Employee Stock Incentive Plans Under the New Palestinian Companies Law: A Guide for Employers
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Aligning Talent Incentives with Legal Reform in Palestine
If there’s one constant in Palestine’s business landscape, it’s change. New laws continue to reshape how companies operate. And while the introduction of these laws has historically welcomed new opportunities, it’s also introduced layers of complexity. This is especially true for businesses eager to adopt modern systems and forward-looking strategies.
One notable reform was the 2021 Companies Law No. (42), which allowed companies to repurchase and redistribute treasury shares as part of employee incentive programs. Article 144, in particular, authorizes companies to grant shares to employees, free of charge, as a form of incentives. Globally, such programs are known as Employee Stock Incentive Plans (ESIPs): structured share plans that give employees a stake in the business.
With this legal foundation in place, Palestinian companies can now treat ESIPs not solely as a theoretical concept, but as a practical, compliant tool for attracting and retaining talent. Despite this legal prospect, ESIPs remain nascent and uptake remains limited, largely due to regulatory ambiguity and limited institutional familiarity. This article breaks down steps to strategic ESIP implementation and how Kurdi & Co. supports clients in navigating these plans under Law No. (42) of 2021.
Legal Foundations of Employee Stock Incentive Plans in Palestine
The Companies Law No. (42) of 2021 provides the legal foundation for Palestinian companies to issue stock incentive plans for employees. The following is a breakdown of the articles pertaining to ESIP implementation for Palestinian companies:
Article 143: Permits public and private shareholding companies to purchase their own shares, subject to Extraordinary General Assembly (EGA) approval. This includes parameters like number of shares, timeframe for board authorization (not exceeding five years), minimum and maximum payment for shares, and whether the shares are intended for use as employee incentives or reward schemes.
Article 144: Allows companies to distribute treasury shares to its employees, free of charge, as part of an incentive plan, provided the shares are distributed within 12 months from acquisition. Companies must disclose material information relevant to such a plan as typically disclosed to shareholders.
Article 145: Outlines exceptions to the treasury share rules in specific cases such as capital reduction, full asset acquisition, or judicial enforcement.
Article 146: Limits the company’s total holdings of treasury shares to 15% of its subscribed capital. If this threshold is exceeded, the excess must be disposed of within one year (under Article 143) or three years (under Article 145), failing which the shares must be cancelled through capital reduction.
Things still perplexing? Get in touch with our legal experts to walk you through it. Kurdi & Co. provides advisory services to companies preparing and adopting ESIP structures to ensure full compliance with the Companies Law.
Utilizing Treasury Shares for Employee Incentive Plans
Under Article (143)(3) of the Companies Law, treasury shares are defined as shares that have been repurchased by the company and, while held by it, carry neither voting rights nor entitlement to dividends. Public and private shareholding companies may use treasury shares as part of an ESIP, provided they meet the following conditions:
Treasury shares, as defined under Article 143(3), are shares repurchased by the company that carry no voting or dividend rights while held. These shares can be used in ESIPs, but only under strict legal conditions, including:
- Approval from the Extraordinary General Assembly (EGA) specifying the number of shares, pricing parameters, purpose of use (such as employee incentives), and duration of the Board’s authorization (not exceeding five years).
- Prior approval from the Palestine Capital Market Authority (PCMA) if required by securities regulations.
- Full compliance with disclosure obligations and recordkeeping standards.
Strategic Implementation of Employee Stock Incentive Plans in Palestinian Companies
Designing and implementing successful Employee Stock Incentive Plans requires planning, compliance, and alignment with organizational goals, and legal processes. Here’s a step-by-step approach, as outlined by Kurdi & Co.’s team:
- Clarify the plan’s objectives: Is it for retention, performance, or long-term value creation?
- Draft the plan: Define structure, eligibility, grant methodology, and timeline.
- Identify eligible employees: Determine who the plan covers (senior management, engineers, early-stage hires) will be included.
- Amend company bylaws if needed: Include clear language on stock issuance in line with Article 145.
- Secure approvals: Obtain Extraordinary General Assembly authorization as required under Articles (140) and (143).
Conclusion: How Companies Can Implement ESIPs Legally and Strategically
The 2021 Companies Law has given Palestinian businesses a unique opportunity: to offer equity-based incentives that align employee commitment and interests with long-term success.
With tools such as treasury shares and clear governance procedures now supported by law, companies have the legal foundation to make employee ownership a reality. When implemented with care, ESIPs can do more than retain talent. They can help build loyalty, boost performance, and deepen employees’ sense of ownership in a company’s mission. This impact, though, hinges on smart legal restructuring.
If you’re exploring an Employee Stock Incentive Plan for your company, Kurdi & Co. can help you move from concept to compliant and effective execution tailored to your goals and grounded in the Palestinian legal framework. Our team provides trusted Employment Law Consulting in Palestine, ensuring your ESIP aligns with both corporate governance requirements and employee rights. You can reach us at info@kurdilaw.ps or call us at +970 (0)2-2425460.
Employee Stock Incentive Plans FAQs:
No. Under the Companies Law No. (42) of 2021, only public and private shareholding companies are legally permitted to issue stock incentive plans using treasury shares. Other company types, such as limited liability companies (LLCs), are not currently eligible.
According to the requirements outlined in Article 143 of the Companies Law, the Extraordinary General Assembly must approvethe number of shares to be allocated, duration of the Board’s authority to execute the plan (maximum five years), minimum and maximum share pricing (if applicable), and confirmation that the shares will be used as employee incentives.
ESIPs enable companies to attract and retain top talent without immediate cash expenditures. They align employee interests with long-term company success, making them especially attractive to businesses that rely on human capital in their early stages.
Yes. Article 144 allows companies to use treasury shares, which are shares repurchased and held by the company, for employee incentive plans.
In addition to General Assembly approval, companies must fully disclose material information, record the distribution in their share registers, ensure that total treasury shares do not exceed 15% of the subscribed capital (per Article 146), and dispose of excess shares within statutory timeframes or face mandatory capital reduction.
At Kurdi & Co., we guide companies throughout the ESIP lifecycle. Our team of expert lawyers help draft and amend bylaws, design and structure incentive plans, obtain shareholder and regulatory approvals, and prepare disclosure documentation. We ensure every step complies with the Companies Law and your long-term plans.
This Article was researched and written on Jul 22, 2025 by Samer Kurdi.
