Establishing a Startup Company in Israel

Our law firm, based in Jerusalem and Tel Aviv, specializes in corporate and business law. We provide ongoing consulting and support for startups and entrepreneurs, from the initial stages of establishment through the company’s operational phases.

What is a Startup, and What is Its Purpose?

A startup company, or a venture company, is established by entrepreneurs to develop products and services, primarily in the fields of high-tech and technology. Operating as a corporation allows entrepreneurs to attract investors and raise funding for development, especially in the early stages when revenue has yet to be generated.

The high-tech and startup sector has grown tremendously over the years. In 2023, there were over 9000 companies operating in this field in Israel. Many of these were founded by first-time entrepreneurs with no prior experience in the startup industry. For them, and anyone considering establishing a startup in the future, we’ve compiled a list of several key topics that require familiarity and in-depth thought before taking the plunge.

Form of Incorporation

In most cases, entrepreneurs establish a limited liability company (LLC) to operate the startup jointly. However, in some cases, entrepreneurs prefer to operate as a partnership. Unlike a company, which requires registration for its establishment, a partnership exists from the day it is formed, even if it is not registered (as defined in the Partnerships Ordinance). Each form of incorporation has its advantages and disadvantages, which should be carefully considered so as to make an informed decision about the structure of the startup’s operations.

Agreements

Entrepreneurship requires entering into numerous agreements. The first and most fundamental of these is the founders’ agreement. This agreement is intended to describe the venture in as much detail as possible, so that each founder’s role in the partnership (position, job scope, intellectual property rights, etc.) is clearly defined and regulated. Without a founders’ agreement, numerous disputes may arise down the road that could have been avoided had the agreement been established.

As mentioned, the founders’ agreement is only the starting point for the startup. Once the founders’ rights are defined, the company can engage with external parties. This may include securing private investors or applying for grants provided by the Israel Innovation Authority, which require drafting additional agreements. It is also essential to establish employment contracts with employees hired to work at the startup. A key issue in this context relates to the non-compete clause in employment contracts, which we have discussed in detail in another article.

Share Capital

This is a critical issue for startups. In addition to determining the ownership percentages of the startup founders, which should ideally be outlined in the founders’ agreement, each startup must consider the amount of initial share capital to be registered and the number of shares to be allocated from it. Most startups do not begin with a budget sufficient to fund their operations and will need to raise additional capital later. Private investors typically seek shares in exchange for their investment. Therefore, it is important to determine in advance the startup’s share capital and the portion that will be allocated to the founders initially.

Contact a Lawyer Specializing in Corporate and Startup Law

In conclusion, starting a startup requires careful consideration of numerous legal issues, including contractual agreements, form of incorporation, and decisions regarding share capital for funding. Our firm’s lawyers have extensive and proven experience in supporting entrepreneurs and startups and providing ongoing advice for them and company officers. For any legal questions or issues, you can contact us through the phone numbers or email address listed below.

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03-3724722

055-9781688

office@lawoffice.org.il