Securities, Equity and Stakeholders in Israel
What constitutes the financial assets of an Israeli company? What are securities? What are dividends? How does a company allocate them?
Our law office has experts on all areas of corporate law and can best guide you how to establish and operate your company. In this article, we will explain the basic financial terms relevant to Israeli corporations.
Securities
Securities are any documents of value that a company issues. These can include shares, bonds and options, which are financial derivatives entitling the buyer to buy or sell an underlying asset at an agreed upon price and date. Taking advantage of options is optional, not obligatory.
Shares
Shares are units of representative ownership by a shareholder in a company and their accruing rights are governed by statute and the company’s bylaws. A shareholder is someone who is registered as such in the registrar of shareholders of a company and has equity in the company, meaning representative ownership of the net difference between the company’s assets and liabilities.
Shares ascribe rights to partake in distribution of the company’s dividends, to direct the actions of the company through shareholder voting in the general assembly and to a portion of the company’s assets upon its dissolution, all relative to the representative ownership of the company’s shares.
The company may create different classes and types of shares in its bylaws. Owners of these shares will have voting rights in assemblies representative of ownership of such shares, in addition to those which are shared by all shareholders in the general assembly.
Dividends
Dividends are any assets or financial amounts granted by the company to its shareholders which accrue to them through ownership of the shares. Dividends can include cash and other types of allocations. Dividends are paid through the distribution of company profits among its shareholders.
Bonds
A bond is a document issued by the company which attests to a financial obligation it has assumed and it defines its terms. It entitles the bond owner to repayment of the company debt with the accumulation of interest. Bonds are issued as a means for the company to raise money from the public.
Secured Bonds
In a secured bond, the company encumbers its assets for the benefit of third parties as security for a loan. A lien would be an example. A secured creditor in possession of a secured bond will have preferential rights to repayment of company assets upon dissolution of the company over those of other creditors.
Registered share capital
Registered share capital (or its nominal value) represents the maximum number of shares that the bylaws permit it to issue to its shareholders. There is no requirement that a company allocate all of its shares. If the shareholders wish, such as in a case of the company wanting to attract new investors, they may adopt a general assembly vote to increase the registered share capital.
Issued share capital
The issued share capital represents the actual number of shares or their nominal value which were issued to shareholders from the registered capital. The company may only issue shares which do not exceed the registered share capital. When it comes to the issued share capital, the shareholders and board of directors have disparate roles. The former, through adoption of a general assembly resolution, may increase or decrease the registered share capital. In contrast, the latter may issue shares not to exceed the registered share capital.
Nominal value
Every share bears a numerical value reflecting the relative ownership in the company it accords its owner based on the issued share capital. Thus, if the total issued share capital of a company equals 1,000 NIS, and a shareholder is in possession of 100 shares at 5 NIS each, then he will have ownership of 50 percent of the company.
The nominal value solely reflects the relative ownership of its shareholders in the company and is not representative of the commercial value of the shares. Economic factors are what drive the commercial prices of shares, not their nominal value.
Distribution
Distribution is the process by which dividends are allocated to the company’s shareholders or the shares are acquired either by the company or an affiliate. It is through the process of distribution that company capital is allocated to its shareholders, either directly or indirectly, and this will, therefore, be subject to rules put in place to ensure that the company’s creditors are not disenfranchised. A company may add to the stringency of these statutory safeguards, but not deviate from them and must adhere to them for the allocation to be permissible. As a rule, a company may only allocate dividends from its profit margin so as not to hinder its ability to repay its creditors.
:
:מאמרים מומלצים