Nonprofits

Israel has five types of non-profit entities:

• Associations (“amutot”)
• Public benefit companies/Charitable companies
• Public benefit foundations/Charitable foundations
• Cooperative societies
• Public endowments

Each type has its own formation, governance, membership, and other requirements. All nonprofits must be registered with the Registrar of Corporations.

Associations

This is a popular incorporation type. Registration of an association (“amuta”) (requires the following (all citations are to the Law of Associations):

• Two or more members (either natural persons or legal entities)
• Purpose can be any legal non-profit purpose not geared toward profit-making for members
• Description of activities (primarily non-profit)
• Prohibition on distribution of earnings
• Unique name that is not prejudicial to the public or misleading as to the nature of the organization

Nonprofit associations are not allowed to distribute earnings to members, including founders.

Public Benefit Companies (“PBCs”)

Public Benefit Companies are companies set up for non-profit purposes. Unlike associations, PBCs’ purpose must aligned with the Companies Law and fit into one of the predetermined categories of public benefit purposes specified by the law. Registration of a PBC requires:

• At least one member
• Unique name that is not prejudicial to the public or misleading as to the nature of the organization
• Articles of Association compliant with NPO-related requirements, such as:
  • Company purpose aligned with purposes of a public institution
  • Prohibition on distribution of profits
  • Definition of share value as non-economic
  • Prevention of share transfer without court authorization
  • Equal voting rights per share

Public Benefit Foundations (“PBFs”)

Public Benefit Foundations (“PBFs”) are first incorporated as PBCs. They can then apply for PBF status after meeting certain conditions, such as funding/support one or more of the following entity types:

• Another PBC
• Association for public benefit
• Public endowment registered with the Registrar of Endowments
• Non-profit accredited higher education institution
• Public hospital
• Etc.

The Companies Law provides for three types of PBFs, each with differences in funding sources, donors, and reporting obligations to the Registrar of Endowments:

• Family Foundation
• Privately-Managed Foundation
• Publicly-Managed Foundation

Cooperatives

Israeli law provides for the formation of non-profit cooperative societies for the purpose of cultivating “economy, independent assistance, and reciprocal assistance between persons having common economic interests, in order to effect an improvement in their living conditions.” Requirements for forming a cooperative include:

• At least seven members (either natural persons or legal entities)
• Organizational purpose compliant with the aforementioned quote
• Unique name that is not prejudicial to the public or misleading as to the nature of the organization
  • Name must also include the words “cooperative” and “limited” at the end.
• Prohibition against profit-distribution

Public Endowments

A public endowment is a trust for which assets are dedicated to benefiting a particular public community or public aim. To establish a public endowment:

1. Provide a deed of endowment through which the endowment is established. The document will establish the creator of the endowment’s aims and goals.
2. Appoint a trustee. The endowment is created once funds are transferred to the trustees.
3. Register the endowment with the Registrar of Endowments within three months, providing the following details:
   • Assets
   • Creator
   • Trustee
   • Etc.

For-Profits

There are at least six main types of for-profit entities in Israel. Each incorporation type has its benefits, liability exposure, and starting requirements. The common types may be:

• Private company or association
  • Simple and easy to set up.
  • Can be limited or unlimited
• Public company
  • Public companies are companies that have listed stocks or shares that have been offered to the public.
  • Private companies can become public companies and vice versa.
• Partnership
  • Can be limited or unlimited
  • Limited to 20 partners
• Local branch or subsidiary of a foreign company
• Cooperative
  • Please see the above section in “Nonprofits.”
  • The prohibition on distribution of profits does not apply for for-profit cooperatives.
• Self-employed entrepreneur

The process for registering a business is extensive, and the steps and requirements will differ depending your incorporation type. A registered agent or lawyer may be helpful during this process. Below, we briefly discuss the registration process for domestic and foreign companies, two of the most popular establishment types.

For domestic companies, the official list of requirements include:

• Form No. 1 (from the Registrar of Companies)
• Articles of Association
  • Establishes company by-laws.
  • If none are provided, the standard articles in the Companies Ordinance will be enforced
• First Shareholder’s Declaration Form
• Declaration of the Shareholders

For foreign companies, the official list of requirements includes:

• Certificate of incorporation from company’s country of origin (and notarized Hebrew translation)
  • If certificates of incorporation are not offered by the foreign company’s country of origin, the lawyer responsible for registration should will provide confirmation of such and attach an official confirmation from the country of origin’s authorities stating that the company is indeed registered.
• List of company directors and associated details
• Must include passport numbers and/or Israeli national ID numbers
• Power of attorney form that bestows an Israeli citizen with the authority to represent the company in Israel
• Name, address, and other details for the company’s representative in Israel
• Articles of Association (and notarized Hebrew translation)
• Certificate of Status
  • Proof that the company is still active in its country of origin

Foreign company registration may be handled online or in person. The process typically takes 14 days or less.

After registering with the Registrar of Companies, companies must also register with the Israel Tax Authority. Companies should do the following:

• Submit Form 4436 on income tax
• (Foreign companies) should appoint a local representative in Israel to handle VAT tax matters
  • Submit VAT Form 22
  • Submit Form 821

Next, to register as a local business, submit the following at the local VAT office.

• Certificate of registration from the Registrar of Companies
• Articles of Association
• Directors’ appointment protocols (approved by the Registrar of Companies)
• Contract regarding the purchase or rental of office space in Israel
• Proof of an Israeli bank account
• Company director(s) details
  • Name
  • National ID
  • Address
  • Phone number
  • Etc.
• Company asset information
  • Total investment
  • Funding resources
  • Business cycle

Sources

• Council on Foundations

  Israel

• Israel Nonprofit News

  Guide to Nonprofits

• Thomson Reuters

  Charitable organisations in Israel: overview

• Israel Ministry of Justice

  The Registration of a Company

• InvestInIsrael.gov

  Doing Business in Israel (2018)

• Moshe Kahn Advocates

  Starting a Business in Israel - the Legal Business Entities