Starting a Startup: Where to Start - Parts 9 & 10: Red Tape: Registrar of Companies & Head Toward the Exit

24.03.2019
Shira Teger, Associate at Yigal Arnon & Co.
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 the previous installments of this series, be sure to check them out (along with some other stellar articles) in YTech's Pro Content section. Otherwise, we are proud to present our the final chapters in this series - Part 9: Red Tape: Registrar of Companies and Part 10: Head Toward the Exit.

Part 9: Red Tape: Registrar of Companies

Speaking of authorities, the Israeli Registrar of Companies (Rasham Hahavarot, in Hebrew, or "ROC" in English, for short) is the governmental body charged with overseeing your startup. It is the authority that certifies your startup as a company, and it is the authority to which your startup must report on an ongoing basis.

At the very least, your company is required to pay an annual fee and submit an annual report to the ROC. This report is a snapshot of the company on a given date: It states the shareholders and their holdings, the directors, the address, and the overall share capital of the company.

On an ongoing basis, your company is required to report changes to the ROC. When someone new is issued shares, when a shareholder transfers its shares to someone else, when a director is appointed or removed, and when your company changes its share capital. Your company must also notify the ROC if it changes its address.

The ROC can be a true hassle, like any government authority. However, it is a necessary evil and your lawyers can help with the required paperwork. Note that if you fail to report regularly and pay your fees, the ROC will declare your company a "violating company", which will block it (and even its directors, as individuals) from taking certain actions. The ROC can also levy fines. So make sure to keep the ROC happy!

Part 10: Head Toward the Exit

When establishing your startup, you may be thinking long-term: You want to create a company and run it for the long haul, changing the world, raking in profits and gaining fame. On the other hand, you may be thinking shorter term: You want to create a company, flaunt its potential, and then sell it to the highest bidder, either via a merger or acquisition ("M&A", where your company is folded into an existing company, or its shares or assets are purchased by another company), or via an initial public offering (an "IPO", when your private company goes public and is listed on the stock exchange). If you're aiming for the shorter term option, you're looking for what is known as an "exit".

There is no magic formula on how to achieve an exit, but there is certain groundwork required from day one to make sure you don't preclude the option. Particularly, you need to make sure your company is run well and every move it makes is properly documented over the years. Because when a potential buyer comes along, it is looking for a good, clean product. This means making sure your employees are paid and the proper deductions are made; that your board and shareholders approve all the actions that the company takes which they are required by law or by agreement to approve; ensuring that your company owns its IP – considering that it is most likely your most valuable asset; paying your taxes and filing your annual financial report; settling disputes appropriately, should they arise.

And as frustrating as it may be – we recommend that all of the above should be done in English, to the extent possible. Because if you want Apple or Google or Facebook to come after you – they need to be able to get comfortable with your documents in order to know what your company is worth and what they're buying.

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.