A primer on the basic parameters to consider when establishing a startup in Israel
This series was written for you: the entrepreneur with a dream. We want to help you turn your dream into a thriving reality by sharing our expertise with you.
What follows is a series of articles outlining the basics you need in order to start a startup in Israel; it contains terms you need to know, steps you will have to take, and considerations to ponder when making choices about how to run and grow your company. We'll add a new chapter each week – so keep coming back for more! As always, we welcome your comments below.
If you missed Part 1: Making it Official: Incorporation - be sure to check it out
Otherwise, welcome to Part 2 of this series: Who's Who, and Who to Hire.
Congratulations! You're the founder of a company. But what does that mean? Who is the CEO? What is a director? Here, find a brief job description of each of the common, important roles in a company.
Founders. The term "founders" is used to describe the people who started a startup. Founders are usually the people who came up with the idea for the company, who have the basic technological knowledge to create the product or service, and who run the business side of the company. A startup typically has anywhere from one to five founders.
Contrary to popular belief, the term "founder" does not actually carry any legal weight. Normally, when founders start a company, they sign a founders' agreement, which sets out the division and treatment of equity, who will be responsible for what jobs, and how the company is going to be run. We'll have an article with more information about founder agreements later in this series.
CEO. The term "CEO" is short for Chief Executive Officer. The CEO is typically appointed by the Board of Directors (more about that later). The CEO is the most senior officer of the company. He or she makes many of the day-to-day decisions, oversees the operations of the company, and often has the power to sign various documents on behalf of the company, including employment agreements and investment documents. Many times in a startup, the CEO is also a member of the Board of Directors and one of the founders of the company.
CxO. In addition to the CEO, a company often has other high-ranking officers that are "C"-level. This can include a CTO (chief technology officer), a CFO (chief financial officer), a COO (chief operations officer) and even a CMO (chief marketing officer). A company can define for itself which, if any, of the C-level officers it needs. Sometimes C-level officers are founders; sometimes, they are later hires. Occasionally, and more frequently regarding a CFO, C-level positions are filled by external personnel – particularly as the company is still getting on its feet.
Directors. A director of a company is a member of its board of directors. Directors are generally appointed by the shareholders of the company. The mechanism for how directors are appointed is normally set forth in the company's articles of association; absent that, various shareholder agreements or the Companies Law govern the appointment of directors (the "Companies Law" refers to the main piece of legislation in Israel that sets out the rules for running companies; its full name is Companies Law, 5759-1999) . At first, you will likely establish your board's composition in your founders' agreement. The director's responsibility is to set the company's policies on various issues and make major decisions regarding the company's activity. We'll have more on directors later in the series.
Advisory Board. Not to be confused with the board of directors, a member of the advisory board is typically someone with experience in the same field of business as your company. Advisory board members can provide your company with strategic advice on running your company and making it better, and can offer connections to other people that can benefit your startup. Typically, advisors advise the company on a limited, part-time basis. In exchange, they are often compensated in the form of equity (for more on equity incentives, we'll have a separate installment). Although an advisory board can be a valuable tool for a company, not all companies have an advisory board.
As your startup moves forward, it will need to expand its manpower in order to meet its growing needs. Typically, this is done by hiring employees. Israel has some pretty strict rules regarding employment, and it's in your company's best interests to adhere to these laws. These rules relate to the hiring process, the employment period, and the termination.
One of the most basic laws regarding employees is: They need to get paid! There is no such thing as an employee working on a volunteer basis. The laws regarding minimum wage are non-negotiable. Don't forgot that out of an employee's salary come funds for pension, for health insurance, for Bituah Leumi (national insurance in Israel)... funds that cover your employee during and after his employment. Keep in mind that this means that when you promise a certain gross salary to an employee, your actual cost may be about 1.35 times that gross salary.
Also, there are stringent rules regarding how to fire an employee, in case things don't work out. It's not like on TV – you can't just tell someone he is fired and needs to pack his things. It's best to consult with your legal representative in such cases so he can walk you through the process.
The content of this article does not constitute legal advice.
Shira Teger is an associate in Yigal Arnon & Co.’s high-tech practice. In her previous incarnation (before choosing a life of law), Shira was a journalist.