For many small businesses around the world, crowdfunding –
the pooling of usually small investments from a large group of
investors – facilitates the ability to start a business
without large institutional investments in the company. The
portfolio of crowdfunding investors is diverse and is comprised of
a broad array of ROIs (returns on investment). Investors may be
donating to a specific cause, seeking repayment with interest or
claiming equity in the company.
In the past year, Israel has loosened some of its regulatory
impediments which existed under the Israeli Securities Law and
regulations in order to enable and promote crowdfunding as a viable
investment alternative for startups and small businesses. Under the
new regulatory regime, investors can now come together to help fund
companies in the startup nation, without the offer by the
company to potential investors being deemed an Initial Public
The Israeli Legal Update
Crowdfunding has long been difficult to do in Israel. Section 15
of the Israeli Securities Law required until recently that the
Securities Authority approve a prospectus for any offer of shares
to more than 35 investors. This process made investment onerous for
startups unable to access funds from venture capital funds and
large financial institutions.
In late 2015, Israel enacted its new Law for the Encouragement
of Investment in High Tech Companies. This new law is actually an
amendment to the Securities Law. It provides an exception for
small investments, thus clearing the way for crowdfunding to occur
without the prospectus requirement. It allows for tradeable venture
capital funds to be created, which should further encourage group
investments in new and emerging companies.
The law also encourages startups to remain in Israel by making
local funds more available; companies that may otherwise have sold
or moved to more funding-friendly locations now have fewer
incentives to leave.
Crowdfunding Boosts in Israel
As with any financing structure, investors and companies who
wish to invest or raise funds through crowdfunding need to take the
time to understand the legal and commercial implications of this
financing tool before diving in. Crowdfunding in Israel still
requires at least one accredited investor to participate in a fund.
The idea of a completely deregulated funding scheme has not yet
taken hold. Furthermore, investors need to remember that, in a
crowdfunding scenario, they may have limited rights compared to
other investment routes.
Since the latest regulatory changes, a significant increase in
crowdfunding investments has already taken place.
In 2014, the aggregate investments through crowdfunding
worldwide amounted to USD 10 billion. This number grew by 350% in
2015 and reached a staggering USD 35 billion.
We have seen a dramatic increase in Israel as well during this
period and expect to see these numbers increase in Israel and
worldwide as the regulatory barriers which currently exists are
Originally published November 30, 2016
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
In practice, the annual return is prepared soon after the annual general meeting at which the accounts are presented.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).