Palestinian Authority: Legal Analysis, Business Structures & Forms
While businesspeople want to conduct business and are less concerned with the legal intricacies involved in doing business, lawyers are more concerned with proper appellation, codes and structures. Since negotiations between the Palestinian Liberation Organization and Israel, commenced in 1993, changes have been taking place in almost every aspect of day-to-day life for the Palestinians. Therefore, the nomenclature, the laws and the formalities change along with the latest current events, and they are not always immediately disseminated. Thus, there is a real risk of uncertainty in the Palestinian Authority, although policy makers assure continuity and consistency in the transfer of powers and subsequent law making as the Palestinian Authority takes control.
The primary documents to which Israel and the Palestinian Authority are parties, which affect the changing status and nature of the Palestinian Authority, are the Declaration of Principles on Interim Self-Government Arrangements, signed in Washington, DC on September 13, 1993 (hereinafter, the DoP); the Israeli-Palestinian Interim Agreement on the West Bank and Gaza Strip, signed in Washington, DC on September 28, 1995 (hereinafter, Oslo 2); and the Protocol on Economic Relations, signed in Paris, France on April 29, 1994 (hereinafter, the Paris Protocol). There have been numerous other forum discussions, official and non-official committee meetings and conferences at which papers were presented and adopted which have some bearing on the changes taking place in the Palestinian Authority.
Certain geographical areas and substantive areas of law have been delineated as within the control of the Palestinian Authority. Not all areas of law that are within the substantive jurisdiction of the Palestinian Authority may be applied or enforced in all areas under its geographical control. The various documents defining the process of moving to self-rule have delineated areas as follows: Area A covers urban areas which have autonomy, such as Gaza and Jericho. The Palestinian Authority is responsible for the administration and enforcement of laws on all levels in Area A, including civilian and police power. Area B covers rural areas in which the Palestinian Authority has civilian jurisdiction but no police powers. Area C includes Jewish settlements, military areas and open areas. All powers and authority in Area C are administered and enforced by the Civil Administration. Certain of the agreements defining the transfer of powers to the Palestinian Authority have provided interior measures until a final resolution is reached. For example, special provisions in Oslo 2 allow for the transfer of taxes collected from Palestinians located in Area C by the Civil Administration to the Palestinian Authority.
A brief legal history of the area is essential to understanding the complexity of the issues facing the Palestinian Authority in gaining a unified system of laws. There are several sources of law that control various legal matters in different parts of territory known as Gaza and the West Bank. These sources include Ottoman civil law, which was applied to the Palestinian territories during the Ottoman Empire's rule between 1517 and 1917. The Ottoman civil code, Al Magella, is still the applicable rule of law in the West Bank and Gaza with regard to matters in which no subsequent laws have been adopted by any later controlling authority.
The British occupied Mandatory Palestine from 1917 until Israeli establishment in 1948, during which time its occupation was formalized as a Mandate under the direction of the League of Nations (from 1922 to 1948). Many aspects of commercial law, among other areas, were subject to decrees issued by the British High Commissioner during the Mandatory Period. Mandatory law and British legal principles are still widely applicable in Gaza today as a result of the lack of any subsequent legal authority until recently. In contrast, the West Bank has replaced most of the British Mandate laws with Jordanian laws.
Since in 1948, the control and administration of the areas of Gaza and the West Bank have been diverse and not uniform. This has resulted in a dichotomous legal system, which is being addressed by the Palestinian Authority.
Following Israel's establishment in 1948, Egypt administered the Gaza Strip until June 1967. Egypt never made any territorial claims over the Gaza Strip and merely undertook its administration. During the Egyptian administration, Egypt applied certain administrative regulations (hereinafter, the Egyptian Regulations) in order to implement the law, which were issued by the General Governor and Administrative Governor. While a legislative body was created called the Palestine Legislative Council, British Mandatory law remained mainly intact.
The West Bank
In contrast to the Gaza Strip, Jordan formally annexed the West Bank in April of 1950. Thus, the applicable law in the area up until that time was modified and replaced as necessary to bring it in accordance to Jordanian law. Since June 1967, the West Bank has been controlled by Israel, and administered by the Israeli Defense Forces and, specifically, by the Israeli Civil Administration since 1981. Jordanian law continues to be applied in the West Bank, as modified by military orders issued by the Israeli military or Civil Administration (hereinafter, Military Orders). In the absence of Jordanian law, reference is still made to Ottoman civil law.
Israeli Administration of Gaza and the West Bank
The Israeli Defense Forces has administered the Gaza Strip and the West Bank since June 1967. With the exception of Israel's formal annexation of East Jerusalem, the territories under its administration continued to be controlled by the laws previously applicable to the specific area, as modified by Military Orders issued by the Israeli military and relating primarily to matters of security. Areas that have obtained autonomy under the ambit of the Palestinian Authority apply laws enacted by the Palestinian Authority, and in matters where no new law has been enacted they continue to apply the rules of law that were applicable to those areas prior to autonomy. Thus, in the autonomous West Bank town of Jericho, laws enacted by the Palestinian Authority are applicable, but in their absence Jordanian law, modified by Military Orders (if such orders were not revoked by the Palestinian Authority) is applied. Similarly, in Gaza, in the absence of laws enacted by the Palestinian Authority, British Mandatory law, as modified by Egyptian Regulations and by Military Orders (if such Military Orders have not been revoked by the Palestinian Authority), is applied.
The Basic Law Draft
The Palestinian Authority is currently in the process of adopting a temporary Basic Law (Draft of the Basic Law for the Palestinian National Authority in the Transitional Period - The First Reading). The law was drafted by a team of lawyers to serve as a provisional constitution for the Palestine State in formation. The Basic Law has passed the first reading and is yet to be put into final form. It can only take effect, however, after a joint Palestinian-Israel committee determines it does not exceed the PA's rights under the Agreement on the Gaza Strip and the Jericho Area. So far, the Basic law contemplates a broad array of citizen rights and establishes a three-pillar system of a reformed judiciary with extensive power as well as provisions for the legislative and the executive bodies. Its norms are superior to legislation or administrative decrees, and it also incorporates the most important treaties on international human rights.
Currently, there are still two court systems in the Palestinian Authority. One system is in effect in Gaza and the other in the West Bank.
In Gaza, the judiciary is divided into three levels, in accordance with the system installed during the British Mandatory period: the Magistrates Courts, the Central Courts and the High Court.
The Magistrates Courts are authorized to decide civil suits where the amount of the dispute is valued at less than US$ 8,300. The Central Court hears civil suits where the amount in controversy exceeds US$ 8,300. Matters relating to the enforcement of Magistrates Court judgments are submitted to the jurisdiction of the Central Courts.
The High Court sits in two capacities, either as the High Court of Appeals or the High Court of Justice. In its capacity as the High Court of Appeals, the High Court hears appeals from decisions issued by the Magistrates and Central Courts. In its capacity as the High Court of Justice, the High Court hears cases that challenge laws or regulations as being contrary to public policy. It also hears administrative law matters in disputes involving administrative agency decisions, orders or regulations.
Judgments obtained in Gaza are valid for a period of fifteen years. Enforcement of judgments that are not voluntarily paid is carried out by the Department of Execution, which issues an order to the judgment debtor to pay and is enforced by the police.
The West Bank
The judiciary in autonomous areas of the West Bank is in the process of becoming fully functional. In other areas of the West Bank, the judiciary is less than fully functional.
The judicial system for the West Bank is modeled after the Jordanian system and is composed of Magistrates Courts, Courts of First Instance, Appeals Courts and a Court of Cassation. The Magistrates Courts have jurisdiction to hear cases involving claimed disputes not exceeding 250 Jordanian Dinars. Cases involving claims exceeding that amount are submitted to the jurisdiction of the Courts of First Instance. The Courts of First Instance have some limited appellate review functions over decisions of the Magistrates Courts. Appeals from judgments of the Courts of First Instance and the Magistrates Courts are heard by the Court of Appeals.
While the judicial system ostensibly calls for a Court of Cassation, a Supreme Court, none has operated in the West Bank since 1967. Therefore, decisions of the Appeals Courts are final and not subject to appeal.
The lack of a court of last resort, the long delays involved in scheduling court hearings as well as the lack of a police force capable of executing judgments (except in the autonomy areas), are the primary reasons stated for the reportedly high out of court settlement rate of cases filed in the trial courts in the West Bank.
Enforcement of court decisions in the West Bank is regulated by the Jordanian Enforcement Law of 1952 and the Jordanian Enforcement of Foreign Decisions Law of 1952. Before the establishment of a Palestinian police force in the West Bank, court decisions of civil courts were practically unenforceable. The introduction of Palestinian police following the re-deployment of Israeli Military forces is believed to gradually increase the likelihood that decisions will be enforced.
The enforcement of foreign judgments in the West Bank under the Jordanian Law of 1952 remains generally problematic as the law gives the local courts the discretion to refuse to enforce the foreign decision if the foreign country's laws do not reciprocate. Also, foreign decisions relating to land disputes are generally not enforceable.
As of January 19992, the Palestinian judiciary consisted of 65 judges, 30 in the Gaza Strip and 35 in the West Bank. 12 Judges sit on the High Court, nine of whom are based in the Gaza Strip, while the remaining three are in the West Bank. A further 21 judges preside over cases in the two district courts and six magistrate courts in the Gaza Strip, while 32 judges preside over similar cases in the West Bank. In the Gaza Strip, for example, more than 75,000 cases were processed in Magistrate (or trial level) courts in 1998 - an estimated 61,000 criminal cases and 14,000 civil cases. Members of the judiciary regularly complain about the low number of judges relative to the number of cases.
Alternative Dispute Resolution Mechanisms
Both in Gaza and in the West Bank, alternative dispute resolution is widely used for resolving commercial and business disputes. During a period of political and legal instability, alternative dispute resolution mechanisms were thought to provide greater convenience and predictability than the court system. Mechanisms presently used are arbitration, mediation and other less common forms of dispute resolution. Arbitration laws exist both in Gaza (Palestine Arbitration Ordinance of 1929) and in the West Bank (Jordanian Law of Arbitration of 1953) providing for enforcement of arbitration agreements and awards. In Gaza, institutionalized arbitration is available through the Palestinian Chamber of Commerce.
Business Structures and Forms
The administration of the relevant laws governing companies was transferred to the Palestinian Authority under the terms of Oslo 2. To date, the Palestinian Authority has not issued any decrees or other regulations that significantly alter the pre-existing legal frameworks prevailing in the areas that are now autonomous. As a result, two separate Palestinian Authority ministries are responsible for registering companies and administering the applicable companies laws in Gaza and the parts of the West Bank that have attained self-rule.
In Gaza, the prevailing legal framework for registering a company is the British Mandatory Companies Law, No. 18 of 1929, as amended. The Palestinian Authority Ministry of Justice now administers registration of companies in Gaza.
In areas of the West Bank that have attained self-rule, the Jordanian Companies Law No. 12 of 1964 is the prevailing framework for registering a company. In Jericho and in other areas where the Israeli Defense Forces have withdrawn, the registration process for registering a company is now administered by the Controller of Companies located in the Palestinian Authority's Ministry of Economy, Commerce and Industry. In other areas, the duties of the Registrar of Companies are handled by the Civil Administration.
Two types of companies are recognized under the prevailing legal frameworks in both Gaza and the West Bank: private stock companies and public stock companies. Companies established in Gaza may only issue one class of shares, in contrast to companies established in the West Bank, which are entitled to issue different classes of shares.
Private Stock Companies
A private stock company must have a minimum of two shareholders and a maximum of fifty shareholders. Such companies are prohibited from offering their shares to the public. Furthermore, private stock companies may impose restrictions on the transferability of their shares. Liability of a shareholder in a private stock company is limited to the value of the shares such shareholder holds in the company.
Public Stock Companies
Public stock companies must have at least seven shareholders. Public stock companies may not restrict the transferability of their shares. Liability of a shareholder in a public stock company is limited to the value of the shares such shareholder holds.
The amount of share capital, expressed in Jordanian (JD) or Israeli (NIS) currency must be divided into shares of equal nominal value of not less than JD 1 and not more than JD 10. A shareholding company, from the date of its registration, becomes a corporate body bearing the name that is stated in the by-laws and articles of association.
In both Gaza and the West Bank, the general partners of a public stock company must subscribe to a minimum of 10 percent of the shares. The remaining shares are to be offered for public subscription by means of a notice published in at least two daily newspapers one week prior to the subscription's commencement.
If the total value of the project exceeds JD 50,000, and among the general partners there is a foreigner, the general partners may not cover more than 75 percent of the shares and the remainder of the shares must be offered to the public.
Registration and Fees
In the mid-1990s, the PA standardized company registration fees for both Gaza and the West Bank. Companies are now required to pay 0.5 percent of the company's stated capital, plus minor additional charges such as a service fee of 285 NIS, a per shareholder fee of 84 NIS, a fee for the registrar's notarization of signature of 74 NIS, and a 13 NIS fee for stamps. There appears to be no additional fees for foreign companies. For purposes of registration, however, local companies must submit a completed company's registration form, plus two copies of the company's articles of incorporation and by-laws.
A foreign company (including subsidiaries, representatives and branch offices) that wishes to conduct business in the Palestinian Authority must fulfill the identical registration requirements as a locally established company. The foreign company must file copies of its certificate of incorporation, memorandum and articles of association, authenticated by the registrar of companies located in the place of its incorporation. These documents must also be translated into Arabic. The documents should include the nationality, age, address and initial stock holding of each of the founding shareholders of the company, as well as the amount of the company's authorized share capital upon its establishment.
In addition to its registration application, a foreign company must provide a letter stating the names, addresses and nationalities of the directors of the company and of others who have been granted signatory rights on behalf of the company. A company representative and attorney must be appointed in order to register the company. In the autonomous Palestinian areas, a power of attorney authenticated before a notary public is sufficient. In other areas of the West Bank, authentication must be carried out by an Israeli foreign consular official.
The fees for registration of a foreign company are not equal to those applicable to locally established companies. Foreign companies registering in Gaza must pay a registration fee of approximately US$ 100. In the West Bank, as of April 1995, a foreign company whose initial capital upon incorporation in its country of origin was less than US$ 1.666 million had to pay a registration fee of US$ 1,870. A foreign company whose initial capital upon incorporation in its country of origin was more than US$ 1.666 million must pay a registration fee of US$ 3,740. There are also certification and publication fees and stamp duties that are applied to the registration of a company.
Where the Civil Administration is still responsible for administering the registration of companies, additional requirements are imposed, including applications for work permits for non-resident shareholders. These additional requirements result in extended delays of up to six months in the registration of companies. In contrast, registration of companies within the autonomous areas may be completed in a week to ten days.
Partnerships in the Palestinian Authority are divided into two categories: General and Limited Partnerships. The law recognizes a partnership when two or more people work together to operate a for-profit business. In the General Partnership, all partners are jointly and severally liable for all the obligations of the firm that are incurred while serving as a partner. The name of at least one of the partners must be indicated in the title of the general partnerships. Limited Partnerships are required to have at least one general partner who is personally responsible for the liabilities of the company and at least one limited partner whose liability is limited to the amount of capital invested. The latter may not participate in the management of the company. The shares in a partnership are to be divided in accordance with the shareholders' agreement. Partnerships must register with the Companies Registrar, in accordance with Law No. 12 of 1964 in the West Bank and the Companies Ordinance No. 18 of 1929 in the Gaza Strip. They are subject to a flat fee of 493 NIS, service fees of 285 NIS, a fee per shareholder of 74 NIS and a stamp fee of 13 NIS.
One of the most common forms of business found in the PA areas is the sole proprietorship. This is typically a small, often family-owned enterprise which has a license to operate but is not a registered business or formal entity. Sole proprietorships are not recognized as a company and, thus, do not enjoy the benefit of limited liability. Bank accounts and tax records have to be registered in the name of the owner and not in a company's name.
Commercial Agency and Representation
As of January 1997, the PA began to enforce a law in effect since March 1996, which requires the appointment of direct dealers/agents for all goods entering the PA areas. The law requires all foreign companies distributing goods in the PA areas to appoint a direct agent who is to register with the Ministry of Economy and Trade in accordance with the prevailing rules and regulations. The agency rights are deemed to cover the entire area of the PA (West Bank and Gaza). To protect direct agency rights, the Ministry will prevent the import, entry or distribution of goods into the Palestinian market unless authorized by the agent. Direct agents may also authorize primary, sole or more distributors in the PA areas in order to facilitate delivery of goods to and between the West Bank and the Gaza Strip. Individuals and companies that already have direct agency agreements for the PA areas must register as agents (individual and/or company) and register the agency agreement itself with the Ministry. If business is conducted in areas where agents are not used in the ordinary cause of business, foreign companies may qualify for an exemption from the Ministry whereby they may distribute through distributors and middlemen who have to register at the Ministry's Registrar of Distributors and Middlemen.
The law further stipulates that agents for special category goods including cigarettes, electrical appliances, pharmaceuticals, cars, certain foodstuffs and agricultural items are forced to comply with the technical requirements of the concerned ministries and departments of the PA prior to registering with the Ministry.
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