The principle types of business entities in Israel include Public and Private Israeli Companies, Foreign Companies with a branch office registered in Israel, General and Limited Israeli and Foreign Partnerships, Cooperative Societies, Joint Ventures, Solo Proprietors, and Non-Profit Organizations.

Companies

The Corporation is the most common form of business in Israel and is based on the 1983 Companies Ordinance, which is in turn based on the 1929 British Mandatory Companies Ordinance. Companies must file a Memorandum of Association, which establishes their corporate identity and principle objectives, and Articles of Association, which sets forth their rules of conduct, with the Registrar of Companies in Hebrew, Arabic, or English.

Most companies limit the personal liability of their members by shares. (Unlimited Companies and Companies limited by guarantee instead of by share do exist in Israel, but are rare.) The word "Limited" or "Ltd." must appear at the end of their name. Companies are not allowed to acquire its own shares, or to assist others in purchasing them, in order to protect its creditors. Major changes cannot be made without a 75% vote among the shareholders. Corporate officers are expected to act in good faith, avoid conflicts between their personal and corporate values, and may not be exempted from liability incurred through a breach of fidelity or care nor may they be insured or indemnified in respect of unlawful acts.

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Private Companies

Private companies must have a minimum of two and a maximum of fifty shareholders, excluding any past or present employees. They must restrict the rights of their shareholders to transfer their shares and they are not allowed offer any of their shares or bonds to the public. An independent auditor must be appointed at each annual shareholder’s meeting and must submit a yearly report to the Ministry of Finance, in accordance with Israeli GAAP - Generally Accepted Accounting Principles.

Public Companies

Basically, a Public Company is any company, which is not a private company. Public companies must have a minimum of seven shareholders. There is no maximum. Their annual financial report must be made available to the public.

Foreign Companies

According to the Companies Ordinance, any company incorporated overseas may establish a branch or place of business in Israel, as long as it is registered as a foreign company. They will maintain their name and any bonafide tax considerations. If their Memorandum of Association, Articles of Association, records, and yearly financial statement are not in Hebrew or English, they must translate them into one of those languages when they submit the mandatory documentation to the Registrar of Companies. If the foreign company includes the words "Limited" or "Ltd." in its title, it must mention the country of incorporation in all of its official literature.

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Partnerships

Partnerships are distinct from companies and are governed by the 1975 Partnerships Ordinance. They must be profit-motivated businesses, based on the principle of mutual loyalty, with a minimum of two and a maximum if twenty partners. They must be registered with the Registrar of Partnerships before they can commence operations. A corporation can be a partner in a partnership. A partnership may also be a partner in another partnership, in a tiered system.

There are two kinds of partnerships: General and Limited. With a General Partnership, each partner is equally responsible for all liabilities. This is not limited by the partner's contribution, share in the partnership, or right to assets. In a Limited partnership, one or more partners are only liable for the amount they have invested in the partnership. However, each partnership must have at least one General Partner who bears unlimited liability.

Foreign Partnerships are simply General or Limited partnerships established outside of Israel. Before commencing business, they must all register in Israel, and with the Ministry of Justice if a limited partnership, but this is usually a formality. If a foreign partnership is legally registered outside of Israel with more than twenty members, it can still operate as a partnership inside of Israel. All other rules for Israeli partnerships apply.

Joint Venture

A joint venture is like a partnership, but more limited in scope, uniting two or more groups in a single moneymaking venture. It is not a separate business entity, but can be defined and organized in several ways: including a partnership agreement, a subcontract arrangement, or a company where the members of the joint venture are all shareholders. Typically, it links entities in different countries or continents. A foreign company that contracts with an Israeli distributor to promote its products within Israel is a common scenario for a joint venture.

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Other Business Entities

Other business entities exist in Israel, but will probably not be of much interest to foreign investors. Sole Proprietors have no special status under Israeli law but may register a business name or incorporate themselves as a single-person company if they wish.

Cooperative Societies are based on a 1933 Swiss Law and represent groups of people seeking to undertake activities like savings, self-help, and mutual aid on behalf of all its members. Kibbutzim, cooperative settlements, credit societies, agricultural collectives, and housing associations are commonly registered as cooperative societies.

Non-profit organizations are established for educational, cultural, recreational, medical, or other charitable purposes without the desire to derive a profit. In Israel, they are called Amutot and are covered under a 1980 law.

The Tel Aviv Stock Exchange

The Tel Aviv Stock Exchange (TASE) was established as a public company in 1953, although informal trading had been taking place since 1935. Companies listed on the Tel Aviv Stock Exchange must comply with the Securities Authority, the 1968 Securities Law, and the Ministry of Finance. They must publish unaudited quarterly and audited annual financial statements that reflect recent changes in the company.

The Tel Aviv Stock Exchange has also established a Parallel Listing for medium-sized and start-up companies, which has smaller minimum equity requirements. The 100 most active shares on the primary listing are traded continuously in the "Mishtanim" auction system while the rest of the primary and secondary shares and convertibles are traded electronically on the "Kerem" computerized call market. In recent years, several Israeli companies have raised money in the United States by trading shares "over the counter" on the New York Stock Exchange.

Individuals and foreign companies are subject to a 25% withholding tax on dividends and a 35% withholding tax on interest from debentures. Capital gains from the sale of securities listed on the Tel Aviv Stock Exchange are tax exempt.

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