Corporate and company law in Israel
Corporate and company law in Israel regulates the system of relations between a company and its various components and between the company or corporation and the state. This relationship, especially that been the company and the various components comprising it, can be very complex, and therefore the law attempts to define the duties, rights, and definitions of various officeholders. Naturally, this is a complicated job. The law regulating companies and corporate laws in the State of Israel is the Companies Law, 5759-1999, which went into effect in 2000 and is therefore relatively new. Although the new law tries to cover as much of the corporate field as possible, there are several points that should be noted when dealing with the law, which makes an Israeli lawyer specializing in this field even more crucial.
Saving of statutes clause.
As foregoing, the Companies Law is a relatively new piece of legislation, and although many lawyers in both Israel and abroad consider the law to be groundbreaking in the corporate field, it includes a saving of statutes clause. The saving of statutes clause, Section 345DD(a) of the Companies Law, allows a company incorporated prior to the law’s legislation (prior to 2000, as foregoing) to continue operating pursuant to the British Mandate-period Companies Ordinance, which was in effect (excluding some changes introduced over the years) prior to the establishment of Israel. The Companies Ordinance, in contrast to the law, is an outdated and archaic ordinance, lacking in wording and leaving much for interpretation. Some corporations deliberately choose to stick with the ordinance, in order to make use of its problematic wording.
Corporate & Company governance rules in Israel.
One of the goals of the Companies Law is to establish oversight over the system of relations between the state and a corporation. The need for oversight increases when dealing with a public, rather than a private, company (public company – a company listed for trade on the stock exchange, whose shares the public can buy and sell). While some sections of the Companies Law deal with supervision over public companies, Amendment 16 to the Companies Law, also known as the Corporate Governance Rules, presents a list of sections that increase the restrictions on public companies. Despite many discussions and attempts at introducing Amendment 16 as binding legislation, it was finally agreed that the corporation may choose whether or not to adopt the amendment. If the corporation chooses not to adopt the amendment, it is obligated to inform the public that it is not adopting it. This diminishes the efficacy of trade since corporations have no incentive to adopt the amendment.
Purpose of a Corporation.
Section 11 of the Companies Law defines the company’s purpose: “the company’s purpose is to operate according to business considerations for the production of profits, and among those considerations may also be taken into account the interests of its creditors and employees and the public interest.” The most important section of the law is worded in the most problematic way.
The section determines, on the one hand, that the company’s purpose is to produce profits; on the other hand, the legislator decides not to end the section there, but further adds that it is possible to take into account the interests of other entities, such as creditors, employees and the public. The law’s wording makes it impossible to ascertain the legislator’s intention and creates many problems of interpretation. The problematic wording did not go unnoticed by judges, and thus in the ruling in Panidar v. Castro (Further Hearing 7/81), the judges determined that the trends in corporate and companies laws in Israel are modern, i.e. it is impossible for the company’s purpose to start and end with making profits for the shareholders, but rather it is necessary to think of the other entities in the company and even of the public. This is an approach that is in stark contrast to the conservative American approach that does not allow corporations to act against the economic interests of the company’s shareholders.
Corporate and Company law in Israel.
In summary, corporate and company law in Israel is considered by many lawyers in Israel and throughout the world to be groundbreaking in the corporate area, but we cannot overlook the law’s shortcomings. It is recommended, in any matter in the corporate field, to seek the advice of a skilled, professional lawyer who is thoroughly familiar with this area and who is knowledgeable about all different procedures offered to corporations by law.
Eli Shimony – Israeli law firm represents clients on all legal matters in Israel. For any questions please contact us and we will be happy to assist.
By email: [email protected], By phone: +972-52-2769773, +972-3-5507155.
The above is only general information and does not replace legal advice which is usually necessary before taking legal proceedings.