business decisions made in silos without modern planning tools A third (33%)...
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