primer on israeli business law december 2010 g5219-v002

A Primer on Israeli Business LawBarry Schuman, Adv.Schuman & Co. Attorneys At LawLegal savvy, business smart. Delivering deals, not just [email protected] www.schuman.co.il

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2006, 2007, 2008, 2009, 2010 All Rights Reserved, Barry Schuman

December 26, 2010

Disclaimer. . . , / , , , , . , , . . , , : ,

. This presentation is not intended to serve as a legal opinion and whoever acts in accordance with it, does so at his or and her own risk. Review of the presentation does not replace legal advice nor reviewing the source information in detail. The contents of the presentation represent the views of the author only and are not intended to be nor are they author complete, thorough nor up to date. Updated information may have been provided during the course of our oral presentation and may not be reflected in these materials. Important: Consideration of legal problems are often dependent upon specific facts which must be carefully Important: specific scrutinized and, therefore, should issues arise regarding the content of this presentation, the reader should consult content with a competent lawyer as this presentation is not a substitute for such consultation. ALL RIGHTS RESERVED. No part of this presentation may be reproduced, stored or transmitted in any form or by any reproduced, means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the otherwise, rights holder.

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Dec. 26, 2010

Choosing a Structure for Your BusinessWhat are the legal structures available for doing business in Israel? Sole Proprietorship Partnership Corporation Not For Profit Society (Amuta)3 2006, 2007, 2008, 2009, 2010 All Rights Reserved, Barry Schuman Dec. 26, 2010

Selecting the Appropriate Form of Doing BusinessWhat is the nature of the proposed business? What are the projected going forward needs of the business? How will you finance the business?

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Dec. 26, 2010

Sole ProprietorshipBenefits Inexpensive Flexible Simple Drawbacks Unlimited liability Difficult to grow beyond a certain size Difficult to raise capital

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Dec. 26, 2010

General Partnership vs. Limited PartnershipGeneral Partnership No formalities to create but must register Unclear test as to existence All members are General Partners All partners have unlimited liability for debts of the partnership All partners can bind the partnership All partners can participate in the management of the partnership

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Dec. 26, 2010

General Partnership vs. Limited PartnershipGeneral Partnership contd. General Partner remains liable for partnership debts even after withdrawal regarding debts accrued before withdrawal Cant force partner to withdraw Partnership agreement can set rights of the partners 20 partner limit 2006, 2007, 2008, 2009, 2010 All Rights Reserved, Barry Schuman

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Dec. 26, 2010

General Partnership vs. Limited PartnershipLimited Partnership Commences upon registration Must have at least one general partner with unlimited liability Limited partners are only responsible for their contributions to the partnership Limited Partners are not liable for partnership debt 2006, 2007, 2008, 2009, 2010 All Rights Reserved, Barry Schuman

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Dec. 26, 2010

General Partnership vs. Limited PartnershipLimited Partnership contd. Limited Partners cannot participate in management of the partnership Limited Partners cannot bind the partnership More flexible transferability 20 partner limit9 2006, 2007, 2008, 2009, 2010 All Rights Reserved, Barry Schuman Dec. 26, 2010

Not for Profit Organization (Amuta)Amuta Commences with registration Only for not for profit causes Must have at least 2 members Operations managed by a Vaad Appropriate for charitable ventures only10 2006, 2007, 2008, 2009, 2010 All Rights Reserved, Barry Schuman Dec. 26, 2010

CorporationsThe most common form for business enterprise Separate legal entity Commences when registered Shareholders are generally not liable for companys debt Shareholders do not generally participate in day to day management 2006, 2007, 2008, 2009, 2010 All Rights Reserved, Barry Schuman

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Corporations (contd.)Company policy set by Board of Directors Officers and employees carry out day to day management and operations Liability - Shareholders Pierce corporate veil Duty of

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Dec. 26, 2010

Corporations (contd.)Liability - Board of Directors Duty of Care Duty of Loyalty Limit Liability of directors through Insurance Indemnity Waiver 2006, 2007, 2008, 2009, 2010 All Rights Reserved, Barry Schuman

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Dec. 26, 2010

Corporations (contd.)Formation File Articles of Association with Registrar of Companies Statement of Original Directors Attorney Certification Filing fee of NIS 2,435 Name Any name which is not misleading or offensive If company is limited liability company, the name must include " " " or "

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Dec. 26, 2010

Corporations (contd.)Important Rules Follow basic formalities of separate corporate entity Keep regular business records

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Corporations (contd.)Raising capital Debt Issuance of stock or bonds Transferability of Shares Freely transferable, unless restricted by contract or Articles of Association Generally requires Board approval

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Corporations (contd.)Ongoing reporting Annual report with Registrar of Companies Notify Registrar of all issuances or transfers of shares, changes in BOD, and incurrence of any pledges File financial statements unless exemption applies

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Dec. 26, 2010

Corporations (contd.)BOD can be one director Shareholders can take the role of the directors Signatory rights Freedom to grant as Board deems appropriate Company Stamp Every company needs a company stamp Can have one shareholder

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Dec. 26, 2010

Raising CapitalBoard controls financing decisions including issuance of shares. Security law restrictions No public offering Not more than 35 Offerees

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Dec. 26, 2010

TaxesSole Proprietorship and Partnership

Flow through entities (no entity level tax) Partners subject to tax at Personal Income Tax Rates Top rates of 45% Subject to entity level tax at corporate tax rates Rate of 25% for 2010

Corporation

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Dec. 26, 2010

Taxes (contd.)Personal Tax rates(monthly income) Income in NIS1 4,770 4,771 8,470 8,471 12,720 12,721 18,250 18,251 39,340 39,341 and over

Tax Rate10% 14% 23% 30% 33% 45%

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Dec. 26, 2010

Business LicenseMany businesses require a business license to conduct business in Israel Approximately 90 different categories of licenses Permits issued by Licensing Authority which is most often the municipal authority To obtain a license, additional licenses or permits may be required by other governmental entities or agencies such as police, fire department, etc. Some fields require special governmental permits such as banks, radio stations, newspaper licenses etc. Violations often end with fines 2006, 2007, 2008, 2009, 2010 All Rights Reserved, Barry Schuman

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Dec. 26, 2010

Banking

Service varies greatly from branch to branch Choose branch with appropriate business experience Negotiate terms A lot of paper work and certifications needed to open accounts Choose convenient location Anticipate what your needs will be

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Dec. 26, 2010

Contract LawContract law governs in most situations, however, other laws may provide for additional or different laws or rules in certain situations such as labor law issues, intellectual property, real estate etc.

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Contract Law (contd.)

A contract is an agreement/meeting of the minds between two or more persons or entities Offer and acceptance Need intention to create an agreement

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Contract Law (contd.)Contract can be in writing (any form) or orally Certain contracts must be in writing

Real Estate Transactions (other than lease under 5 years) Patent license Copyright license Gifts

Duty to negotiate in good faith in contract formation

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Dec. 26, 2010

Contract Law (contd.)Duty to act in good faith in fulfilling contract Contract entered into due to mistake or coercion may be voided Certain overbearing terms in standard form agreements may be voided or amended by court Certain standard form contracts may be approved in advance as to enforceability of terms

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Dec. 26, 2010

Contract Law (contd.)Remedies for Breach of ContractGenerally, injured party may seek Specific enforcement may not be practical in certain situations Damages must prove damages, including lost profits and expectancy damages Inured party has a duty to mitigate damages 2006, 2007, 2008, 2009, 2010 All Rights Reserved, Barry Schuman

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Dec. 26, 2010

Common Examples of Business ContractsPurchase/Import of products Distributorship agreement Sales representative agreement Manufacturing agreement Consultation Services Web site development and hosting29 2006, 2007, 2008, 2009, 2010 All Rights Reserved, Barry Schuman Dec. 26, 2010

Practical contracting tips

Make sure the contract says exactly what you want it to say Dont guess at the language If it is not clear to you, ask for it to be clarified in writing Course of dealing may create implied contractDec. 26, 2010

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Practical contracting Tips (contd.)Dont be intimidated by everyone else signed it or its our standard form Dont sign any personal guarantee unless you are certain you really need to and want to Be careful what you say make it clear that until an agreement is signed in writing, there is no deal

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Purchase of goodsAgreements for the sale of goods are governed by the Sale Law 1968 Any terms not agreed to by the parties are deemed to be as per course of dealing or course of dealing of reasonable parties Upon delivery, customer must inspect goods for conformity if customer does not notify promptly, goods deemed delivered in conformity

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Dec. 26, 2010

Commercial Lease of PropertyMust be in writing Establish key points Term Renewal Rent during term and renewal (or method) Rent security (often bank guarantee and/or personal guarantee 6 months) Detail build out specs and time line 2006, 2007, 2008, 2009, 2010 All Rights Reserved, Barry Schuman

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Commercial Lease of Property (contd.)Expenses commonly paid by tenant Arnona (municipal tax) Electric Water Gas (if relevant) Management Fee Business License Cover advertising issues/signage (sign tax) Exit clause Assignment VAT 2006, 2007, 2008, 2009, 2010 All Rights Reserved, Barry Schuman

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Dec. 26, 2010

Labor Law

Generally a socialist pro-employee approach Many detailed rules and regulations Disputes are under the jurisdiction of special labor courts Individuals have the basic freedom to work in whatever field they desire

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Dec. 26, 2010

Labor Law (contd.)Existence of Employer Employee relationship Test based on a number of factors including

Integration test is person integrated in the factory/business Authority and supervision is the person under the authority and supervision of the Employer

If not, then the person is an independent contractor.

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Dec. 26, 2010

Labor Law (contd.)

Certain fields are subject to collective bargaining agreements if the employer is a member of certain organizations Certain provisions of collective bargaining agreements are applicable to all or a large portion of the labor market due to Extension Orders issued by the Ministry of Labor and Welfare

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Labor Law (contd.)Must provide written summary of employment terms in statutory form Must pay at least minimum wage NIS 3,710.18 per month (full time) (NIS 19.95 per hour) Work day 8/9 hours per day (1 hour break) Overtime pay is subject additional pay 1st 2 additional hours 125% All additional hours 150% Work week 6/5 days depends on sector Annual Vacation First 4 years 10 working days per year (5 day work week) --- 12 working days (6 day work week) Redeemable only at termination of employment but limited

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Dec. 26, 2010

Labor Law (contd.)Paid sick leave 1st day no pay 2nd + 3rd day sick day pay (37.5% of regular pay.) 4th and on full sick day pay (75% of regular pay.) Cap of 1 days per month 90 day total Demai Havraah By Extension Order, yearly payment of approximately NIS 318 per day between 5 and 10 days depending on length of employment Mascoret Shloshesreh not required by law

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Dec. 26, 2010

Labor Law (contd.)Telephone Car Cellular Phone Bituach Minahalim (Employee gets tax benefits up to statutory limits) Severance pay: 8.33% (Employer) Provident fund: 5% (matching by employer) (new law closed till 65) Disability insurance: 2.5% (employer) Education Fund: 7.5% employer + 2.5% employee

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Dec. 26, 2010

Labor Law (contd.)Termination Termination hearing required

Employer notifies employee of intention to terminate + reasons At the hearing, the employee may respond After the hearing, employer formally decides whether or not to terminate the employee During 1st 6 months: 1 day per month During following 6 months: 6 days + 2 days for each month during the following 6 month period (11 months = 18.5) After 1st year: 30 days

Advance Notice required by law (both employee and employer)

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Dec. 26, 2010

Labor Law (contd.)Severance pay (Pitzuyay Piturim)

After first year of employment, must pay 1 month salary for each year of employment if employee is terminated No payment if employee quits Certain resignations are deemed termination includingDue to material worsening of employment terms/conditions

Employers set aside each month 8.33% to cover severance pay

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Dec. 26, 2010

SCHUMAN & CO. Attorneys At LawTel: +972-2-581-3760 Fax: +972-2-581-5432 E-Mail: [email protected]

Legal savvy, business smart. Delivering deals, not just law.Our Mission: Expert knowledge, judgment, and business sense Solution-driven Ingenuity Determination and skill Practical and efficient

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Dec. 26, 2010

primer on israeli business law december 2010 g5219-v002

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