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Can an Israeli company issue shares in exchange for services or IP instead of cash?

Yes. Section 304 of the Companies Law 5759-1999 lets an Israeli company allot shares for consideration other than cash, including services already rendered, intellectual property, or other assets. The board must decide that the non-cash consideration is worth at least the value attributed to the shares, and the company keeps a record of what was received. Non-cash allotments are common when founders contribute technology or sweat equity, but they carry valuation and tax consequences that should be handled before the shares are issued.

Under the Companies Law 5759-1999, shares in an Israeli company need not be paid for in money. Section 304 expressly permits allotment against consideration in kind, such as assigned intellectual property, equipment, or work performed for the company. The board of directors is responsible for determining that the value of what the company receives is not less than the par or issue value of the shares allotted, and the company must retain documentation of the consideration. Unlike some jurisdictions, Israeli law does not require an independent expert valuation for a private company, but the directors' valuation must be made in good faith and can expose them to liability under their duty of care if it is inflated.

For foreign founders and investors, non-cash share issues are a normal way to bring a technology or a co-founder's contribution into an Israeli company, but two issues need attention. First is valuation: an unrealistic figure can be challenged by other shareholders, by the Companies Registrar, or by the Israel Tax Authority, and can undermine later financing rounds. Second is tax: transferring intellectual property or receiving shares for services can be a taxable event for the recipient, and equity granted for work may be treated as employment income unless structured under a recognized route such as Section 102 for employees. Document the consideration in the allotment resolution and a contribution agreement. Our company formation guide covers share structure at incorporation.

⚖ In Practice
  • Governing law: Section 304, Companies Law 5759-1999
  • Competent authority: Registrar of Companies (Rasham HaChevrot); tax matters with the Israel Tax Authority
  • Board duty: directors must value the non-cash consideration in good faith at no less than the shares' value
  • Documentation: record the consideration in the allotment resolution and a contribution or IP-assignment agreement
  • Tax exposure: IP transfers and shares for services can trigger tax; employee equity may need Section 102 structuring
  • Valuation risk: no mandatory external valuation for private companies, but an inflated figure risks director liability

From the full guide: How to Form a Company in Israel: Legal Guide for Foreign Entrepreneurs

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Get a Free Consultation with Adv. Eli ShimonyPrepared under the direction of Adv. Eli Shimony, Eli Shimony Law Office · Editorial policy

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