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Companies Law (Amendment No. 23), 2013

On December 23, 2013, the Israeli Knesset approved Amendment No. 23 to the Israeli Companies Law, 1999 (the "Amendment", and the "Companies Law", respectively). The Amendment is primarily concerning the establishment and governance of "Charitable Company Fund" (the "Fund"), which are companies established in order to finance and fund non-profit entities. Below is an overview of the main provisions of the Amendment:

Recognition of the Funds

1. The Fund is a "Charitable Company" within the meaning of the Companies Law (the "CC") which is recognized as such by the Registrar of Trusts (the "Registrar") and which its articles of association include only philanthropic goals of funding (including monitoring the use of funds) of one or more of the following entities: CCs, public trusts which were registered with the Registrar, associations operating for public purposes only, academic institutions, public hospitals or other entities with operations aiming to promote or fund public activities and which were so approved by the Minister of Justice.

2. CCs may apply to the Registrar for recognition as a Fund if at the date of such request the CC liquid capital (funds or securities listed for trading) is equal to at least NIS 5,000,000, and if it meets one of the following types of Funds:
2.1. Charitable Family Fund (the "Family Fund") - Designed to create a framework for corporate philanthropic activities of individuals, family or several families, who constitute the financing source of the Fund. A Family Fund is obliged to add to its corporate name the suffix "Charitable Company - Family Fund" or "CC - Family Fund".
2.2. Charitable Private Management Fund (the "Private Management Fund")- This fund may also be controlled by individuals, but its funding sources are more varied relative to the Family Fund, and can reach up to twenty donors in each financial year, whereas each donor must contribute not less than NIS 20,000. A Private Management Fund is obliged to add to its corporate name the suffix "Charitable Company - Private Management Fund" or "CC - Private Management Fund". 
2.3. Charitable Public Management Fund (the "Public Management Fund") - Designed to raise money from the public at large, and as such, is subject to enhanced regulation and transparency obligations. The Public Management Fund may not be controlled by any person, and its donors may not have any influence on the management or on the manner the funds are used. A Public Management Fund is obliged to add to its corporate name the suffix "Charitable Company - Public Management Fund" or "CC - Public Management Fund".

Main Provisions Concerning Donations, Financing and Investing

3. Donations in Kind. Funds will be entitled to receive donations of cash and in kind, including donations of assets, however, in such event the Fund will be obliged to sell such assets within a period of two years. To prevent decline in the value of the assets, due to the short time period, the Amendment allows the Fund's Board of Directors to extend the sale period by an additional two years.

4. Financing by the Fund. Since the primary purpose of the Funds is to finance non profit organizations, the legislature set forth specific rules and regulation with respect to the use of its funds, such as, that Funds are obligated to use a certain percentage of its assets every year as financial grants based on the value of the Fund's assets.

5. Investment of Surplus. Funds are obligated to invest the surplus according to the rules set out in the Companies Law.

6. Fund Expenses.  Regulations concerning the rate and scope of expenses a Fund can incur for its management, including salary and compensation, and to supervise the use of funds should be enacted within 3 months from the effective date of the Amendment.

Fund's Institutions

7. A Fund, depending on its type, is required to appoint the following: (i) an Independent Director, who may not serve simultaneously as an independent director of another Fund; (ii) Audit Committee; (iii) Internal Auditor; and (iv) Auditor.

Reporting obligations

8. In order to enable public oversight on Funds, they will be subject to additional disclosure rules such as: 
8.1. Reporting to the Registrar - The Fund is committed to submit annual reports to the Registrar which outline the criteria according to which the Fund distributed its funds and a list of organizations who received those monies.
8.2. Publication - At least once a year, a Fund is obligated to publish on its website its contact details, how to apply for funding, the criteria according of which the Fund distributes its funds and the expected date of distribution of the funds.

General Tax Aspects

9. The recognition by the Registrar of a Fund does not imply recognition of such Fund as a "public institution" that in turn entitles it to tax benefits. In order to qualify for tax benefits the Fund must comply with the provisions prescribed in the Israeli Income Tax Ordinance [New Version], 1961 (the "Tax Ordinance") including: 
9.1. Having at least seven shareholders who are not related to each other;  
9.2. Operating for a public purpose, such as funding other public institutions operating for a public purpose (such as education, culture, religion, science, health etc.); and
9.3. All of its funds shall be used for achieving public purposes only.

10. A Fund which complies with the provisions of the Tax Ordinance shall be entitled to certain tax benefits, shall be entitled to request an approval pursuant to Section 46 to the Tax Ordinance according to which donators are entitled to a tax credit of 35% from the amount actually donated.


This memorandum is provided solely for informational and educational purposes and should not be construed as legal advice.

If you have any questions regarding the subject of this article, please contact the following attorneys or call your regular Meitar contact:
Shira Azran, Adv. Tel: +972-3-610-3811   Fax: +972-3-610-33718
Shai Bacal, Adv. Tel: +972-3-610-3100   Fax: +972-3-610-3846
Ofir Chudin, Adv. Tel: +972-3-610-3100 Fax: +972-3-614-4877
Dan Feiler, Adv. Tel: +972-610-3100 Fax: +972-3-614-8868

If you have any question regarding tax issues subject of this article, please contact the following attorneys:
Eldar Ben-Ruby, Adv. Tel: +972-3-610-3615  Fax: +972-3-610-3730
Meir Akunis, Adv. Tel: +972-3-610-3186  Fax: +972-3-610-3753
Moshe Sister, Adv. Tel: +972-3-610-3100 Fax: +972-3-614-4809