Sometimes two or more people come to me and ask me to open a company for them. Since we accompany companies and advise them legally and do not just carry out the procedural process of opening a company, I find out "about what and why." That is, what their goal is, what their vision is, and what their desires and agreements are in terms of the relationship between them. Sometimes these people come to me when they are solidified and know exactly what they want from each other. However, usually they know what they want from each other in the practical sense of dividing the work between them but not in the legal implications that look ahead - for example, rights to purchase the other's shares, transferring/selling one's shares to a third party, etc.
These same people will usually come to an understanding, open the company, start operating through it, and do their best to make it successful.
These will not be discussed in this column.
No less frequently, entrepreneurs come to me with a "brilliant idea." Often, that idea has not yet been implemented by them. Sometimes, the idea is an "innovative idea" that has not yet been tried, or a field in which few people operate - or at least that is what the entrepreneurs are sometimes rightly convinced of, and sometimes not. These people also ask me to open a company for them. In this case too, I ask to find out what their plans are. They lay out before me a systematic and wide-ranging conceptual sub-plot, which has many implications in the relationship between themselves and between them and third parties. However, the thorn in the side - the idea itself is at an immature stage and it is not at all clear to them how it will develop, or that sometimes they have to conduct a few more inquiries and tests in order to examine whether the idea is feasible or not. Then the entrepreneurs enter into a maze of internal discussions, arguments, and agreements, and reach general decisions in their relationship (sometimes the matter explodes, but usually the "wedding and honeymoon" at this stage causes people to reach agreements rather than an explosion). In other cases, the same enthusiastic entrepreneurs are convinced that there is room for establishing several companies in order to optimally exploit the idea, while increasing the chances and reducing the risks by having each sub-idea "sit" in a separate company.
The agreements are signed, the regulations are exhaustive, the required forms are signed, glasses are toasted, the company is registered and then...
What happened to the idea?
After some time, it becomes clear that the idea is not such a successful one, other pursuits prevent its advancement, what seems rosy takes on other shades, and all sorts of other reasons cause the venture to not get off the ground.
The beautiful structure of "Company Ltd.", with the charming name chosen for it - and perhaps more than one company - remains empty of content. What is not taken into account are the results of that "skeleton" - this is how a company that has no activity is usually called. .
As we detailed in previous columns, and especially in the column titled ""Ponzi's Haircut"" - A company is a living legal entity, and in order to "execute it" - well, it's just a living legal entity, nothing more - it must be dissolved (we will expand on the dissolution procedures and their meaning in a separate column). In fact, even if at the end of the day a company is inactive, until that legal procedure called "dissolution" is carried out, the company is a "living legal entity.".
In the past, the company was registered in the Companies Registry, accumulating fee debts - a company owed an annual fee - for years, nothing was done about it and these debts did not bother the shareholders. Today, sanctions are taken by the Ministry of Justice through the Companies Registry, against those companies that have not paid a fee and they are called "law-breaking companies". For example, the controlling shareholder of the company will not be able to establish a new company, nor can it be dissolved without paying the fee debts (there are sanctions against the company itself, but in the case in question, it is devoid of any content anyway and therefore I will not address this type of sanctions).
A company that is not being used at all and is inactive can be dissolved, as part of a process called "voluntary dissolution." When the company is not a company with one shareholder and one director, an expedited dissolution process cannot be carried out. Then a more complex process is needed, and sometimes the shareholders who have "scattered around" each to their own business are not available or do not have the motivation or energy to deal with the dissolution of the company, and it remains like a stone that cannot be turned, accumulating debts, and when the day comes, when one of the shareholders wants to carry out one procedure or another with the Registrar of Companies, he encounters a skeleton from the past, a skeleton that sometimes delays other urgent activities. Then everyone is reminded that despite being a skeleton, it is still a living creature - yes, "in law" there can be a skeleton that is still alive.
Sometimes, the desire to establish a company in the initial stage of the startup process stems from the desire to show progress, to show that something is being done, and other reasons, but it is not really needed at that stage.
Bring Freud into the story
Given the cost of establishment, as well as the cost of holding and the need to deal with its dissolution, it seems that everyone - the entrepreneurs as well as the advising lawyer - would do well to carefully consider what is the right stage to establish the company. Are the motives for its establishment correct for that stage or are they mainly "psychological" considerations?.
Before rushing to establish legal structures, it is worth formalizing the content and examining whether it is feasible. When I say feasible, I do not mean success, as this is not certain of course, but rather that it is possible to begin implementing the idea, to begin executing it, and this is what the entrepreneurs intend to do.
In order to get started, a legal structure is needed. There is no need for a legal structure whenever it is a mere idea.
• Attorney Zvi ("Tsiki") Wolfson He is a managing partner. At the Wolfson Weinstein & Co. office', and he deals with Commercial and Corporate Law, Dissolution and rehabilitation of companies, Consulting and assistance to corporations and individuals in steps to prevent insolvency.
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