Companies Law, 5759-1999
חוק החברות, תשנ"ט-1999
Published: 1999-05-27Consolidated Hebrew text as of 2026-03-17 · Last amended 2024-09-15✓ Amendment status checked against the Knesset legislation record on 2026-09-28
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Unofficial English translation — for reference only. It may contain errors or omissions and cannot be relied on as a legal text. Only the Hebrew text published in Reshumot is legally binding.More
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Section C: A Corporation as a Director
A Corporation as a Director§
235.
A corporation is eligible to serve as a director in a private company, unless otherwise provided in the articles.
An Individual Serving on Behalf of the Corporation§
236.
(a)A corporation serving as a director shall appoint an individual who is eligible to be appointed as a director of the company to serve on its behalf, and may replace that individual, all subject to that corporation's duties towards the company.
(b)The name of the individual serving on behalf of the corporation shall be recorded in the register of directors as a person serving on behalf of the corporation.
(c)The duties applicable to a director shall apply, jointly and severally, to both the individual serving on behalf of the corporation and to the corporation.
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Contact Us →Section D: Alternate Director
Alternate Director§
237.
(a)No alternate may be appointed for a director (hereinafter — alternate director) unless the articles contain a provision permitting this to be done.
(b)A person who is not eligible to be appointed as a director, and a person who serves as a director or as an alternate director, shall not be appointed or serve as an alternate director.
(c)In a private company that is not a bond company, notwithstanding the provisions of subsection (b), a person who serves as a director or as an alternate director may be appointed as an alternate director, if the articles contain a provision to that effect.
(d)Where the articles contain a provision as referred to in subsection (a), a person who serves as a director may be appointed as an alternate director for a member of a board committee, provided that the candidate for appointment as alternate director for a committee member does not serve as a member of that board committee, and if that person is an alternate director for an external director, the candidate shall be an external director with financial and accounting expertise or with professional qualifications, in accordance with the qualifications of the director being replaced.
(e)No alternate may be appointed for an external director, except as specified in subsection (d).
(f)A person who is not eligible to be appointed as an independent director may not be appointed as an alternate for an independent director.
Liability of an Alternate Director§
238.
(a)An alternate director shall have the same legal standing as a director.
(b)The appointment of an alternate director shall not derogate from the liability of the director for whom that person is an alternate, and such liability shall apply having regard to the circumstances of the matter, including the circumstances of the appointment of the alternate director and the duration of that person's tenure.
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Contact Us →Section E: External Director and Independent Director
Duty to Appoint§
239.
(a)In a public company and in a private company that is a bond company, at least two external directors shall serve.
(b)The external directors in a public company shall be appointed by the general meeting, provided that one of the following is satisfied:
(1)among the votes of the majority at the general meeting there is included a majority of all the votes of shareholders who are not controlling shareholders of the company or who do not have a personal interest in the approval of the appointment, other than a personal interest not resulting from their connection with the controlling shareholder, participating in the vote; in counting all the votes of the said shareholders, abstentions shall not be taken into account; the provisions of section 276, with the necessary modifications, shall apply to a person who has a personal interest;
(2)the total votes opposed among the shareholders referred to in paragraph (1) did not exceed two per cent of all the voting rights in the company.
(c)The Minister may prescribe different rates from the rate referred to in subsection (b)(2).
(d)In a company in which, at the time of appointment of an external director, all members of the board of directors who are not controlling shareholders of the company or their relatives are of one sex, the external director to be appointed shall be of the other sex.
(e)No external director shall be appointed in a private company that is a bond company unless the candidate has declared that the conditions required for appointment as an external director are satisfied in relation to that candidate and the audit committee has confirmed that the said conditions are satisfied, and the provisions of section 241(b) and (c) shall apply to the declaration.
Eligibility for Appointment§
240.
(a)Only an individual who is a resident of Israel and is eligible to be appointed as a director may be appointed as an external director; however, a public company or a private company that is a bond company whose shares or bonds, as the case may be, or part thereof, were offered to the public outside Israel or are listed on a stock exchange outside Israel, may appoint external directors who are not residents of Israel; the Minister may prescribe additional categories of companies in which external directors who are not residents of Israel may be appointed.
(a1)
(1)As an external director there shall be appointed a person who has professional qualifications or a person who has financial and accounting expertise, provided that at least one of the external directors shall have financial and accounting expertise;
(2)the Minister, in consultation with the Israel Securities Authority, shall prescribe conditions and criteria for a director with financial and accounting expertise and for a director with professional qualifications.
(b)An individual who is a relative of the controlling shareholder, and a person who has, or whose relative, partner, employer, person to whom that person is directly or indirectly subordinate, or corporation in which that person is the controlling shareholder has, at the time of appointment or during the two years preceding the time of appointment, a connection to the company, to the controlling shareholder of the company or to a relative of the controlling shareholder at the time of appointment, or to another corporation, and in a company in which there is no controlling shareholder or a person holding a controlling interest — also a connection to whoever is, at the time of appointment, the chairperson of the board of directors, the general manager, a substantial shareholder or the most senior office holder in the financial field, shall not be appointed as an external director; for the purposes of this subsection —
"connection" means the existence of an employment relationship, the existence of business or professional relations on a regular basis or control, and also service as an office holder, excluding service as a director appointed for the purpose of serving as an external director in a company that is about to offer shares to the public for the first time; the Minister, in consultation with the Israel Securities Authority, may prescribe that certain matters, subject to conditions prescribed by the Minister, shall not constitute a connection;
"another corporation" means a corporation whose controlling shareholder, at the time of appointment or during the two years preceding the time of appointment, is the company or its controlling shareholder.
(c)An individual shall not be appointed as an external director if that person's other roles or occupations create or are liable to create a conflict of interests with that person's role as a director, or if they are likely to impair that person's ability to serve as a director.
(d)A director of one company shall not be appointed as an external director of another company if at that same time a director of the other company serves as an external director of the first company.
(e)An individual shall not be appointed as an external director in a public company or in a private company that is a bond company if that person is an employee of the Israel Securities Authority or an employee of a stock exchange in Israel.
(f)Without derogating from the provisions of subsection (b), an individual who has, or whose relative, partner, employer, person to whom that person is directly or indirectly subordinate, or corporation in which that person is the controlling shareholder has, business or professional relations with a person to whom a connection is prohibited under the provisions of subsection (b), even if such relations are not on a regular basis, other than negligible relations, and also an individual who has received consideration in contravention of the provisions of section 244(b), shall not serve as an external director; where such relations exist or such consideration is received during the tenure of the external director, this shall be regarded, for the purposes of sections 245a, 246 and 247, as a breach of one of the conditions required for that person's appointment or tenure as an external director.
Declaration§
241.
(a)A general meeting at which the appointment of an external director is on the agenda shall not be convened unless the candidate has declared that the conditions required for appointment as an external director are satisfied in relation to that candidate (hereinafter — the declaration).
(b)The declaration shall be kept at the registered office of the company and shall be open for inspection by any person.
(c)The Minister may prescribe provisions with respect to the declaration.
First External Directors§
242.
(a)The first external directors of a public company shall be appointed by the general meeting to be convened no later than three months from the date on which the company became a public company; however, in a private company that is a bond company that became a public company, an external director who served on the eve of the date on which it became a public company may continue to serve as an external director in the public company until the end of that person's term of office pursuant to section 245.
(b)The first external directors of a private company that is a bond company shall be appointed no later than the end of three months from the date on which the company became a private company that is a bond company; in the appointment of directors as aforesaid, in place of the confirmation of the audit committee as to the satisfaction of the conditions of eligibility for appointment as an external director pursuant to section 239, the confirmation of the board of directors in that regard shall apply.
Participation in Committees§
243.
At least one external director shall serve on every committee that is authorised to exercise any of the powers of the board of directors.
Remuneration and Reimbursement of Expenses§
244.
(a)An external director is entitled to remuneration and reimbursement of expenses, as the Minister shall prescribe in consultation with the Israel Securities Authority.
(b)An external director shall not receive, in addition to the remuneration to which that person is entitled and the reimbursement of expenses, any consideration, directly or indirectly, in respect of that person's service as a director of the company; for the purposes of this subsection, the granting of an exemption, an undertaking to indemnify, indemnification or insurance pursuant to the provisions of Section C of Chapter Three shall not be regarded as consideration.
Duration of tenure§
245.
(a)The term of office of an external director shall be three years, and the company may, notwithstanding the provisions of section 240, appoint that person for two additional terms of three years each.
(a1)An external director in a public company shall be appointed for an additional term of office as referred to in subsection (a) where one of the following conditions is met:
(1)a shareholder or shareholders holding at least one per cent of all voting rights in the company proposed that person's candidacy for an additional term, the appointment was approved at the general meeting by a majority of votes, and all of the following conditions were met:
(a)in counting all votes of shareholders at the general meeting, votes of shareholders who are controlling shareholders of the company or who have a personal interest in the approval of the appointment, excluding a personal interest that does not arise from a relationship with the controlling shareholder, as well as abstentions, are not taken into account;
(b)the total votes in favour from among shareholders who are neither controlling shareholders of the company nor holders of a personal interest in the approval of the appointment, excluding a personal interest that does not arise from a relationship with the controlling shareholder, exceeds two per cent of all voting rights in the company;
(c)the external director who is to be appointed for an additional term pursuant to this paragraph is not a related or competing shareholder, or a relative of such a shareholder, at the time of appointment, and has no affiliation with a related or competing shareholder at the time of appointment or during the two years preceding the time of appointment; for this purpose —
"related or competing shareholder" means the shareholder who proposed the appointment or a substantial shareholder, in each case where at the time of appointment that shareholder, a controlling shareholder thereof, or a company controlled by any of them, has business relationships with the company, or where that shareholder, a controlling shareholder thereof, or a company controlled by any of them, is a competitor of the company; the Minister, in consultation with the Securities Authority, may prescribe that certain matters, under conditions that the Minister has prescribed, shall not constitute a business relationship with the company or competition therewith;
"affiliation" has the meaning assigned to it in section 240(b), and the Minister, in consultation with the Securities Authority, may prescribe that certain matters, under conditions that the Minister has prescribed, shall not constitute an affiliation;
(2)the board of directors proposed that person's candidacy for an additional term and the appointment was approved in accordance with the provisions of section 239(b).
(3)the external director proposed that person's own candidacy for an additional term and the appointment was approved in accordance with the provisions of paragraph (1).
(a2)The Minister may prescribe rates different from the rate referred to in subsection (a1)(1)(b).
(a3)Notwithstanding the provisions of subsection (a), a company may provide in its articles of association that the total term of office of an external director shall not exceed six years; where a company has included such a provision in its articles of association, the provision shall apply only in respect of an external director first appointed after the provision was included.
(b)An external director shall not be dismissed and that person's tenure shall not be terminated except in accordance with the provisions of sections 233, 246 and 247.
Duty of notification§
245a.
An external director who no longer satisfies a condition required under this Law for serving as an external director shall immediately notify the company thereof, and that person's tenure shall expire at the time of giving such notification.
Termination of tenure by the general meeting§
246.
(a)Where it comes to the knowledge of the board of directors that there is a concern that an external director has ceased to satisfy any of the conditions required under this Law for appointment as an external director, or that there is a concern that the director has breached the fiduciary duty to the company, the board of directors shall discuss the matter at a meeting convened for the first time after such information comes to its knowledge.
(b)Where the board of directors of a public company determines that the external director has ceased to satisfy any of the conditions required under this Law for appointment, or that the director has breached the fiduciary duty, the board of directors shall convene a special meeting with the termination of tenure of the external director on its agenda.
(c)The reasons of the board of directors of the public company shall be brought before the special meeting, and the external director shall be given a reasonable opportunity to present that person's position; the decision of the special meeting regarding the termination of tenure of the external director shall be adopted by the majority required for that person's appointment.
(d)Where the board of directors of a private company that is a bond company, after having given the external director a reasonable opportunity to present that person's position, determines that the external director has ceased to satisfy any of the conditions required under this Law for appointment, or that the director has breached the fiduciary duty to the company, the board of directors shall notify its decision and the reasons therefor to the body competent to appoint the external directors of the company.
Termination of tenure by the court§
247.
The court, on the application of a director or a shareholder, may order the expiry of the tenure of an external director if it finds that that person has ceased to satisfy any of the conditions required under this Law for appointment as an external director or that the director has breached the fiduciary duty to the company.
Appointment at a special meeting§
248.
(a)Where the position of an external director in a public company has become vacant and two other external directors are not serving in the company, the board of directors shall convene a special meeting, at the earliest possible date, with the appointment of an external director on its agenda.
(b)Where the position of an external director in a private company that is a bond company has become vacant and two other external directors are not serving in the company, the board of directors shall notify the body competent to appoint the external directors of the company.
Prohibition on appointment and employment§
249.
(a)A company, a controlling shareholder thereof, and a corporation controlled by that controlling shareholder shall not confer any benefit, directly or indirectly, upon a person who served as an external director in that company, or upon that person's spouse or child, and in particular shall not appoint that person, that person's spouse, or that person's child to serve as an office holder in that company or in a corporation controlled by the controlling shareholder thereof, shall not employ them, and shall not receive professional services from them for consideration, whether directly or indirectly, including through a corporation controlled by such a person, unless two years have elapsed from the end of that person's tenure as an external director in that company, and in respect of a relative who is not that person's spouse or child — one year from the end of that person's tenure as an external director.
(b)The provisions of this section shall not apply to the appointment or employment of a person who served as an external director in a government company or a government subsidiary company, or to the receipt of professional services from such a person, by the State or by another government company or government subsidiary company whose responsible Minister is not the Minister responsible for the affairs of the company in which that person served as an external director.
External director in a company that has become a private company that is not a bond company§
249a.
(a)From the day on which a public company or a private company that is a bond company becomes a private company that is not a bond company, the provisions of this Section shall not apply to a person who is serving or who has served in the company as an external director.
(b)Where the company has not decided on the continuation of the director's tenure, that person's tenure shall terminate upon the expiry of three months from the day on which the company became a private company that is not a bond company.
Classification of a director as an independent director§
249b.
A public company or a company that is a bond company may classify a director as an independent director if that person is eligible to be appointed as such pursuant to paragraphs (1) and (2) of the definition of "independent director" in section 1, after having made a declaration as referred to in section 224b; for this purpose, service as a director of the company prior to classification as an independent director shall not be regarded as an affiliation with the company.
Application of provisions to an independent director§
249c.
The provisions of sections 240(f), 244, 245a, 246, 247, 249 and 249a(a) shall apply also to an independent director.
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