Do it Once a Year

31.10.2019
Shira Teger, Associate at Yigal Arnon & Co. | Reading Time: 8 min.

The tasks every company should undertake in order to maintain regular compliance with law.

As you run your company, you have enough cycles on your mind: revenue cycles, accounts due cycles, burn rates. You are focused on making your company bigger and better. Mostly likely, the first thing you let slide is the dull, legal tasks that your lawyers keep nagging you about. 


Nonetheless, it is good practice to keep an annual legal tasks checklist, along with all the others. As they say, an ounce of prevention is worth a pound of cure. This article aims to summarize some of the main legal tasks you should be doing once a year, and also to explain why it's worth your valuable time. Please note that the list is neither exhaustive nor comprehensive, so it's always a good idea to talk to your legal advisor to devise the best plan of action for your specific entity. 


Generally speaking, the yearly legal tasks that a smoothly run private company should make an effort to complete can be divided into two overarching categories: legal requirements, and good practice. In the legal requirements category you'll find the probably-familiar approval and presentation of audited financial statements, the annual report to the Registrar of Companies (or, the "ROC"), and payment of the annual registration fee to the ROC. In the good-practice category, you will find tasks like reviewing and updating your privacy policy, terms of use, prevention of sexual harassment policy, and employment agreement template. You'll also want to take a moment every year to analyze the continued relevance of your existing contracts, and the adherence by your contractors to laws applicable to them.


Legal Requirements


Financial Statements. Sometimes, there are laws where the rationale seems obvious. The requirement to prepare and approve annual financial statements may be one of those laws. Section 171 of the Companies Law, 5759-1999, demands that a company utilize its appointed external auditor to prepare financial statements, summing up the company's financial activity over the year prior. Once these statements are prepared, the company must bring the report to its board for formal approval; once approved, the board will then present the report to the shareholders at the annual meeting (or otherwise circulate, if no meeting is to be held). As a company must hold itself accountable to its shareholders, there is sound logic in hiring an objective third party to assess the company's books and report back to the shareholders. It provides transparency, encourages honesty, and also provides shareholders information with respect to their investments. 


General Shareholders Meeting. Section 60 of the Companies Law requires a company to hold an annual shareholders meeting. We note that many times, a company will set out in its articles of association that the company is exempt from holding such an annual meeting, except to the extent the meeting is required in order to appoint an auditor (to conduct its annual financial statements). A company is permitted to appoint an auditor for up to three years at a time if its articles permit as much, so if this was done, and the company's articles exempt the company from an annual meeting, the meeting would only need to be held once every three years. Shareholders – and particularly investors – appreciate being included in the company's goings-on and can end up contributing more resources (not only financial ones) to a company they feel connected to, which makes holding an annual meeting good practice in any case. 


Annual Report to the ROC. With a few exceptions, reports to the Israeli Registrar of Companies are declarative in nature, rather than constitutive (this means that you need to tell the ROC about certain changes in your company, but those changes are in effect whether or not you submitted your required notice). The idea is to have a central body with public records regarding each company in the country, where anyone can find out who holds shares in the company, who the directors are, and what liens have been placed on its assets. Section 141 of the Companies Law requires that once a year, a company must submit a sort of "snapshot" to the ROC regarding its status as of that day. The annual report contains all of the most current information regarding the details mentioned above, as well as some others. While we don't advocate failing in your required ROC reports each time relevant changes occur, we do note that if you may have missed a required report – you can make it up in your annual report. 

In addition to the annual report, Section 9(b) of the Companies Law requires a company to pay an annual fee to the ROC in order to maintain its legally registered status (you can think of it as similar to renewing your vehicle's registration each year: the car continues to exist, but you need to pay a fee in order to keep it on the road). 


Good Practice


As many of us tend to run on autopilot, it's worth pausing to make sure that your autopilot settings have kept up with the changes around you. To return to the car analogy above: You may get so used to driving the same route to work every morning that you didn't even notice a new sign raising the speed limit along your route; if you'd noticed, you would have cut 5 minutes off of your daily commute. If you stop to take a look around every now and then, you'll be surprised at how much can be improved on a regular basis. The same is true of your company's legal documentation. 


Privacy Policy, Terms of Use. At some point early in your company's life, you probably realized that you needed to post terms of use and a privacy policy on your website. Hopefully, your lawyer helped you with that. But have you paused to think how much your company's business has changed since then? You have may have new partners, or perhaps even a different mode of operation entirely. Have you registered the databases that you're required to register? Add to that the ever-changing laws with respect to privacy, personal data, and information security, and you have good reason to review your online policies at least once a year. And if fear of fines is a motivator for you, note that under the General Data Protection Regulation adopted by the EU in 2018, failure to comply when compliance is required can cost you upwards of € 20,000,000. Bottom line: Make it a habit to ensure your privacy policies and terms of use are current.


Prevention of Sexual Harassment. Including this task under "best practices" is a little sneaky, since it's actually a combination of categories. Section 7 of the Prevention of Sexual Harassment Law, 5758-1998 requires that any company with 25 or more employees post the company's prevention of sexual harassment policy in each of its offices, and appoint relevant personnel to oversee its implementation. Failure to do so is actually deemed a criminal offense. In this case, you have two choices: You can adopt a policy right from the start and then not have to worry about it (unless there are updates to the law), or you can add this to your list of annual assessments so that once you hit 25 employees, you remember to adopt and implement the policy. 


Employment Agreement Templates. At first, you probably asked your attorney to help you every time you brought in a new member of the team. But as time has gone on and you've gotten larger and more comfortable, you have someone in-house who signs new employees on the easy-to-use employment agreement your lawyer prepared for you. But here's the thing: Employment law is always changing. For example, in recent years, required pension contributions have gone up, and employees have become entitled to a "shortened" workday once a week. These are changes you may not have noticed in media headlines, so your employment agreements don't address them. At least once a year, you should check in with your lawyer to make sure the template you've been using is still compliant with the law. The Israeli legal system is very pro-worker, so it's not worth the risk of running afoul of employment law when prevention is so simple. 


Agreement Inventory. As the years have gone by, you've signed all types of agreements with suppliers and service providers. You may not even remember all of them. Some have set time limits, but others are open-ended. It's good practice to keep track of the agreements you've signed, and whether they're still relevant. If not, it's worth taking a look at the termination procedure and ending all irrelevant contracts, as some grant rights to other parties that you may no longer wish for them to have. Pay special attention to broker/finder agreements, for example. 


Contractor Compliance. Last but not least, there are laws that apply in certain branches of the market that can become relevant to you, even if you're not engaged in those branches. A common example relates to cleaning companies and caterers. When these contractors provide services on your premises, you are required to take reasonable measure to make sure the contractors are doing what they're supposed to. Do they have the required business licenses? Have they informed their workers who to talk to if they have complaints about working in your offices? Once a year, it's a good idea to double check that all is in order with your contractors – that they've passed inspections, that their employees are being paid fairly, and that you are fulfilling any requirements that fall on you.


Yes, it's a long, daunting list. But if you set a date in your calendar, say, every October, and just run through the list – make the calls that need to be made, send the emails that need to be sent – you'll be able to rest easy knowing that you've done your part to run a compliant and responsible company.


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.