Transatlantic Management: Establishing and Managing American Israeli Companies

Transcription

1 Transatlantic Management: Establishing and Managing American Israeli Companies Edward Best May 2007 BERLIN BRUSSELS CHARLOTTE CHICAGO COLOGNE FRANKFURT HONG KONG HOUSTON LONDON LOS ANGELES NEW YORK PALO ALTO PARIS WASHINGTON DC

2 Establishing and Managing American Israeli Companies Registration and Licensing in the U.S. Initial Choice of Business Entity Choice of Jurisdiction Changes Over Time

3 Registration and Licensing in the U.S. Generally, no registration or licensing is required to do business in the United States Generally, there are no restriction on remittance of profits, dividends, interest, royalties or fees to nonresidents.

4 Registration and Licensing in the U.S. Registration or licensing may be required depending on the type of business being conducted Pharmaceuticals and food Financial services Telecommunications and broadcasting Energy Transportation and shipping Registration or licensing may be required depending on the type of business being conducted Local laws may require operating permits Competition filings may be required in connection with acquisitions Securities filings may be required in connection with sales of securities

5 Registration and Licensing in the U.S. Defense Related Businesses Exon-Florio POTUS may halt or rescind acquisitions by foreign acquirers of U.S. companies where the acquisition would threaten to impair the national security. Voluntary notification Review by Committee on Foreign Investment in the United States Within 30 days of notice, CFIUS determines whether to investigate CFIUS has 45 additional days to investigate POTUS has 15 days to decide

6 Registration and Licensing in the U.S. Defense Related Businesses National Industrial Security Program Companies performing classified work must obtain permission of DoD As a general rule, companies cannot obtain clearance if under foreign ownership, control, or influence ("FOCI"). DoD may deem a company to be under FOCI if a "reasonable basis exists to conclude that the nature and extent of [foreign ownership, control, or influence] is such that foreign dominance over the management or operations of the facility may result in the compromise of classified information or impact adversely the performance of classified contracts." As a practical matter, ownership by foreign interests as small as 5 percent, contracts with, or indebtedness to, foreign interests, and management positions held by foreign persons, may trigger the scrutiny of the DSS Voting trust agreements and proxy agreements whereby foreign owners grant voting control to U.S. citizens areoften used to comply with DSS requirements

7 Registration and Licensing in the U.S. Exchange Controls While generally there are no restriction on remittance of profits, dividends, interest, royalties or fees to non-residents, payments are subject to: Sanction and embargo laws OFAC

8 Initial Choice of Business Entity Principal forms Corporation Limited liability company General partnership Limited partnership Branch Joint venture

9 Initial Choice of Business Entity Considerations Taxation Limitation of liability Flexibility for capital raising Flexibility for management

10 Initial Choice of Business Entity Taxation Corporations are generally treated as separate legal entities and therefore subject to taxation Maximum Federal rate is 35% for corporations Limited liability companies and partnerships (limited and general) are generally disregarded for Federal income tax purposes Not always for state tax purposes Branches are not separate legal entities but are subject to 30% tax on profits Joint ventures are not separate legal entities and are generally not subject to taxation

11 Initial Choice of Business Entity Limitation of liability Liability of stockholders of corporations is generally limited to invested capital piercing corporate veil Some exceptions Liability of members of limited liability companies and limited partner of limited partnerships is generally limited to invested capital Liability of general partners of limited and general partnerships is generally unlimited

12 Initial Choice of Business Entity Flexibility for capital raising Corporations may generally issue multiple classes of stock with varying economic rights and preferences and may incur debt Limited liability companies may generally issue multiple classes of membership interests with varying economic rights and preferences and may incur debt General partnerships are more limited in the classes of partnership interests they may issue but may incur debt Limited partnerships may generally issue multiple classes of partnership interests with varying economic rights and preferences and may incur debt Economic rights of joint venture partners are governed by contract and can be very flexible though ability of joint venture to incur debt may be limited

13 Initial Choice of Business Entity Flexibility for management Management of corporations may be tailored through charter, by-law and stock provisions as well as by contract among stockholders Management of limited liability companies may be tailored in operating agreement Management of general partnerships may be tailored in partnership agreement Management of limited partnerships is generally vested in general partners and limited partners are limited in rights they may have as limited partners Management rights of joint venture partners are governed by contract

14 Choice of Jurisdiction Most legal entities are formed in Delaware Delaware's laws governing business entities are regularly reviewed and updated, with input by Delaware lawyers Delaware has a well-developed body of relevant judicial case law providing a greater degree of certainty and predictability Delaware Court of Chancery specializes in business cases Delaware secretary of state is very easy to use, including expedited document filing and processing and remote access to service companies Other common jurisdictions Nevada No state tax on corporate profits, no state annual franchise tax, and no state personal income tax. Higher fees State of residence

15 Choice of Jurisdiction Delaware vs. Israeli Corporate Law Charter Provisions Israeli law permits greater flexibility in corporate charter individual shareholders may have special rights limitations on transfer generally allowed appointment of directors may be done in any manner specified alternate directors allowed Delaware law is less flexible all shareholders of same class must have the same rights restrictions on transfer more limited directors are elected by shareholders at meetings or by consent alternate directors not allowed

16 Choice of Jurisdiction Delaware vs. Israeli Corporate Law Reporting Requirements Directors and Shareholders Israeli companies are required to register with the Companies Register (i) the name and address of each of its shareholders and the number and class of shares each holds and (ii) the name and address of each director. Information is publicly available. Delaware companies are not required to report any of this information under Delaware law Reporting Requirements Financial statements Israeli companies are required to file annual financial statements with the Companies Register Delaware companies are only required to report minimal equity information

17 Choice of Jurisdiction Delaware vs. Israeli Corporate Law Reporting Requirements Flexibility of capital Israeli companies may distribute dividends or capital only out of current profits and may repurchase stock only to the extent of current profits and retained earnings. Delaware companies may declare dividends out of surplus (the excess of net assets over capital) or out of net profits for the current fiscal year and/or the preceding fiscal year and may repurchase shares unless the repurchase would cause an impairment of the capital of the corporation

18 Choice of Jurisdiction Delaware vs. Israeli Corporate Law Acquisition of control Israel Majority of minority provision Secured creditors have objection rights If an offeror obtains more than 95% but less than 100% of the shares of an Israeli company in a tender, all remaining shares must be tendered If an offeror obtains more than 90% but less than 95% of the shares of an Israeli company in a tender, offeror may not purchase more than 90%

19 Choice of Jurisdiction Delaware vs. Israeli Corporate Law Acquisition of control Delaware DGCL 203 prohibits business combinations, including mergers, sales of assets and issuances of securities with an interested stockholder who beneficially owns 15 percent or more of target s voting stock, within three years after the person becomes an interested stockholder, unless: the transaction that will cause the person to become an interested stockholder is approved by the target board of directors prior to the transaction, after the completion of the transaction in which the person becomes an interested stockholder, the interested stockholder holds at least 85% of the voting stock of the corporation, or after the person becomes an interested stockholder, the business combination is approved by the board of directors and holders of at least 66 2/3% of the outstanding voting stock, excluding shares held by the interested stockholder. Delaware corporation may opt out of DGCL 203

20 Changes Over Time As company progresses, its corporate form and structure generally evolves IPO generally requires corporate form IPO generally requires simplified corporate structure