120 THE US-ISRAEL | Legal Review 2025/26 If an Israeli company has not opted out of the compensation committee composition requirements under the Companies Law, the compensation committee generally must be comprised of at least three directors, including all the external directors, who must constitute a majority of the members of the compensation committee. The chairperson of the committee must be an external director. In general, under the Companies Law, a public company must have a compensation policy that the board has approved after receiving and considering the recommendations of the compensation committee. Israeli companies are not required to have nominating and corporate governance committees; however, many companies that list on the NYSE or Nasdaq do establish them. Financial Statement Requirements FPIs may take advantage of several accommodations under the SEC’s rules with respect to financial statement requirements and additional accommodations if they qualify as an emerging growth company (EGC) under the JOBS Act. Generally, an EGC is defined as a company with less than $1.235 billion in annual gross revenue. Financial Statement Requirements for Registration Statements * For FPIs, the date of the last audit cannot be more than 12 months prior to the filing of a registration statement, subject to limited exceptions. ** For FPIs, interim financials covering at least the first six months of the year are required to be filed nine months after the fiscal year-end. In the offering context, however, auditor comfort letters may require the issuer to include more current interim financial statements. In addition to including its own audited annual and interim financial statements in a registration statement, an issuer may be required to provide acquired company financial statements and pro forma financial statements of recently acquired businesses, depending on the significance of the acquisition. Auditing Standards US domestic issuers must file financial statements with the SEC in accordance with US Generally Accepted Accounting Principles (GAAP). Financial statements of FPIs may be prepared in accordance with US GAAP, International Accounting Standards Board (IASB) IFRS, or local GAAP. Where FPIs utilize IASB IFRS, no reconciliation to US GAAP is required. Where FPIs utilize local GAAP, financial statements must include appropriate reconciliations to US GAAP. Many Israeli companies that are listed in the United States elect to use US GAAP. While the Tel Aviv Stock Exchange generally requires listed companies to follow IFRS, if a company is dual-listed in the United States, it may choose to report in US GAAP. Process for IPOs and Alternatives An IPO is a company’s first underwritten sale of stock to public market investors. Prior to an IPO, a company may be owned by its founders, its employees, and private investors, such as venture capital firms. Companies may pursue an IPO to raise growth capital, to provide liquidity to its investors, and for reputational reasons. Preparations usually commence up to two years in advance of an IPO but begin in earnest with an organizational meeting with the company’s selected underwriters. An IPO can be completed in as few as four to six months following this kickoff. Key milestones for an IPO include confidential and public SEC filings, testing-the-waters meetings with investors, the launch of the road show, the pricing of the offering, the first day of trading, and the closing of the offering. Alternatives to a traditional IPO include direct listings, reverse mergers, and de-SPAC transactions. A direct listing is a process through which a company goes public by allowing existing shareholders to sell their shares directly to the public on a stock exchange, without the need for an underwriter or issuance of new shares, essentially bypassing the traditional IPO process and costs associated with investment banks. Many foreign issuers that are already listed on a non-US exchange utilize direct listings to achieve a second listing on the NYSE or Nasdaq. Reverse mergers involve a private company merging with a publicly listed company and acquiring control of such a public company, making the private company public. EGC Non-EGC Annual Financial Statements* Two years of audited annual financial statements Three years of audited annual financial statements Interim Financial Statements** Interim financial statements covering the most recently completed quarterly period Same
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