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Law

Companies Law, 5759-1999

חוק החברות

Part 7: Share Capital

Chapter I: Securities and Transactions Therein

Section A: Freedom of Variation

Freedom of Variation

285.

A company may have shares, debentures, or other securities, each carrying different rights.

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Section B: Registered Share Capital

Increase of Registered Share Capital

286.

The general meeting may increase the registered share capital of the Company in such classes of shares as it shall determine.

Cancellation of Registered Share Capital

287.

The general meeting may cancel registered share capital that has not yet been allotted, provided that the Company has no obligation, including a conditional obligation, to allot such shares.

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Section C: Issuance of Securities

Authority to Issue Shares and Convertibles

288.

[Amendment: 2005]

(a)The board of directors may issue or allot shares and other securities that are convertible into or exercisable for shares, up to the limit of the registered share capital of the Company; for this purpose, securities convertible into or exercisable for shares shall be deemed to have been converted or exercised at the time of issuance.

(b)The authority of the board of directors as set out in subsection (a) may be delegated as set out in paragraphs (1) or (2):

(1)to a board committee — in the issuance or allotment of securities within the framework of an employee compensation plan or employment or remuneration agreements between the Company and its employees, or between the Company and employees of an affiliated company whose board of directors has given its prior consent thereto, provided that the issuance or allotment is made pursuant to a plan that includes detailed criteria formulated and approved by the board of directors;

(2)to a board committee, to the chief executive officer or to a person filling such a role (in this section — the chief executive officer), or to another person recommended by the chief executive officer — in the allotment of shares as a result of the exercise or conversion of securities of the Company.

Authority to Issue Bonds

289.

(a)The board of directors may resolve to issue a series of bonds within the scope of its authority to borrow on behalf of the Company, and within the limits of that authority.

(b)Nothing in subsection (a) shall derogate from the authority of the chief executive officer, or any person authorized by the chief executive officer for such purpose, to borrow on behalf of the Company, to issue individual bonds, promissory notes, and bills of exchange, within the limits of such authority.

Prohibition on Issuing or Allotting Bearer Securities

289a.

[Amendment: 2016-2]

Notwithstanding the provisions of Sections 288 and 289, a Company shall not issue or allot a bearer security.

Entitlement to Participate in Future Allotments

290.

[Amendment: 2005]

(a)In a private company whose issued capital comprises a single class of shares, shares shall be offered to each shareholder in proportion to that shareholder's holding in the issued share capital; the board of directors may offer to another person any shares that a shareholder has refused to purchase or has not accepted the offer to purchase by the final date specified for that purpose in the offer, all as provided unless otherwise determined in the articles of association.

(b)A company incorporated prior to the commencement of this Law that expressly conditioned in its articles of association upon Regulation 42 of the Second Schedule to the Companies Ordinance, as worded immediately before the commencement of this Law, shall be deemed to have conditioned its articles of association upon the provisions of subsection (a).

Allotment Not in Consideration of Cash

291.

A company shall not allot a share whose consideration, in whole or in part, is not to be paid in cash, unless the consideration for the share has been set out in a written document.

Reporting on Allotment

292.

A private company is required, within fourteen days following each allotment of shares, to deliver to the Registrar the following documents:

(1)a report, in the form prescribed by the Minister, setting out the particulars of the allotment;

(2)in an allotment to which Section 291 applies — a copy of the document referred to in that section.

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Section D: Transfer of Securities

Transferability

293.

Every security is presumed to be transferable, in accordance with the provisions of this Law.

Restriction on Transferability

294.

A Company may set forth in its articles of association a provision restricting the transferability of shares, subject to such conditions as it may prescribe in the articles of association.

Joint Owners

295.

No part of a share may be transferred; however, a share may have multiple joint owners, each of whom is entitled to transfer his right therein, unless such right has been restricted in the articles of association.

296.

[Amendment: 5776-2]

297.

[Amendment: 5776-2]

Purchase on Stock Exchange

298.

The provisions of Section 34 of the Sale Law, 5728–1968, shall apply to a person who has purchased a security in trading on a stock exchange, and such person shall be regarded as one who purchased it from a person engaged in the sale of assets of the same type as the sold item, and the sale was in the ordinary course of that person's business.

Amendment of Register

299.

A Company shall amend the registration of ownership of shares in the register of shareholders as referred to in Section 130(a)(1), upon the occurrence of any of the following:

(1)a deed of transfer of the share, signed by both the transferor and the transferee, has been delivered to the Company, and the requirements of the articles of association, if prescribed for this purpose, have been met;

(2)a court order to amend the register has been delivered to the Company;

(3)it has been proven to the Company that the statutory conditions for the assignment of the right have been fulfilled;

(4)another condition prescribed in the articles of association has been met, which is sufficient to register an amendment in the register of shareholders.

Forced Sale

300.

[Amendment: 5778]

(a)A private Company may prescribe in its articles of association that a person who is entitled to shares therein by law, including an executor of a Will, an Estate administrator, and a trustee in liquidation proceedings or in insolvency proceedings, shall be obligated to offer the Company or the other shareholders the purchase of the shares to which he is entitled, in consideration of their fair value, as agreed upon between the parties, and in the absence of agreement — as determined by a court upon the application of the Company or upon the application of the other shareholders, all subject to the provisions of the articles of association and the provisions of this Law.

(b)Where no agreement has been reached on the fair value of the shares and no application has been filed with the court, the shares shall be registered in the name of the person entitled thereto upon the expiry of ninety days from the date of the offer made by the person entitled to the shares.

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Chapter II: Capital Maintenance and Distribution

Section A: Permitted Distribution

Non-Derogation

301.

(a)A company may make a distribution only in accordance with the provisions of this Chapter; however, a company may undertake in its articles of association or in a contract not to make a distribution subject to restrictions additional to those provided in this Chapter.

(b)A distribution made in contravention of the provisions of this Chapter is a prohibited distribution.

Permitted Distribution

302.

[Amendment: 2005]

(a)A company may make a distribution out of its profits (hereinafter – the profits test), provided that no reasonable concern exists that the distribution will prevent the company from being able to meet its existing and anticipated obligations when they fall due (hereinafter – the solvency test).

(b)In this section –

"profits", for the purpose of the profits test – the balance of surpluses or surpluses accumulated in the last two years, whichever is higher, all in accordance with the most recent adjusted financial statements, audited or reviewed, prepared by the company, after deducting prior distributions if not already deducted from the surpluses, provided that the date to which the statements were prepared is not more than six months prior to the date of the distribution;

"adjusted financial statements" – financial statements adjusted to an index or financial statements that replace or will replace them, all in accordance with generally accepted accounting principles;

"surpluses" – amounts included in the equity of a company that originate from its net profit as determined in accordance with generally accepted accounting principles, as well as other amounts included in equity in accordance with generally accepted accounting principles that are neither share capital nor premium, which the Minister has determined shall be regarded as surpluses.

(c)The Minister may prescribe provisions regarding presumptions as to a company's compliance with the conditions of the solvency test, as well as exemptions or reliefs with respect to the adjustment of financial statements.

Distribution with Court Approval

303.

[Amendment: 2005]

(a)The court may, upon application by a company, approve the company to make a distribution that does not satisfy the profits test, provided the court is satisfied that the solvency test is met.

(b)A company shall notify its creditors of the filing of an application to the court as referred to in subsection (a) in the manner to be prescribed by the Minister.

(c)A creditor may apply to the court and object to the company's application for approval to make a distribution.

(d)The court may, after having given creditors who objected an opportunity to be heard, approve the company's application in whole or in part, reject it, or make its approval conditional upon such terms as it sees fit.

Allotment of Shares Below Nominal Value

304.

(a)Where a company resolves to allot shares that have a nominal value, for consideration lower than their nominal value, including bonus shares, it shall convert into share capital a portion of its profits, within the meaning of Section 302(b), from share premium, or from any other source included in its equity, as stated in its most recent financial statements, in an amount equal to the difference between the nominal value and the consideration.

(b)The court may, upon application by a company, approve the company to allot shares for consideration lower than their nominal value, otherwise than as provided in subsection (a), subject to such terms as it shall determine.

Regulations

305.

The Minister may prescribe provisions for the implementation of this Chapter.

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Section B: Dividend

Right to Dividend or Bonus Shares

306.

(a)A shareholder has the right to receive a dividend or bonus shares, if the Company has so resolved.

(b)Where the share capital of the Company comprises shares with different nominal values, dividends or bonus shares shall be distributed in proportion to the nominal value of each share, unless otherwise provided in the articles of association.

Resolution on Dividend Distribution

307.

A resolution of the Company on the distribution of a dividend shall be adopted by the board of directors of the Company; however, a company may provide in its articles of association that the resolution shall be adopted in one of the following manners:

(1)by the general meeting, after the recommendation of the board of directors has been brought before it; the general meeting may accept the recommendation or reduce the amount but may not increase it;

(2)by the board of directors of the Company, after the general meeting has determined the maximum distribution amount;

(3)in another manner prescribed in the articles of association, provided that the board of directors has been given adequate opportunity to determine, prior to the execution of the distribution, that the distribution does not constitute a prohibited distribution.

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Section C: Acquisition

Consequences of Acquisition

308.

[Amendment: 2005]

(a)If a company has acquired one of its own shares, it may cancel it; if the company has not cancelled said share, the share shall not confer any rights (hereinafter – a dormant share), for as long as the dormant share is owned by the company.

(b)If a company has acquired securities that are convertible into or exercisable for shares of the company, it may cancel them; if the company has not cancelled said securities, the company may resell them, or convert or exercise them into shares; shares that have been converted or exercised as aforesaid shall be dormant shares for as long as they are owned by the company.

Acquisition by a Controlled Corporation

309.

[Amendment: 2005]

(a)A subsidiary or another corporation controlled by the parent company (in this section – the acquiring corporation) may acquire shares of the parent company or securities that are convertible into or exercisable for shares of the parent company, to the same extent that the parent company is permitted to make a distribution, provided that the board of directors of the subsidiary or the managers of the acquiring corporation have determined that had the acquisition of the shares or the securities convertible into or exercisable for shares been carried out by the parent company, such acquisition would have constituted a permitted distribution.

(b)Where a share of a parent company has been acquired by a subsidiary or by the acquiring corporation, such share shall not confer voting rights for as long as it is owned by the subsidiary or the acquiring corporation.

(c)Where a prohibited distribution has been made, restitution shall be made, as set out in Section 310, to the subsidiary or to the acquiring corporation, and the provisions of Section 311 shall apply, mutatis mutandis, to the directors of the subsidiary and the managers of the acquiring corporation; however, if the board of directors of the parent company determined that the distribution is permitted, liability shall apply to the directors of the parent company as set out in Section 311.

(d)Notwithstanding the provisions of subsection (a), an acquisition by a subsidiary or by the acquiring corporation that is not wholly owned by the parent company constitutes a distribution in an amount equal to the product of the acquisition amount multiplied by the rate of rights in the capital of the subsidiary or in the capital of the acquiring corporation held by the parent company.

Acquisition of Securities Convertible into Shares

309a.

[Amendment: 2005]

The acquisition of securities convertible into shares shall not be deemed a distribution, to the extent of the amount presented in the most recent adjusted financial statements as a liability, whether short-term or long-term, in respect of said securities.

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Section D: Prohibited Distribution

Consequences of Prohibited Distribution

310.

(a)Where a company has made a prohibited distribution, a shareholder shall be required to return to the company what such shareholder received, unless the shareholder did not know and was not required to know that the distribution made was prohibited.

(b)It shall be presumed in respect of a shareholder in a public company who was not a director, general manager, or controlling shareholder of the company at the time of the distribution, that such shareholder did not know and was not required to know that a distribution made was a prohibited distribution.

Directors' Liability for Prohibited Distribution

311.

[Amendment: 2005]

Where a prohibited distribution has been made in a company, every person who was a director at the time of the distribution shall be deemed to have thereby breached such person's duties under Sections 252, 253, or 254, as applicable, to the company, unless such person proves one of the following:

(1)that such person opposed the prohibited distribution and took all reasonable measures to prevent it;

(2)that such person relied in good faith, in a reasonable manner, on information which, had it not been misleading, would have rendered the distribution permissible;

(3)that in the circumstances of the matter, such person did not know and was not required to know of the distribution.

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Section E: Redeemable Securities

Redeemable Securities

312.

(a)Notwithstanding the provisions of Section 302, a company may include in its articles of association a provision permitting it to issue securities redeemable under the terms to be set forth in such provision (hereinafter – "redeemable securities").

(b)Where a company has issued redeemable securities, it may redeem them, and the restrictions set forth in this Chapter shall not apply to such redemption.

(c)Where a company has issued redeemable securities, it may attach to them the characteristics of shares, including voting rights and the right to participate in profits.

(d)Redeemable securities shall not be regarded as part of the company's equity, by whatever name they may be designated, unless the right to their redemption has been restricted to the case of the company's winding up after repayment of all the company's obligations to its creditors at the time of winding up; where the right to redemption of such securities has been so restricted, the provisions of this Law relating to distribution shall apply, notwithstanding the provisions of subsection (b).

Transitional Provisions

313.

Redeemable shares allotted pursuant to Section 141 of the Companies Ordinance, as in force immediately before the commencement of this Law, shall be deemed part of the company's capital, and may be redeemed subject to the provisions of this Chapter, on the terms and in the manner prescribed in the articles of association.

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