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JST & CO. ESTABLISHING A BUSINESS ENTITY IN ISRAEL

ILN CORPORATE GROUP [ESTABLISHING A BUSINESS ENTITY IN ISRAEL] 2

This guide offers an overview of legal aspects of establishing an entity and conducting business in the requisite jurisdictions. It is meant as an introduction to these market places and does not offer specific legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship, or its equivalent in the requisite jurisdiction.

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ESTABLISHING A BUSINESS ENTITY IN ISRAEL

will take a very brief look at the other kinds of “Establishing a Business Entity in entities that exist in Israel. Israel” Mr. Joseph Shem-Tov The information contained in this guide is only Partner a brief summary and may not be used as actual Glusman & Co. – Tel Aviv legal advice. Please approach us if you require

legal advice on any specific matters that may

arise. Introduction Types of Business Entities The influence of British rule immediately prior to the establishment of the State of Israel has Companies left a lasting mark on Israeli corporate law. Israeli companies generally limit the liability of Even though Israel is commercially much closer the shareholders for the debts and obligations to the U.S., the links to the English legal system of the company. The precise form of the remain strong. Therefore, Israel has companies limitation of liability is set out in the company’s rather than corporations. The letters “Ltd.” articles of association. Normally, liability is follow the name of companies with limited limited to the subscription price of the shares liability rather that the U.S. versions of “Inc.” or held by the shareholders. It is possible for an “Corp.” Israeli companies have shares rather Israeli company to decide not to limit the than stock, they have articles of association liability of its shareholders, but this is very rare (but no memorandum of association) rather and will not be considered further, some than certificates of incorporation and bylaws. companies are not allowed to limit its Israel has a Registrar of Companies keeping shareholders liability (such as lawyers' records of companies very similar in nature to companies). There are private companies and England’s Companies House. Likewise, many of public companies that are publicly traded the characteristics of Israel’s partnerships companies. The organs of an Israeli company remain similar to their English counterparts. are the general meeting of its shareholders and Consequently, the considerations regarding the the board of directors. The most significant type of entity through which to conduct document of corporate governance for Israeli business in Israel, at least as far as whether to companies is the articles of association. Israeli form a company or a partnership, will be similar companies formed after 1999 do not have a to the considerations in England and in other memorandum of association. jurisdictions remaining heavily influenced by English law. Partnerships While there are a few different forms of Partnerships are formed when two or more “corporate” entities in Israel, this guide will persons or legal entities decide to get together focus on companies and partnerships as these for the purpose of managing an enterprise in are the entities that the non-Israeli which they will share in the costs and profits of businessman is most likely to set up or invest in the enterprise. There are two main kinds of if they are inclined to penetrate the Israeli partnerships in Israel, general partnerships and market directly (rather than by working through limited partnerships. an agent, distributor, etc.). The end of the guide

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General Partnerships - Apart from partnerships Matters to be considered when choosing a formed for the purpose of providing legal or particular business entity type accounting services, partnerships are limited to Exposure to Liability: a maximum of 20 partners, whereas no similar limitation applies to a company. The partners of The fact that companies provide the owners such partnership are jointly and severally liable with the protection of the “corporate veil”, to third parties for the debts and obligations of limiting their personal exposure and protecting the partnership. Amongst each other, the them against the full consequences of potential partners will be responsible to share in the failure of the business is a major selling point debts and liabilities and enjoy the profits for companies. The very first shareholders of a equally, unless they agree to have different company normally have to pay a non-significant shares. amount of money for their shares, meaning that their total exposure can be very limited. Limited partnerships - consist at least one On the other hand, general partnerships general partner (and limited to a maximum of provide no protection for the partners against 20 general partners), who is fully liable for the the debts and liabilities of the partnership. rights and obligations of the partnership and at Limited partnerships must still have at least one least one limited partner, whose liability to the owner who is at full risk over the partnership’s partnership is limited to the amount of capital debts and obligations; limited partners will he paid to the partnership upon formation of normally have to pay considerably more at the the partnership. Nevertheless, Limited partners outset of the partnership to the partnership’s can enjoy the profits of the partnership, capital, rather than their counterparts setting according to their equity in the partnership. up a new company. Limited partners may not participate in the Once a shareholder has sold his shares and is management of the partnership and they do no longer a shareholder in the company, he no not have the authority to bind the partnership. longer has any exposure for debts and Any limited partner who does take part in the obligations of the company. However, a partner management of the partnership will be liable in leaving a partnership will continue to be jointly the same manner as general partners for the and severally liable for the debts and period of time in which he participates in the obligations of the partnership that arose during management. A limited partner is authorized to the time that he was a partner, unless the review the books of the partnership, to remaining partners and creditors agree examine its condition and risks and to consult otherwise. on those matters with the other partners. It should be noted that the Israeli courts are Foreign Companies and Partnerships empowered to pierce the corporate veil and Rather than forming a new company or hold shareholders personally liable for actions partnership or investing in an existing entity, and debts of the company. Such occasion non-Israeli companies and partnerships may occurs when the court determines that the choose to register as a "Foreign Company" and corporate veil was exploited in order to unjustly simply open up office branches located in Israel. deprive or defraud a creditor or other third party, or for the purpose of taking unreasonable risks. While courts were once hesitant to use this sanction, in recent years the

ILN Corporate Group – Establishing a Business Entity Series

[ESTABLISHING A BUSINESS ENTITY IN ISRAEL] 5 trend has changed; nowadays courts are trying and for shareholders holding over 10% of the to find reasons that justify the piercing of company’s share capital the tax rate is 30% of corporate veil. However, generally, an element their dividends. Dividend distributions paid to a of wrong doing is still required in order to shareholder that is an Israeli company are not justify the court decision, rather than simple taxed. However, in cases where the bad business choices. shareholder is a foreign company, the dividend Taxation distribution will be taxed. The company is an entirely separate legal entity Shareholders also have to pay tax on capital from its shareholders for tax purposes and its profits made on the sale of shares. The tax rate income is considered to be separate from the is as per the rates applied to dividend payments. income of its shareholders. The Israeli Income Partnership - Partners are taxed on an Tax Ordinance imposes a two-level taxation individual basis in accordance with Israel’s system for companies. The first level is at the income tax rates for individuals; the tax rates corporate level and involves the payment of for individuals are currently a progressive tax corporate tax by the company itself on the rate varying from 10% to a maximum rate of profits of the company. During the year, 48%. The partner is taxed based on the income companies must make monthly advance earned both within and outside the partnership. payments of the income tax based on their For a partner that is an Israeli company, the current revenues, which will be finally income derived from the partnership will be calculated at the end of the year. The included in the calculation of the company's percentage is set on an ad hoc basis by the profits and will be taxed in accordance with the Israeli Tax Authority and is based on past abovementioned provisions relating corporate performance of the company. Once the tax. company’s bookkeeping is completed at the The partnership must elect a "Head Partner" end of the year, the company will be required who will be responsible for preparing and to make up any shortfall or will receive back delivering to the Tax Authorities a report of the any excess taxes paid. The current tax rate for partnership activity, its partners and the Israeli companies in 2018 is 23%. However, due portion of the partnership’s profits and losses to tax benefits provided by number of laws, in that each partner is entitled to. The Head many cases the company's tax rate serves as a Partner must be an Israeli resident. Once a year, starting point, which is reduced by using such after a partner has received his part of the laws. partnership income, he will report his income The second corporate taxation level is at the to the Tax Authority. shareholder level, which occurs when the Raising Finance company distributes dividends to its shareholders. This tax is paid by the company The company format is more convenient for the as a withholding tax and deducted from the purposes of raising finance than that of dividend amount actually paid to the partnerships. Both companies and partnerships shareholders. The tax rate for dividend may borrow loans and lines of credit from payments is set according to the shareholder’s banks, other lenders and suppliers, but the holding in the company: for shareholders corporate veil of the company described above holding up to 10% in the company's share provides more protection to the company capital the tax rate is 25% of their dividends;

ILN Corporate Group – Establishing a Business Entity Series

[ESTABLISHING A BUSINESS ENTITY IN ISRAEL] 6 shareholder than the partner in the event of claims. Therefore, less regulation is involved in default. liquidation of partnerships. Upon liquidation of When looking to increase capital equity, adding a partnership, the assets and profits of the new investors to a business as shareholders is partnership are first used to pay off creditors. If an easier process than adding new partners. there are not enough assets and profits for Persons that do not have a particularly close these purposes, then the partners must dig into relationship with the owners of a business, but their own pockets. Once all debts have been who are nonetheless interested in investing in paid off, any remaining amounts are used to the business for its potential, are likely to find refund partners for their contributions to the the safety of the corporate veil more appealing capital of the partnership and any remaining than the risks involved in buying into a surplus distributed to the partners according to partnership. pro rata rights. For the types of businesses that have the Liquidation of a company, even voluntary potential for a valuable “exit” for the founders, liquidation, is a more complex process. the company format is much more suitable Liquidation of a company is generally divided than the partnership for achieving mergers, into two different procedures: liquidation by acquisitions and going public. court, also known as forced liquidation, and a voluntary liquidation. In such cases, the Adding new partners to a partnership is company adopts a resolution for its own considered as a tax event and might affect a tax liquidation. A forced liquidation involves strict payment by the existing partners. supervision of the Court and so it is a lengthy Liquidation process and an expensive one. The process usually commences with a motion filed by a As will be discussed in more detail below, the creditor of the company and is followed by steps required for forming and registering a appointment of a liquidator by the court and company, partnership or a branch of foreign the involvement in the process of the official company or foreign partnership all have receiver. Voluntary liquidation is suitable to a relatively similar steps and costs involved. solvent company and normally does not involve However, liquidation and dissolution of an the court in the process (unless there is a Israeli company is much more complex than reason for the court to take over and supervise liquidation of a partnership. the process). It is a process that is initiated by Unless a partnership agreement provides the company itself and supervised by the otherwise, a partnership will dissolve upon a Registrar of Companies. Although it is much partner notifying the rest of the partners that simpler and less expensive than a forced he wishes to leave the partnership. Generally, liquidation, the entire process usually lasts partnership agreements will provide for a approximately a year until the company is certain percentage majority vote of the declared dissolved by the registrar. The process partners for liquidation of the partnership and involves convening of two general meetings, this may be by regular majority. Upon the filing of several notices and reports with the liquidation of a partnership, the debts and Companies registrar, in different stages of the obligations of the partnership vis-à-vis third process, as well as two publications in the persons remain the debts of the partners, official gazette (in Hebrew "Reshumot"). The meaning that creditors still have a target for liquidation of a company, as opposed to the

ILN Corporate Group – Establishing a Business Entity Series

[ESTABLISHING A BUSINESS ENTITY IN ISRAEL] 7 liquidation of a partnership, even a voluntary abandoned, de facto, the current balance-sheet liquidation, is therefore more expensive, test. According to this, creditors may not file complicated and time consuming. applications preemptively. Closing an Israeli branch of a foreign company Uniformity in the opening of proceedings – The or partnership is a simpler process, as the Law seeks to create a uniform and orderly company or partnership remains in existence procedure for opening proceedings against a and creditors continue to have a legal entity corporation facing insolvency, and without the against which they can make claims. Of course, legal procedure for handling it being dictated there may be costs involved in the event of by the technical manner through which the early termination of existing contracts such as application was filed. leases and non-compliance with existing Creditors’ debt repayment order and contractual obligations. distribution of funds – According to the Law, New Insolvency Regime some of the debt repayments will be carved out The Knesset (Israel's Parliament) passed on from the sums owed to the State and to the March this year the Law of Insolvency and strong secured creditors (i.e. banks). They will Economic Rehabilitation, which is aimed at then be distributed among the general updating the laws on insolvency currently in unsecured creditors holding no collateral effect in Israel. The Law will take effect in 18 whatsoever. In the majority of cases, these months, i.e. September 2019. general creditors (usually suppliers, customers, and employees) receive only a tiny portion, if The insolvency laws in place today are any, of the debtor’s pool of assets. Within this regulated under archaic legislation, in addition context, the Law prescribes, inter alia, that 25% to being outdated and disorganized. This has of the assets pledged under a floating lien (to been detrimental for debtors, creditors, and differentiate from a specific lien on a specific the entire economy alike. The new Law is asset) be carved out in favor of the debtor’s designed to rectify the situation and provide general unsecured creditors. The Law also the Israeli economy with modern legislation reduces the preferential right given to the State with respect to insolvency. (mainly when it comes to debts to the tax The Law has three primary objectives: authorities) when dividing up the debtor’s assets. 1. to promote the debtor’s economic rehabilitation; Minimizing damages – The Law imposes an obligation on the board of directors of the 2. to maximize the debt repayment to debtor corporation to take all reasonable creditors; measures to minimize the extent of the 3. to divide the debtor’s pool of assets in a insolvency during the period prior to the more equitable manner between the opening of insolvency proceedings. secured and unsecured creditors; Shareholders and directors The key principles of the Law are as follows: Israeli law provides for various standards, A clear and simple definition of insolvency – An requirements and duties that shareholders, entity shall be deemed insolvent if it cannot officers, directors and partners must comply actively pay its debts. By adopting this new with. In certain cases, directors and officers can definition of insolvency, the legislator be held personally liable to their companies'

ILN Corporate Group – Establishing a Business Entity Series

[ESTABLISHING A BUSINESS ENTITY IN ISRAEL] 8 shareholders, creditors and employees for has different classes of shares, the failing to meet those duties and standards. In a company’s articles of association can private company (which did not issue bonds to provide that certain classes of shares have the public), the qualifications required of a preferences to receive dividend director are very minimal, the law provides that distributions prior to other classes. a person to be appointed as a director may not Dividends may only be paid out of the be a minor, incompetent or have declared company’s profits as defined in the bankruptcy. Companies Law and set out in the Companies - Rights of Shareholders: company’s audited financial reports; moreover, the dividend distribution is • Votes - Shareholders voting rights are subjected to the solvency of the company. attached to their shares. Normally, the The company’s board of directors has the shareholders have the right to one vote power to declare dividend distributions, per share, though the articles of unless the articles provide otherwise. association may provide for shares that Under the Companies Law, the company’s have no votes attached, shares with more articles may prescribe that (i) dividends than one vote attached and shares that will be recommended to the shareholders have veto rights in connection with by the directors and the shareholders may certain decisions. Most shareholder then approve, reject or decrease the decisions are made on a simple majority dividend distribution; or (ii) the (51%) basis, although the company’s shareholders in general meeting may articles may provide that certain decisions prescribe a maximum amount for the require a special resolution with a bigger dividend and the directors will then majority vote. The Companies Law also decide on the amount of the distribution. requires that certain decisions require • different voting majorities, for instance in Rights to Share in Assets Remaining on the case of voting in favor of mergers. Liquidation of the Company. Upon Moreover, some resolutions require the liquidation of a company, the company’s majority of the minority interests among affairs and assets are to be managed by a the shareholders. As discussed above, the receiver whose task is to liquidate the Companies Law also enables the court to assets and pay off all of the company’s overturn decisions of majority creditors. Should there be any amounts shareholders where the purpose of the left following payment of all a company’s resolutions was to unfairly deprive or debts, those amounts are to be exploit the rights of the minority. distributed to the shareholders in the same manner as division of dividend • Dividends - Dividends are payments to the distributions described above. shareholders arising by reason of their Steps and Timing to Establish shareholding. Dividends may be paid in cash or in kind. All shareholders are Companies entitled to a share of the dividend Companies are principally governed by the distribution calculated in accordance with Companies Law 1999 (the "Companies Law") their pro rata shareholding in the and regulations promulgated thereunder. company. However, where the company

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Israel has a Registrar of Companies, which is the company, detailing the number, run by the Ministry of Justice. All Israeli classes and nominal value of shares, companies must be registered with the whether or not the liability of the Registrar of Companies. Therefore, a person shareholders is limited and how it is wishing to form a company must file an limited, and the registered office address. application to establish the company with the A company’s shares can be divided into Registrar of Companies. The online application different classes of shares, with the form is prescribed by regulations and may be company’s articles describing the rights filled in via the Registrar’s website: attached to each class. The articles of http://www.justice.gov.il/Units/RasutHataagidi association must be filed with the m/units/RashamHachvarot/TfasimNew/Pages/ Registrar in Hebrew. Online.aspx • Filing of the Declaration of the First Non-Israeli persons may establish companies in Directors of the Company, in which they Israel. Where the application form requires an declare their competence to serve as Israeli to enter their Israeli ID number, non- directors. Israelis are required to provide their passport • Payment of the registration fee which is number, details of the country that issued the currently NIS 2,614 (app. US$730). passport and a certified copy of the passport. It normally does not take long to establish a Non-Israeli corporate entities may also file new company, with times from filing the applications with the Registrar to establish documents with the Registrar of Companies Israeli companies. This will require the foreign being normally 4 business days. entity to provide a certified copy of its certificate of incorporation or other formal Partnerships proof of incorporation from the country of its Partnerships are principally governed by the incorporation, together with a notarized Partnership Ordinance 1975. The Ministry of Hebrew or English translation thereof. Justice also runs a Registrar of Partnerships. Formation of a company also requires: 1. General Partnership • Filing of the company’s articles of A general partnership comes into existence association, which sets out the rights and automatically when at least two persons obligations of the shareholders, directors commence a relationship that they intend to be and officers and the rules of corporate in the form of a partnership. A partnership that governance of the company. Articles may is formed in order to conduct business must be a simple one-page document or provide notice of its establishment to the extremely detailed, running into tens of Registrar of Partnerships within one month pages. Any item of corporate governance from the date of establishment. The notice that is not expressly prescribed within the must contain the following details: (a) Name of articles will be determined by the the partnership; (b) the business to be Companies Law. The articles must contain ordinarily conducted by the partnership; (c) full at the least, the company’s name, the name, address and definition of each partner; purposes of the company (which is usually (d) names of the partners who are authorized drafted very widely to cover any legal to manage the interests of the partnership and activity), the authorized share capital of to sign on-behalf of the partnership, unless all

ILN Corporate Group – Establishing a Business Entity Series

[ESTABLISHING A BUSINESS ENTITY IN ISRAEL] 10 partners are so authorized; (e) term of the Non-Israeli Company Branch partnership, if it is to last for a defined period of A non-Israeli company may simply open up a time from its formation. A general partnership branch in Israel rather than establishing a does not require a written partnership subsidiary. This requires the foreign company agreement for its establishment, though it is to file an application with the Registrar of normally recommended. For instance, without Companies to register as a foreign company a partnership agreement stating otherwise, within a month after the company established partners cannot join or leave a partnership business in Israel. Certified copies of the without dissolving the existing partnership and company’s relevant documents of forming a new partnership with the new incorporation from its home country and its constitution of partners. Partnership documents of corporate governance such as agreements, for both general and limited articles, memorandum, etc. will need to be partnerships must be filed with the Registrar of attached to the application together with a Partners in Hebrew. notarized translation. The foreign company Registration of a general partnership in 2018 would also need to provide a list of its directors costs a fee to the registrar of NIS 960 (app. and the name and address of an Israeli-based US$270) and payment of an annual fee of NIS person who is authorized to receive formal 1,120 (app. US$315) if paid until 31.3.2018 or notices and service of court pleadings on behalf NIS1,488 (app. US$415) if paid thereafter. of the company and a certified copy of a formal 2. Limited Partnership power of attorney authorizing a person normally residing in Israel to conduct business Establishment of a limited partnership requires on behalf of the company in Israel. a written partnership agreement. The Registrar of Partnerships must be sent a notice of the The fees payable to the registrar in order to establish an Israeli branch of a foreign company establishment of the limited partnership. In addition to those details that must be are the same as the fees payable to establish an contained in the notice concerning Israeli company as described above. establishment of a general partnership, the Non-Israeli Partnership Branch notice must also state that the partnership will Partnerships formed and existing abroad may be limited, details of each limited partner and open up a branch in Israel. In order to conduct the amounts which each limited partner paid in business in Israel through a branch, the foreign to the capital of the partnership and whether partnership must register with the Registrar of the amount was paid in cash or details of the Partnerships, providing the same details to the method of payment. Registrar as are required for registration of Registration of a limited partnership currently Israeli partnerships and the same fees must costs a fee to the registrar of NIS 2,614 (app. also be paid. Foreign limited liability US$730) and payment of an annual fee of NIS partnerships must also include in addition to 1,120 (app. US$315) if paid until 31.3.2018 or the above: a notification that the partnership is NIS1,488 (app. US$415) if paid thereafter. limited with the details of the limitation, as well It normally does not take long to establish a as attach the partnership formation agreement, new partnership, with times from filing the submitted with a notarized translation in documents to the Registrar of Companies being Hebrew. The registrar will then apply to the up to 7 business days. Minster of Justice for approval to be registered

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[ESTABLISHING A BUSINESS ENTITY IN ISRAEL] 11 in Israel, and the Minister of Justice has sole • Hold an annual general meeting ("AGM") and absolute discretion to determine whether of shareholders at least once a year with or not to approve such requests. no two AGMs being held more than 15 The fees payable to the registrar in order to months apart. A private company may establish a foreign partnership are the same as prescribe in its articles of association that the fees payable to establish an Israeli it is not required to hold AGMs, but it partnership and described above in this section must then convene a general meeting of under "Partnerships". shareholders anytime it is requested to do so by any director or shareholder. Governance, Regulation and Ongoing Maintenance • File an Annual Report with the Registrar of companies once a year within 14 days Brief summary of regulation of each type and of the AGM unless the company is ongoing maintenance, reporting requirements exempted from holding an AGM, as Companies described above. This is not a financial report, but rather a report in a form Both private and public Israeli Companies are prescribed by regulations and principally governed by the Companies Law and downloadable from the Registrar’s regulations promulgated thereunder. There are website. It is intended to provide the also various requirements of public companies Registrar with up-to-date details of the contained in the Securities Law of 1968 and Company’s directors, shareholders, share regulations promulgated thereunder. As Israel capital, registered office and other such is a common law jurisdiction, there is also a details. Israeli Public companies have also great body of case law interpreting and obligations to publish financial reports in applying the requirements of the statutes. the manner set out in the Securities Law Israeli companies have to comply with the 1968. following requirements on an on-going basis: • Other reporting obligations to the • Appoint an outside accountant as its registrar of companies such as: change of auditor. However, private companies with the company's name, purposes and annual revenue of less than NIS Article Of Association, share issuance or 621,597.29 (app. US$173,630) may vote in transfer, capital increase, liens, changes in a general meeting of shareholders to the board etc. waive the requirement to appoint an Partnerships auditor, provided that not more than 10% of the shareholders’ votes of the company Israeli partnership law requires little ongoing oppose that particular manner. maintenance and reporting. • Pay an annual fee of which is currently of Israeli and foreign partnerships have to comply NIS 1,120 (app. US$315) if paid until with the following requirements on an on-going 31.3.2018 or NIS 1,488 (app. US$415) if basis: paid thereafter. Public companies must • Similar to a company, pay an annual fee of pay an additional fee each year on August NIS 1,488 (app. US$415) (in2018). 1, the amount being determined by a proportion of its capital equity.

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• Notify the Registrar within 14 days of any types of Israeli societies in mind, such as changes to the information contained in kibbutzim, and in fact, many Israeli kibbutzim the documents delivered to the Registrar. are incorporated in the form of cooperative societies. Businesses set up by kibbutzim are Requirements for local shareholders/directors often also set up as cooperative societies. In The law does not provide any requirement for a most cases those cooperative societies are minimum number of local shareholders, wholly owned or almost completely owned by directors or partners for either companies or the kibbutzim. When outside investment is partnerships. sought, they often first convert into regular Foreign Investment, Thin Capitalisation, companies. Residency and Material Visa Restrictions Voluntary Association (in Hebrew: "Amuta") There are no significant barriers. This form of corporate entity is usually Any capitalizations obligations established for non-profit purposes. Such associations are normally established in order There are no specific capitalization obligations to run charities and other non-profit initiatives in terms of minimum capitalization ratios for and enterprises, such as the operation of either companies or partnerships. schools and colleges. As this type of corporate Any special business or investment visa issues entity is not used for profit making enterprises, it will not be covered further in this work. There are no special business or investment visa issues in terms of specific requirements for Public Benefit Company entities to conduct business or invest in This form of corporate entity ("PBC") is as its businesses in Israel. There are work visas name implies, a company formed under a requirements for non-Israeli citizens that intend definitive set of purposes, for the benefit of the to work in Israel. public. It is formed with an application filed Any restrictions on remitting funds out of the with the Registrar of Companies, and its jurisdictions (withholdings, etc.) method of formation is similar to that of the company described above. As a company, it has Dividend distributions paid by Israeli companies a definitive share capital, shareholders and to their shareholders (see above for more rights of ownership. However, a PBC, by its details) are deducted by the company at source nature, must strictly adhere to the specific before payment of the dividend. standards and purposes for which and under Other forms of Israeli Entities which it was formed. For example, the Cooperative Society (in Hebrew "Agudah Company Law prohibits any distribution of Shitufit") dividends to the shareholders of a PBC, as this would mean a personal gain to its shareholders. This is a form of entity that has many similar For non-profit organizations wishing to employ characteristics with a company, while having the legal and organizational advantages of a see-through tax rules that are more closely company, this type of corporate entity is thus a related to partnerships. Cooperative society is a popular alternative to a Voluntary Association form of entity that was designed with certain as described above.

ILN Corporate Group – Establishing a Business Entity Series