Legal Updates

A controlling shareholder is not personally liable for a company’s city tax debt accumulated before the purchase of the shares

October 31, 2019
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A municipality demanded a controlling shareholder of company to pay the company's city tax debt accumulated in relation to a commercial property at a time when she was not yet a controlling shareholder.
The Supreme Court held that a controlling shareholder is not liable for company's debt for the period in which he was not involved with the company. The law empowers, under certain circumstances, a municipality to collect city tax debt of a commercial property directly from the controlling shareholder in cases where, inter alia, the company accumulated a final tax debt and then transfers its activities to another company which has, directly or indirectly, the same controlling shareholders or their relatives, with no, or partial, consideration, while there are no means remaining in Israel to settle the debt. Here, not only did the controlling shareholder acquire the company from a private individual - her mother, and therefore the condition set by law regarding transfer of rights between two companies is not met, but the controlling shareholder, unlike her mother, was not registered as a shareholder in the company and was not involved in the running of the company at all during the relevant period. Therefore, it the municipality may not personally charge the controlling shareholder for the company's city tax debt.