Forming a Limited Liability Company in Israel: A Legal Overview

Israel has become a hub for extensive international business activity in recent decades. There are several alternatives for incorporating an entity in the State of Israel. The most common alternative is forming a limited liability company. In this article, we present an overview of the legal procedure for forming a limited liability company in Israel.

The formation of a corporation enables an individual, a corporation, a group of people, a group of corporations, or any combination thereof to operate through an entity constituting a separate legal entity. This entity operates separately from its owners and has its own rights, obligations, and actions. The corporation will be subject to the laws and regulations that apply to it, depending upon the type of corporation, and will enable its owners to achieve common goals.

When one or more people or corporations want to conduct business activity in Israel, the best alternative available to them is to form a registered company. The Companies Law prescribes two alternatives for forming a registered company. The first is forming a company in which the shareholders’ liability for the company’s debts is limited (a limited liability company). The second is forming a company in which the shareholders’ liability is not limited.

Eligibility and Requirements

Any person, including a corporation, may form a company. There are no statutory restrictions on foreign corporations and foreign citizens forming a company in Israel, and they can register as shareholders of an Israeli company.

Articles of Association

When forming a company, the founders must complete company formation forms and draft the company’s articles of association. The company’s articles of association must include the following details:

• The name of the company
• The company’s objects
• The company’s share capital
• Details regarding the limit of the shareholders’ liability

All other rules prescribed in the articles of association are optional. The articles of association are tantamount to a contract between the company and its shareholders.

Directors

Any person, including a corporation, may serve as a director in a limited liability company. The minimum number of directors in a limited liability company is one. There is no limit on the maximum number of directors, unless otherwise prescribed in the articles of association.

Share Capital

When forming a company, the company’s registered share capital is determined, including the number of shares and the classes of shares. Shares of the company may have a par value, or all of them may be no-par-value shares. Upon forming the company, it is customary to decide that the company’s share capital will consist of only one class of shares (ordinary shares). However, a company may decide on several classes of shares (for example, ordinary shares, preferred stock, or management shares), where the holders of a particular class of shares enjoy additional or different rights in the company.

Formation Procedure

The procedure for forming a limited liability company is relatively simple. The process takes a few days to complete and upon submission of the documents to the Israeli Registrar of Companies, it is possible to receive a certificate of formation of the company within four business days.

Specific Requirements for Foreign Entities

When all directors and shareholders of a limited liability company are foreign citizens or corporations, the Israel Tax Authority requires the appointment of a local representative for tax purposes. Furthermore, sometimes directors must sign forms and attestations before an Israeli attorney (requiring face-to-face signature verification and not via technological means) in order to perform various actions during the routine management of the company (such as opening a bank account).

Post-Incorporation Steps

In order to initiate business activities, after the Registrar of Companies certifies the company’s formation and upon receipt of a certificate of incorporation, it is customary to carry out several additional actions. These include opening a bank account and opening a file with the Israeli tax authorities (VAT and income tax).

Summary of Key Steps

Here's a table summarizing the key steps in forming a limited liability company in Israel:

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