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Adv. Yuval Lazi
Today's world holds more cybersecurity threats every day than it did the day before. Expert estimate that Israel faces 100,000 cyber-attacks every day, and 10 times that amount in wartime. Given the constant threat against businesses and the government, Israel's national focus on fostering cybersecurity technology and growth seems almost obvious. But sometimes, the needs of businesses in a global economy clash with national interests. Navigating a path that takes both into account requires a thoughtful approach from government and the private sector. Israel's Cybersecurity NeedsOne key difficulty of cybersecurity comes in the exponential expansion of the world's connectedness. The Internet of Things creates opportunities for consumers to connect to information in more ways every day, and Israel has taken a leadership position in its growth. But this area also creates some of the greatest security risks for information. Israel and other developed nations must constantly examine and re-examine the vulnerabilities of the information network and find ways to combat them. In addition, countries have an interest in protecting the cybersecurity techniques they develop from other countries whose interests may not fully align with their own. This is where conflicts arise; successful businesses grow and expand beyond national borders, so the exporting of cybersecurity capabilities can be simultaneously a business necessity and a national concern. Legal Landscape for Cybersecurity BusinessIn Israel, a proposed regulation would have subjected all cyber exports in four distinct areas: intrusion software, vulnerability detection, defense technology, and advanced forensics. After careful consideration and listening to the concerns of the industry, the government pulled back and will only be supervising offensive cyber technology being exported. The industry representatives feel confident their concerns have been addressed, with a balance struck to allow defensive technology to be shared outside of the country. This represents a key moment in the examination of disparate needs between the government and the private sector. Still, the legal and regulatory ground for cybersecurity in and outside of Israel will never fully settle. Technology continues to develop, and the law will continue to respond to the new realities of the day. Working with effective counsel remains critical to managing change and staying abreast of the changes that occur daily. Source: barlaw.co.il
Adv. Gal Oren
Israel has for years led the world in technology and entrepreneurial growth and development. After building in a number of key tech areas like cyber security and biotech, the nation has turned its sights on bolstering capabilities in renewable energy. Recently, the Israeli government announced a new initiative focused on pushing development of renewable energy into the 21st century. This creates a prime opportunity, for Israel's energy companies and for investors looking to become part of this growth in the years ahead. Sources of Renewable Energy in IsraelIsrael receives a great deal of sun, and Tel Aviv University's Center for Renewable Energy estimates that covering merely eight percent of the Negev Desert with solar panels could supply all of Israel's energy needs. To make this work, Israel needs the benefit of technology to maximize production of electricity converted from solar sources, efficiently store solar energy, along with infrastructure changes to allow better transmission of solar power across the country. This leads to ever increasing amount of people working to develop these technologies to improve its renewable energy capabilities.  The Opportunity EmergingAs of this time last year, 2.6 percent of Israel's energy was produced from renewable sources. Given the amount of solar energy available to be harvested, this creates tremendous growth opportunities in this field. In fact, the Electric Authority recently issued a the first tender out of four that are scheduled to take place this year for solar generation, and announced on March 2017 its first round winners, which committed collectively to almost 235 megawatts of electric generation within the scope of 300 megawatts allocated to this tender and overall scope of over 1,000 megawatts for all four tenders scheduled this year. Beyond creating opportunity for the companies building the facilities, this new focus on solar generation can create a boom for technology start-ups and established companies that develop mechanisms for more effectively storing and transferring solar energy. If you're ready to build or invest in this growth opportunity, the Ministry has developed a regulatory structure for which you should be prepared. Barnea & Co. can help you understand and move through the system to get your company or investment working efficiently and legally. Source: barlaw.co.il
Adv. Lorber Daniel
Within a nation exceeding 8.5 million people, Israel is a world leader in technology and innovation, consistently producing an impressive number of tech startups. From drone technology and ride sharing applications, to unique online shopping platforms and breakthrough technologies in the field of life science, Israel’s tech companies cover a myriad of fields. It therefore comes as no surprise that Chinese investors are eager to delve into the countless possibilities, which stem from the advancement of Israeli tech companies. In 2015, Chinese investments in Israeli startups exceeded $500 million, unveiling a growth of more than 300 percent from 2012. Throughout 2016, significant conferences were held in order to introduce prospective Chinese investors to Israeli tech companies. In January 2016, a China-Israel Innovation Summit was held in Beijing, where hundreds of Chinese Investors attended, in order to meet various Israeli tech companies, with the potential for large investments. The Summit acts as a mediator between Chinese investors and Israeli tech companies. In light of the success of the January conference, a subsequent conference was held in September 2016 in Tel Aviv, where over 300 Israeli high-tech companies presented their ideas to 2,300 Chinese investors. In addition, in September 2016, a conference was held in Shanghai, where 100 Israeli high-tech and startup companies participated, joined by 1000 Chinese investors. Among the various investor companies, Alibaba, Baidu, Lenovo, SAIF Partners, GF Xinde and many more, joined the event. One of the conference’s partners was the ‘China-Israel Changzhou Innovation Park’, a bi-national government initiative, which has become a tech-hub for large Israeli tech companies to use as a means for penetrating the Chinese market. In recent years, Chinese investors have shown specific interest in the fields of life science, pharma, medical devices, agrotech, Fintech and e-commerce. Prominent examples of Chinese investments in these fields include, inter alia, the sale of cCam Biotherapeutics for approx. USD605 million and the acquisition by ChemChina of Adama Agriculture Solutions (and its subsequent sale to a fully owned subsidiary, Hubei Sanonda Co. Ltd.). In addition to the various Chinese investments in Israeli companies, China has reaped the benefits of Israeli companies operating in China. For example, Israeli-Chinese private equity firm Infinity Group and Neusoft Corporation have approved the establishment of a $250 million investment to back Israeli life science companies operating in China. Neusoft Corporation is China’s largest IT Corporation, holding a 50% share of the medical market in China. This fund will assist Israeli medical companies to connect with the Chinese market through the integration of cloud-based platforms, which assists Israeli life science companies with regulatory approvals and product promotion in China. Furthermore, Israeli entrepreneurs are highly sought after in China, predominantly in the fields of mobile and web technologies, gaming, cleantech, agrotech and digital health, which all go hand in hand with Israeli high-tech expertise. As with any investment in a different country, Chinese investors have had to deal with the prevalent challenges of investing in Israel’s tech companies. Aside from the language barrier, the differences between the Israeli and Chinese cultures have been a challenging stepping stone for Chinese Investors. For example, within Israeli culture, companies prefer transactions to be quick and efficient, while Chinese companies are patient with a more tolerant approach. In addition, there are numerous rules and regulations to be followed in China, while Israeli companies strive for instantaneous completion of contracts and agreements. This bridge is a test to the relationship between Chinese investors and Israeli tech companies. Regardless of the challenges facing Chinese investors in Israeli tech companies, these increasing investments and acquisitions allow for limitless possibilities in relation to research, development, marketing and expansion of the Israeli tech world. The evolving relationship between China and Israel demonstrates a promising future for Israeli companies and startups. Source: barlaw.co.il
Adv. Dreyfuss Ariella
The speed in which vast and complex “bits” can now be processed is staggering. This information is being collected, stored and analyzed to drive efficiency and create actionable intelligence – translating into increased revenues. In short, in today’s world data is power.   For those engaged in technologies that collect data sets and use Machine Learning and Deep Learning techniques, there are a minefield of legal issues to avoid. PrivacyPrivacy, has long been established as a right, and despite popular belief it is not dead (yet). An individual’s consent is usually required before Personally Identifiable Information (PII) about him or her can be stored, used or shared. However, one of the main hurdles for those who collect data is that such information is often amassed from across the globe. Crawlers and scrapers are being employed to scour data from all over the web, but different jurisdictions have different laws, regulations and interpretations. What constitutes PII or consent in one country may not be the same in the next. These laws are also evolving, for example Israel’s Protection of Privacy Law, (1981), is soon to be bolstered by the Protection of Privacy Regulations (Data Security) 2017 (the Regulations) which come into force in March 2018, and the new European General Data Protection Regulations (GDPR) come into force in May 2018. In addition, different sectors such as banking and healthcare have their own privacy provisions. The breadth of laws to consider poses a serious challenge for those engaged in Big Data. Not only do we usually have the right to object to our data being collected, in certain circumstances we also have the right of erasure (AKA the right to be forgotten), and can demand that our information be deleted at a later stage. This means that companies that hold PII need to ensure they have the ability to locate and erase such information further down the line. Many jurisdictions require the holder of data to register a database with the local privacy regulator – in Israel the Israeli Law, Information and Technology Authority (ILITA). Given the value of data it is unsurprising that the news is full of stories of database hackings. Under the Regulations, Database Owners are required to immediately notify the ILITA and, in some instances, data subjects upon serious security breaches. While this increases transparency, it also increases exposure to litigation and class actions, and can be a PR nightmare. Accordingly, the security concerns around PII should not be trivialized.  A popular way of avoiding these privacy mines is to anonymize and aggregate all data obtained and store as little of it as possible. With both the GDPR and Regulations coming into force early next year, the former carrying significant fines (the maximum being the greater of €20million or 4% of the total worldwide annual turnover for the preceding financial year) and the latter carrying civil and criminal liability, anyone engaged in Big Data in Israel should be taking steps to mitigate risks and ensure compliance.  OwnershipEnterprises understand that although data is power, holding it tight to their chest is not always the best way to leverage it and realize its economic potential; so such information is often shared with third parties. Take the autonomous driving space for example, car manufacturers such as BMW may share data garnered pertaining to vehicle performance and driver safety and behavior with the OEMs developing their cars’ autonomous driving capabilities. These OEMs may then combine BMW’s information with their existing data sources and/or create a Deep Learning model based on BMW’s information to achieve this goal. The question then arises as to who owns what in the co-mingled data or the conclusions derived from the model. Data is usually protected by copyright laws, but when it is shared it is paramount to clearly and contractually define each party’s rights and obligations, including ownership, scope of license, confidentiality, limitation on liability and consequences of termination of the relationship. CompetitionData is being seen less as a byproduct and more and more as an asset in and of itself. Some recent acquisitions clearly suggest that the potential of the target to acquire data can be the driving force behind the deal. Think of Microsoft’s $26 billion purchase of LinkedIn last year, which brought it an enormous amount of data about users’ work, skills and interests. If data is indeed power and can be used to suppress competition, then legislators and anti trust regulators will soon sit up and reconsider how they calculate market power and categorize restrictive trade practices, affecting how data companies behave and current relationships. DiscriminationAlgorithms dissect data and spew out conclusions. Allegedly this enhances our ability to make evidence-based decisions and avoid human bias. However, an algorithm is only as impartial as its author or the data sets it works with. There have been various high profile instances of technology discriminating, for example Google Photos tagged several African-American users as gorillas (experts say this was probably due to insufficient representation of African-Americans in the database used to train the computer vision algorithm), and Microsoft’s artificial intelligence bot “Tay”, designed to learn from the behaviors of Twitter users, went rogue last year after processing racist tweets. There are a plethora of laws prohibiting discrimination and in the event your algorithm falls foul of these, reliance on raw data rather than intent will not absolve you of liability. With the proliferation of Big Data in the last few years, the role that data is playing in replacing human decision making and the move towards a connected world, I am sure we have not heard the last word from our legislators and regulators, and the legal landscape on which businesses are being built will continue to shift. For those engaged in Big Data even in today’s legal world, you better be careful where you tread. “Originally published on the Dun's 100 website”
Adv. Yuval Lazi
The life sciences are advancing at dramatic rates in capabilities and goals. For most of human existence, we have been trying to keep up with the path of diseases as they emerge. Now, we are starting to push more toward prevention and improvement of life in a forward-looking manner. Israel sits at the front of the developmental curve, with over 1,200 active life sciences companies. With its national innovative drive and start-up mentality, Israel provides fertile ground for growth in the sector. Why Life Sciences Are GrowingThe growth in this sector comes as more scientists recognize the direction companies take needs to change. Much of the research in the area has come in academia, which develops information well but limits the practical development that comes more through entrepreneurial action. One big shift Israeli companies are showing is the push to develop technology for how people actually behave, rather than how a hypothetical person would act in an ideal world. Integrity Applications, Inc., for example, has developed technology in its GlocoTrack system to measure blood glucose without a finger prick, thus reducing human error and time lag issues in measurement.  Israeli companies are also attacking some of the biggest health challenges in the world. CureTech, for example, is working on ways to harness the immune system to fight cancer, while Teva works on Parkinson’s disease, cancer, and a host of other health concerns. The overriding theme is using research and development in the private sector to combat real problems that people face everywhere. Israeli Funding for Life SciencesIn 2016, investments in life sciences companies in Israel increased by 42% over 2015, though the total amount of investment declined. More significantly, the mergers and acquisitions for life sciences company increased almost tenfold from 2015, a sign of an economy maturing and companies growing in the industry. As companies continue to push toward the future, Israel provides a friendly structure for companies to not only get started with funding, but to grow into entities that can change the world. Understanding in the life sciences field is still scratching the surface of what we can achieve, but investing and developing in Israel continues to push the standard forward. Barnea & Co. can help you work through the legal and regulatory path to setting up so you can do your part to change the world. Source: barlaw.co.il
Adv.Wolner Alon
Urban renewal construction projects, known in Israel either as an NOP 38/1 project (retrofit and renovate), or as an NOP 38/2 project (demolish and reconstruct) began in Israel as a result of the realization that residential buildings whose building permits predate 1.1.1980 must undergo earthquake retrofitting. The mechanism that was devised provides various incentives, both to interested apartment-owners in relevant buildings and to various developers, to engage in an agreement for an NOP project. However, ever since these national outline plans were approved, apartment-owners and developers have been encountering numerous internal and external obstacles that are preventing these projects from being carried out. There are numerous reasons why many projects are not even reaching the performance stage, despite the investment of considerable time and resources and despite the fact that the relevant agreements were signed. Many times, apartment-owners find themselves unable to extricate themselves from the agreements they signed with the developer, and end up wasting years trying to make some progress on the project, without success. Therefore, we’ve selected five important tips when engaging in an NOP 38 project: Exclusivity agreement with the developerAs a rule, you should avoid giving exclusivity to any particular developer and should negotiate with a number of prospective developers, although there are circumstances where a developer will insist on exclusivity before it expends substantial amounts of money and time in carrying out certain pre-project operations. If you sign an exclusivity agreement, it is very important to limit it to a defined date, after which, the exclusivity agreement will be nullified. To learn more, read the important provisions in the Urban Renewal Law, which came into effect recently. Suspensive conditionsThe question of whether an NOP project will reach the performance stages depends, to a great extent, on the suspensive conditions in the agreement. The most prevalent suspensive conditions are: obtaining the signatures of the requisite majority of the apartment-owners on the NOP agreement, and obtaining a building permit at the volume of building rights that are needed for the project. It is extremely important to set detailed timetables for the fulfillment of the suspensive conditions. The objective is to avoid unreasonable delays or a total freeze on the project without any ability to terminate the NOP agreement. The consideration to the apartment-ownersDue to the nature of this type of transaction, and in order to avoid future disputes, you should be especially careful during the stage of your commercial negotiations with the developer in relation to the precise consideration that the developer and each of the apartment-owners in the building expect to receive, and you should explicitly specify the consideration to each of the parties, to the extent possible, in the agreement between the parties. You should specify the floor and the directions of the new apartments to be built for the apartment-owners, carefully prepare the apartment specifications, define the order of selecting the new parking spaces and storage rooms, and stipulate the precise distribution of the existing and future building rights between the developer and any or all of the apartment-owners. Another important, fundamental rule in an NOP project is the absence of discrimination between one apartment-owner and another; therefore, if the consideration is not being equally divided, the division should be balanced, and it is possible and recommended to hire a real-estate appraiser for this purpose. GuaranteesThe guarantees are the main securities to apartment-owners in NOP 38 projects:Sale Law guarantees (for a demolish and reconstruct project) – make sure that you receive guarantees pursuant to the Sale Law, according to the value of the apartments as finished, with the value being determined according to the project’s zero report (financial feasibility report), while enabling the tenants to appoint an appraiser on their behalf, at the developer’s expense, to determine the value, and whose determination will be final and binding.Performance guarantee (for a retrofit and renovate project) – which is an autonomous bank guarantee. If at issue is a project with bank financing, the guarantee should cover the entire value of all works, with the sum to be determined according to the inspector, which is usually issued shortly before receiving a building permit for the project. It is important to note that the apartment-owners can use this guarantee for any purpose, without limitation and at their sole discretion, due to the very wide variety of payments that will be required in the event of a need to exercise the performance guarantee. It is also important to demand a guarantee from the developer to cover repairs during the warranty period, a guarantee to ensure the registration or amended registration of the condominium building, as well as a guarantee for tax payments and a guarantee for rent payments (mainly in a demolish and reconstruct project). RentFor an NOP demolish and reconstruct project, the rent payments are a compulsory, integral part of the consideration being paid to the apartment-owners, since they are vacating their apartments for the purpose of carrying out the project. It is important to obligate the developer to give sufficient notice about vacating of the apartments, after a lien has been registered in favor of the project’s lending bank. You should demand to receive a guarantee for the payment of rent, at the full extent of the rent for each of the apartment-owners for the entire duration of the construction period and, parallel to this, to demand that the moving costs from the existing apartment and the costs for moving back in to the new apartment once construction has been completed (moving and packing expenses, etc.) will apply to the developer. For the most part, apartment-owners who continue to reside in their apartments during the performance of an NOP retrofit and renovate project suffer considerably during the construction, inter alia, from noise and dirt nuisances, from the blocking of sunlight, from the blocking of access paths to the building and to their apartments, etc. It is important to take this into account, and to retain your option to vacate your apartment at any time should you decide to do so, by obligating the developer to pay your rent and issue you a guarantee to cover these rent payments. In closing, it is important to add that you should make sure that you select suitable consultants on your behalf for the project – architect, inspector, real-estate appraiser and an attorney, who are tasked with pushing the project forward, each within his purview, while representing you, protecting your interests, ensuring your rights and avoiding any undesirable complications. One last thing – demand that the developer pay the aforesaid consultants’ fees. Good luck!
Adv. Noa Havdala
Insolvency proceedings are an integral part of business-commercial activities, in circumstances whereby a person or corporation might need to institute proceedings to rehabilitate its business activities or even to liquidate the company. Insolvency reflects a factual situation in which a debtor (person or corporation) encounters economic and cash flow difficulties to the extent that the debtor is incapable of paying its debts to creditors on time. Insolvency proceedings seek to implement a fair and proper distribution of the remaining resources of the debtor (person or corporation) among the various creditors; during insolvency proceedings, the court considers the creditors’ different interests, including maximizing the disposition of the debtor’s resources; ensuring proper employment of the business’  employees; minimizing the burden on the public taxpayers; taking care of the business’  customers; taking care of suppliers that are dependent upon the business (particularly in the instance of rehabilitation and recovery); and providing assistance to shareholders in small and medium-sized businesses. During insolvency proceedings, a differentiation is made between debtors who are private individuals and debtors that are corporations (including companies). When at issue is a private individual, the court considers critical issues, such as whether lawsuits have been filed against the debtor (including execution proceedings) and whether additional debts exist beyond the debts that are the subject of the legal proceedings. Thus for example: in the instance whereby a number of execution proceedings have been filed against a debtor, the debtor may arrive at an arrangement whereby the cases are consolidated and his debt repayments are scheduled in installments but, naturally, the debt scheduling does not take into account any debts not covered by the execution proceedings. Therefore, when at issue is a debtor who is a private individual desiring to arrange all of his debts, he must conduct negotiations with his creditors and, subsequently, he must file a motion with the court petitioning for approval of a compromise or settlement proposal with his creditors according to the provisions prescribed in the Bankruptcy Ordinance [New Version], 5740 – 1980. When at issue is a company that is facing insolvency due to economic and cash flow difficulties, it has two options:Stay of proceedings pending the filing disposition of a motion and rehabilitation proceedingsA company that faces insolvency may petition the court to enable it to institute rehabilitation and recovery proceedings by way of preparing a recovery plan and debt rescheduling (in the manner prescribed in section 350 of the Companies Law, 5759 – 1999). A motion for business rehabilitation also depends upon a motion for a stay of proceedings, the purpose of which is to prevent creditors from filing lawsuits against the company and to freeze any legal proceeding filed against the company until the motion filing date, which gives the company time to implement its rehabilitation plan. The court will issue a stay of proceedings order only if it is convinced that there is a reasonable chance that implementing the rehabilitation plan will lead to the financial recovery of the company; a stay of proceedings order is usually limited to a timeframe ranging between a few weeks and nine months. The court also has the power to appoint a trustee or special administrator to oversee the implementation of the company’s recovery plan during the period of the stay of proceedings. The trustee’s powers are defined by the court, depending upon the circumstances that led to the company’s insolvency .Such powers often include management of the company during the period of the stay of proceedings, the waiving of onerous contracts, if necessary, and the conducting of an investigation of the circumstances that led to the company’s insolvency. Liquidation of the companyThere are instances whereby a company is facing insolvency, but any rehabilitation or recovery plan would be fruitless, or, alternatively, if there is no longer any economic justification for continuing its operation. In instances whereby at issue is an insolvent company for which there is no justification or plausible way to lead to its recovery, interested parties, including creditors and shareholders, may file motions for liquidation proceedings against the company. A liquidation proceeding is a legal proceeding that basically dissolves the existence of the legal entity of the company, first, by emptying the company of all of its economic content, and later, dissolving its existence as a legal entity. The Companies Law recognizes three types of liquidation proceedings: voluntary liquidation, voluntary liquidation under court supervision and compulsory liquidation by the court. Any funds obtained as a result of the disposal of the company’s assets will first be used to repay the company’s debts to its creditors according to the disposition rules prescribed by law (e.g the rights of secured creditors), and according to lawsuits filed by creditors. Insofar as any money remains after all creditors have been repaid, the surplus is distributed among the shareholders and equity investors of the company. Source: barlaw.co.il
Adv. Danny Boguslavsky
Israel has long been acknowledged and admired for its vibrant start-up culture, fostered through government investment and pro-business policies. Further, the national focus on business development provides a regulatory structure that protects business owners from creditors and ensures proper structure for the public – incorporation. To take advantage of the corporate structure, you need to ensure that you follow the proper registration process, and select the right corporate vehicle to fit your emerging business model. Why should start-ups incorporate?The most common corporate vehicle in Israel, and especially for start-ups, is a limited liability company. The main reasons for its popularity, and why entrepreneurs should incorporate at an early stage, are:The first and foremost reason for any individual to incorporate a company and become a shareholder thereof, is the fact that a company is a separate legal entity from its shareholders. This separation creates a “wall” between the company’s shareholders and its creditors, so that the shareholders and their private property are protected against the company’s creditors and they will not be personally liable for the company’s debts, to the extent allowed under the ‘piercing of the corporate veil’ provisions, according to law (whereby in extreme cases a shareholder can be held personally liable for the company’s debts). In addition, the shareholders cannot be obliged to pay the company's debts beyond the amount of their investment.Any early stage start-up is always seeking investors to invest in their product or idea. In exchange for their investment, the investors expect a form of guarantee in return. When operating under a company, the company can leverage its capital raising without actually giving a substantial consideration in return (such as personal guarantees) by offering the investors consideration in the form of company shares and/or share options.One of the main reasons for investors to invest in a start-up is its intellectual property. With incorporation, the IP is owned by the company and not by the founders, and the investors, who are also shareholders of a company, are the owners of the intellectual property too, in proportion to their shareholding percentages. Moreover, in the event one of the company’s founders terminates its engagement with company, the IP shall remain with the company and not with the departing founder.A start-up which wishes to expand will search for quality employees to join and can offer them benefits such as options.    For those start-ups who are or become profitable, the tax rate for companies in Israel is 24% (as of 2017), compared to the individual tax rate, which can be as high as 50%. How to incorporateBefore you can do business in Israel as a company, you must register your company with both the Registrar of Companies and the Tax Authorities, which fall within the control of the Ministry of Justice and the Ministry of Finance, respectively. When registering a company, the following steps must be taken:File an application for the company’s incorporation which includes, inter alia, the company’s suggested name, its share capital, its shareholders and their holdings, and its first directors.Draft the company’s articles of association, which governs the relationship between the company and its shareholders and between the shareholders and themselves.Pay a registration fee of NIS 2,606 (as of today). The process can feel onerous at times, but each step is important. Besides the importance of operating legally, the paperwork establishes the rules of conduct and governance both in respect of the present and going forward. This is why the incorporation procedure is critical. “Originally published on the IDC Legal Clinic website”
Adv. Michael Barnea
Distributors, agents, resellers and OEM partners all share the same commercial function of selling goods to end users. Thus, although there are significant differences between the legal statuses of each of these players, this article below treats all of them collectively as "distributors". Appointing a distributor involves significant inherent risks. The drafting of the distribution agreement may help in mitigating these risks and realizing the potential benefit of your relationship. While formulating distribution agreements you should pay special attention to the following key issues: Choose an Effective Distributor:Choosing the right entity as the distributor of your products or services is the most important point. You may appoint a distributor you happened to come across, or that appears impressive. However, you have to remember that you made the appointment so that your products will be distributed and sold. The concern is that the distributor will not act upon the appointment, and the agreement that you signed will remain “on the shelf". These situations get complicated when the distributor is granted with long term exclusivity over a territory. In such event, the concern is not only that the distributor will do nothing, but that you will not be able to appoint other, better, distributor for the same territory. Specify the Distributed Products: a distributor may be excellent for the distribution a certain product, but unsuitable to distribute other products. Therefore, it is advisable that you define the subject matter of the agreement carefully and provide an explicit reference to issues such as upgraded or updated products. For example, when you designate certain software as the products to be sold under the agreement, one could consider newer versions of the software as being covered by the exclusive rights of the distributor and another may consider them as being beyond the scope of the exclusivity (and there is no doubt as to who is the one and who is the other). Consider the Territorial Coverage: the territorial scope of your distribution agreement is not just a question of geography. For example, if exclusive rights are given for distribution of a certain product in the East Coast of the USA, it should be made clear that such rights are not infringed if the same product may enter the territory through an OEM partner, embedded in another product. You should specify precisely all the possible channels through which the product may penetrate the market and thus protect yourself from future disputes with your distributor. Include the Distributor’s Commitments: suppose that you and your distributor have set sales targets or even established minimum purchase quantities, failing which you are entitled to terminate the exclusivity or the entire agreement. In the real world, you do not get to impose these sanctions so quickly. They are often subject to long grace periods, to further conditions or to both, so that basically, they give you no real guarantee. With that being said, it is very important that you perform a due diligence on your distributor and receive a detailed business plan. Such business plan should include, at least, commitments regarding marketing expenditure and details of the human resources to be assigned to the distribution. If you add to this a proper incentive for meeting sales targets, you will acquire some confidence that you have a suitable, capable and motivated distributor in place. Beware of Exclusivity: exclusivity can be unilateral, that is, the distributor is your sole distribution channel in the market, but he may sell competing products. Similarly, you may supply your product to others, but the distributor may not sell competitors’ products. In reality, these one-sided arrangements usually do not work so that it is more advisable to conclude bilateral arrangements. In this regard, it is important to note that in many countries, exclusivity arrangements are considered anti-competitive and thus, in some cases, unlawful. Thus, it is highly advisable that you consult with an anti-trust specialist lawyer to make sure that the arrangement that you are about to enter into is not illegal. Set the Term of the Agreement: flexibility regarding termination of the distribution agreement is crucial. Take for example a case where your company is facing an acquisition and the acquirer conditions the purchase on the termination of the distribution agreement. In such event your exit is dependent on your distributor's consent to release you from the agreement. This issue also arises where "change-of-control" provisions are included, whereby your distributor may terminate the agreement upon a change of control in your entity. Thus, if your buyer's proposal depends on the continuation of your relationship with the distributor, you are at his mercy. Therefore, set definitive and short initial periods that can be extended repeatedly by mutual consent. In this way, you may not be free to end the relationship whenever you want to, but you will always be able to do so within a specified period of time. Deal with the Post-Termination Period: questions of no less importance can arise in relation to the post-termination period. Among the things you must consider are return or buy-back of remaining products, non-competition and confidentiality undertakings, commissions for transactions that are close to being concluded, continued support for the supplied products and more. Opt for Home-court Governing Law: in some cases, well defined “choice of law” provisions may impact upon the probability of disputes between the parties leading to actual litigation. In many cases, when you have a local jurisdiction clause in your agreement with a foreign distributor, your distributor will be hesitant to initiate proceedings against you. Another way to avoid proceedings is to set an expensive arbitration arrangement as the sole and exclusive procedure for settlement of disputes. In this way, the party with the greater economic strength sometimes assures for himself a sound and peaceful relationship. Remember your Intellectual Property: when you appoint a distributor, you also grant a license to use your intellectual property for purposes of the distribution. You are basically giving him access to your most sensitive assets. He is authorized to use your domain name, your logo and your trademarks. If these issues are not specifically addressed in the agreement, this may lead to situations where your distributor takes possession of your intellectual property and actually blocks you from the territory. Limit Liability: in most jurisdictions, the liability for damages caused by the use of the products lies with the manufacturer. Some agreements attempt to shift this liability to the distributor, but when tested by the courts they will probably not hold. Therefore, the correct way to address the risk of liability is to formulate an effective indemnification mechanism that will limit the scope of your liability. Such mechanism should limit your liability both in terms of amount and time and be backed up by adequate insurance coverage. Originally published on the "ChannelSmart website”
Adv. Keisary Yahalomi Liat
What do the United States, the UK, France, Germany, Italy, Spain, Switzerland and the Netherlands all have in common? In these countries (and many others), estate tax is collected on large inheritances. These taxes are imposed not only on the money of the deceased, but also on their real-estate properties, shares, pension funds, and other assets. In recent years, there has been a shift towards expanding the scope of these tax collections. An example of this can be found in the UK. On April 6, 2017, an amendment will take effect that expands the scope of the estate tax on trusts, or on individuals with residential properties in the UK. The major impact of the new amendment is that now it will also apply to individuals who live outside the UK, to trusts with beneficiaries outside the UK, and to directors of foreign companies that own residential property in the UK. In Israel, on the other hand, the estate tax was cancelled in 1981 and in recent years there has been a string of benefits granted to every new immigrant or returning resident that decides to leave it all and move to Israel. On January 1, 2007, income tax reforms creating tax cuts for new immigrants and returning residents, took effect retroactively. The reform creates a ten-year tax exemption and reporting exemption in Israel. Are you entitled to benefits?First of all, to clarify: a new immigrant/first-time Israeli resident is a person that becomes an Israeli resident that has never been an Israeli resident before. In contrast, a returning resident is a person that becomes an Israeli resident again, after residing outside of Israel for ten consecutive years. Do you belong to one of the categories above? If so, in addition to other benefits, you are entitled to the following:Capital gains derived from abroad- a tax exemption on capital gains from the sale of assets outside of Israel, as long as they are sold within ten years of the date you became an Israeli resident - regardless of the date of purchase.Passive income derived from abroad - a tax exemption, lasting ten years from the date you became an Israeli resident, on passive income, such as interest, dividends, pension, and royalties produced or generated outside of Israel.Active income derived from abroad - a tax exemption, lasting ten years from the date you became an Israeli resident, on active income - i.e., income from work or business - produced or generated outside of Israel. Beyond these benefits, new immigrants are also entitled to a discount on the purchase tax for property purchased in Israel during the period beginning one year prior to their immigration and continuing for seven years after their immigration. The immigrant purchase tax rate, starting on January 1, 2017 until January 15, 2018 is:0.5% on the portion of the property’s value that is up to approximately NIS 1,759,310;5% of the portion of the property's value above approximately NIS 1,734,225. Note that this benefit may be exercised once for a residential apartment, and once for a business oriented property. It is important to remember that after ten years, a reporting requirement for income from abroad goes into effect. Since the reform only went into effect in 2007, issues are only just starting to emerge for which answers haven’t been provided yet, such as the exposure for retroactive payments - with emphasis on national insurance payments - and exposure from the tax authority. Have you started packing? Source: barlaw.co.il
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