Partnership Agreement in Israel
This article explains a partnership agreement in Israel, including what it is and what you need to know about it. Many of our international clients, in particular, wish to better understand the nature of Israeli law.
Background on partnerships
In Israel, partnerships are considered an independent legal entity. As such, they must be documented through the Registrar of Partnerships, whether they are local or foreign partnerships, general or limited, and this is necessary in order to open a business in Israel. Most partnerships in Israel are limited to 20 partners.
Foreign partnerships in Israel must register with the Registrar, similar to local partnerships, in order to legally open a business in the country. When foreign businesses want to get involved in working in Israel, they often form a partnership to be eligible for various tax and other benefits.
When establishing a partnership, it is important to have a partnership agreement, which is a binding document that dictates the terms and conditions of the arrangement. 
What is a partnership agreement in Israel
Similar to other places, a partnership agreement is a document describing the partners’ rights and responsibilities. This is particularly important, as often, people embark on a partnership with the best of intentions. However, if and when something does not go as planned, if different partners are not fulfilling the responsibilities they committed to, or if unforeseen financial circumstances occur, having a document detailing what commitments and responsibilities are necessary in various situations can mitigate future unclarity or conflict.
Important parts of a partnership agreement in Israel
This section will provide some details on important parts of partnership agreements in Israel.
Type of partnership
This part of a partnership agreement should explain what type of partnership the parties are agreeing to. This can include general, limited, or limited liability partnerships. In general partnerships, the partners are jointly liable for debts. In limited partnerships, one or more partners are not liable for partnership debts; however, even in limited partnerships, there must be at least one general partner. In a limited liability partnership, each partner’s liability is limited to what they are contributing to the business venture.
This section should detail what percentage of ownership each partner holds. In the event that one partner wishes to transfer ownership of their part of the business to another partner, describing what provisions are in place to do so can be beneficial.
Management
It is essential to clearly indicate management and preferred processes for decision-making for each partner involved in this. Which partners are involved in making decisions? Are there any limitations on the authority of each partner? These are the sorts of questions that should be addressed in this section.
Capital contributions
A capital contributions section specifies the initial capital of each partner, while also detailing commitments for additional capital contributions moving forward. A payment schedule for initial and additional contributions should likewise be specified.
Profits and losses and compensation
A profits and losses section of a partnership agreement indicates how profits and losses will be shared by the partners. The profits section should detail how this will happen, whether by percentage or priority distribution, or a combination thereof. A losses section should likewise document how losses will be shared.
Similarly, compensation should be indicated, including any salaries for the partners’ services to the business partnership.
Dissolution
A dissolution section describes what might lead to the end of the partnership. This can include a set time frame, by mutual agreement of partners, or the death of a partner, among other reasons. This section outlines how the partnership will be ended, assets distributed, and how various debts and liabilities will be shared or settled to end the partnership.
Confidentiality and non-compete clauses
It is customary to include a confidentiality statement where partners agree to protect particular information relating to trade secrets or other proprietary information.
Additionally, non-compete clauses are often included, particularly in the event a partner leaves or wishes to start something on the side. This should be detailed to outline particular restrictions to prevent partners (or former partners) from competing with the partnership or soliciting the partnership’s clients. There is often a timeframe given for this non-compete section.
Dispute resolution
This section specifies how disputes will be resolved, including by arbitration, mediation, or litigation.
These are some of the most important aspects of a partnership agreement, which protects the partners and their interests. Having a well-drafted agreement, with attention to the specific laws in the country in which the partnership is taking place, can help launch a healthy and mutually beneficial partnership in the most effective way possible.
Contact Us
Our law office specializes in Israeli commercial and contract law, among other areas, and we have numerous articles on this topic on our website. If you would like help drawing up your partnership agreement in Israel, please contact us.
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