Newsletter 58 – May 15 2016

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We are pleased to present another edition of our periodic newsletter. In this edition we provide a brief synopsis of recent developments in Israeli corporate law affecting both private and public companies, including a judgment involving representations in investment agreements and an amendment to the Israeli Tax Ordinance that affects the tax rate for certain shares received by controlling shareholders upon the exercise of employee stock options.

Our newsletter is intended to create awareness of important practical developments in Israeli corporate and commercial law, and the principles of law upon which these issues are based. We hope that you will find our newsletter informative and helpful, and your comments or suggestions are appreciated.

If you would like further information or have any questions concerning the issues discussed in this newsletter, please contact either Yoram Shiv, 972-3-607-4777,, or Alex Berman, 972-3-607-4777,

Sharir, Shiv & Co., Law Offices


District Court of Tel Aviv / Representation not included in an Investment Agreement does not Create a Right of Action

The Economic Division of the District Court of Tel Aviv (“Court”) recently dismissed a claim to cancel an investment agreement (“Agreement”) on the basis of false representations by the company and the controlling shareholder.

The plaintiff, who had invested millions of dollars in the Company prior to the Company’s collapse, alleged that during the parties’ negotiations the controlling shareholder had made false representations to the plaintiff and had delivered misleading economic forecasts. The defendants noted that these allegedly false representations were not included in the Agreement itself, and that the Agreement included a “No Other Representation” clause that provided that the only representations binding on the parties were those included in the written Agreement. Therefore, the defendants argued, the representations at issue were not binding on the parties.

The Court accepted the defendants’ argument and dismissed the plaintiff’s claim. The Court held that from the language of the Agreement it was clear that the intent of the parties was that only those representations specifically included in the Agreement were binding, and that the Court was not prepared to retroactively add representations to the Agreement that had not been agreed upon by the parties.

The Court added that its decision to follow the plain wording of the Agreement was influenced by the plaintiff’s experience and sophistication, explaining that the presumption is that an experienced and sophisticated party will insist on the inclusion of all relevant representations, and when a representation is absent, it is generally due to the distribution of risk between the parties and is reflected in the transaction’s financial terms.

Legislative Amendment / Tax Benefits for Controlling Shareholders of R&D Companies that will be Undergoing an IPO in Israel

As part of a series of incentives designed to encourage IPOs in Israel of R&D companies, Section 102 of the Israeli Income Tax Ordinance (“Section 102”) has been amended (“Amendment”). The Amendment enables employees of Israeli R&D companies that are also controlling shareholders to enjoy lower tax rates with respect to shares received through the exercise of employee stock options (“Securities”) provided that specific conditions are met, including that the employing company will be registered on the Tel Aviv Stock Exchange (“TASE”) for the first time between 1 July 2016 and 30 June 2019 inclusive (“Amendment Period”).

Prior to the Amendment, under Section 102 employees could enjoy a tax rate of 25% with respect to Securities, unless they were also controlling shareholders in which case a higher tax rate generally applied. The Amendment clarifies that for the purpose of Section 102, the term “controlling shareholder” in a research and development company that will be listed on the TASE within the Amendment Period (and meets several other criteria) is deemed not to include an employee in such same company, to the extent that a Security was granted in the context of the employee’s employer-employee relationship. This effectively provides the controlling shareholder with the same tax benefits available to other employees.


This newsletter provides general information and should not be used or taken as legal advice for specific situations, which depends on the evaluation of precise factual circumstances.