Translation Notice — This is an English translation of a Hebrew law and may contain inaccuracies. In any dispute or legal matter, the original Hebrew text as published in Reshumot (ספר החוקים) is the sole authoritative and legally binding version.
Law
Companies Law, 5759-1999
חוק החברות
Section B: Independence
Independence of the Auditing Accountant
160.
(a)The auditing accountant shall be independent of the Company, whether directly or indirectly.
(b)The Minister may prescribe provisions regarding the independence of an auditing accountant, including provisions regarding the independence of accountants who are partners in a Partnership that is the auditing accountant, or regarding the independence of accountants who are shareholders in an accounting firm that is the auditing accountant.
Obligation to Perform an Additional Audit
161.
[Amendment: 2005]
If an audit action was performed at a time when a relationship of dependence existed pursuant to the provisions of Section 160, an additional audit action shall be performed by a different auditing accountant, unless, at the time the matter became known to the board of directors, five years have elapsed from the time the said audit action was performed.
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Contact Us →Section C: Termination of Office of an Auditor
Termination of Office
162.
[Amendment: 2011-4]
(a)The general meeting may terminate the office of the auditor.
(b)In a public company or in a private company that is a bond company, where the agenda of the general meeting includes the termination of office of an auditor or the non-renewal of office, the position of the audit committee shall be brought before the general meeting, after the auditor has been given a reasonable opportunity to present his position before it.
Termination of Office Due to Dependency
163.
[Amendment: 2005]
(a)If the board of directors becomes aware that a dependency relationship exists pursuant to the provisions of Section 160, it shall notify the auditor without delay that he must act to cease the dependency immediately; if the dependency does not cease, the board of directors shall convene, within a reasonable time, a special meeting, the agenda of which shall include the termination of office of the auditor.
(b)A general meeting convened as provided in subsection (a) shall resolve to terminate the office of the auditor; however, the general meeting may, after the position of the auditor has been brought before it, resolve not to accept the board of directors' proposal for termination of office, if it finds that the auditor has no dependency on the company.
Position of the Auditor
164.
(a)The board of directors shall give the auditor a reasonable opportunity to present his position before a general meeting the agenda of which includes the termination of his office or the non-renewal thereof, and shall, inter alia, invite the auditor to participate in the meeting.
(b)If the auditor resigns under circumstances that are of interest to the shareholders of the company, he shall notify the board of directors of the company accordingly.
(c)Without derogating from the provisions of any law, the board of directors shall notify the shareholders of the auditor's reasons for his resignation with such detail as it deems appropriate, and may also notify them of its own position on the matter.
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Contact Us →Section D: Remuneration of the Auditing Accountant
Remuneration of the Auditing Accountant
165.
(a)The remuneration of the auditing accountant for audit activity shall be determined by the general meeting, or by the board of directors if the general meeting has authorized it to do so and in accordance with the conditions of such authorization, or if the matter has been set forth in the articles of association and in accordance with what is prescribed therein.
(b)Where the remuneration for audit activity has been determined by the board of directors, the board of directors shall report to the annual general meeting on the remuneration of the auditing accountant.
Prohibition on Conditioning Remuneration or Granting Indemnification
166.
[Amendment: 2005]
(a)A Company shall not make payment of the auditing accountant's fees conditional upon terms that restrict the manner of performing audit activity or that link the outcome of the audit to the fees.
(b)A Company or anyone acting on its behalf shall not indemnify, whether directly or indirectly, the auditing accountant in respect of any liability imposed upon the auditing accountant as a result of a breach of professional responsibility in the provision of services that are required by law to be provided by an accountant, or as a result of a failure to fulfill any other obligation imposed upon the auditing accountant by law.
Remuneration for Additional Services
167.
[Amendment: 2005]
(a)The remuneration of the auditing accountant for additional services provided to the Company that do not constitute audit activity shall be determined by the board of directors; however, it is permissible to prescribe in the articles of association that the remuneration for such services shall be determined by the general meeting.
(b)The board of directors shall report to the annual general meeting on the terms of engagement of the auditing accountant for additional services, including payments and undertakings of the Company toward the accountant; for the purpose of this Section, "accountant" — includes a partner, employee, or relative of an accountant, and includes a corporation under the accountant's control.
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Contact Us →Section E: Powers, Duties and Liability of an Auditing Accountant
Powers of the Auditing Accountant
168.
(a)The auditing accountant may at any time review the Company's documents required for the performance of his duties and receive explanations in respect thereof.
(b)The auditing accountant may participate in any general meeting at which financial statements in respect of which he has performed an audit are to be presented, as well as in a board of directors meeting convened to approve financial statements or in a board of directors meeting convened pursuant to Section 169; the board of directors shall notify the auditing accountant of the place and time at which the general meeting or the board of directors meeting is to be convened.
Duty of Reporting
169.
(a)If the auditing accountant becomes aware, in the course of an audit, of material deficiencies in the accounting controls of the Company, he shall report thereon to the chairperson of the board of directors.
(b)Where the auditing accountant has given notice of deficiencies as referred to in subsection (a), the chairperson of the board of directors shall convene, without delay, a meeting of the board of directors to deliberate on the matters brought to his attention.
Liability for the Opinion
170.
(a)The auditing accountant shall be liable to the Company and its shareholders for the contents of his opinion with respect to the financial statements.
(b)Nothing in the provision of subsection (a) shall preclude the existence of liability of the auditing accountant under any law.
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Contact Us →Chapter VI: Financial Statements
Financial Statements
171.
[Amendment: 2005, 2011-3, 2011-4]
(a)A company that is a reporting corporation shall maintain accounts and shall also prepare financial statements in accordance with the Securities Law.
(b)A company that is not a reporting corporation shall maintain accounts and shall also prepare financial statements as provided in this Law.
(c)The financial statements shall be approved by the board of directors, signed on its behalf, and brought before the annual general meeting.
(e)The Minister may prescribe provisions and conditions regarding the procedure for approving financial statements, including with respect to the obligation to appoint a board committee for the examination of financial statements, the eligibility of the members of such committee, and the degree of their affiliation with the company or with a controlling shareholder thereof; with respect to a company referred to in subsection (a), the provisions and conditions shall be prescribed following consultation with the Securities Authority.
Preparation of Financial Statements in a Non-Reporting Corporation
172.
[Amendment: 2005, 2011-4]
(a)A company that is not a reporting corporation shall prepare, for each year, financial statements that shall include a balance sheet as of December 31 (hereinafter – the determining date) and a profit and loss statement for the period of one year ending on that date, as well as additional financial statements, all as required under generally accepted accounting principles (in this Chapter – the statements); the auditing accountant shall audit the statements.
(b)A company that is not a reporting corporation may stipulate in its articles that, notwithstanding the provisions of subsection (a), the statements shall be for a year that does not end on the determining date but rather on another date to be specified in the articles (hereinafter – the special date).
(c)The statements of a company that is not a reporting corporation shall be prepared within six months of the determining date or the special date, as the case may be, or within another period specified in the articles, provided that no period exceeding nine months shall be prescribed.
(d)The statements shall be prepared in accordance with generally accepted accounting principles and shall adequately reflect that which they are intended to reflect in accordance with such principles.
(e)The Minister may prescribe provisions regarding the identity and number of signatories to the statements; until such provisions are prescribed, the statements shall be signed by at least one director.
(f)The Minister may prescribe particulars to be included in the statements; where the Minister has prescribed such particulars, they shall apply notwithstanding anything provided under generally accepted accounting principles.
(g)An inactive company, as referred to in Section 158, may resolve by a resolution adopted at its general meeting to which shareholders have not objected as detailed in Section 158(a), that it is not required to prepare statements under this Chapter; however, such a resolution shall not derogate from any obligation imposed by any law to prepare or submit statements, including audited statements.
Presentation of Statements to Shareholders
173.
[Amendment: 2011-4]
(a)The board of directors of a company that is not a reporting corporation shall bring before the annual general meeting the statements that have been approved by it, and in a company to which the provisions of Section 61 apply, shall send the statements to the shareholders.
(b)The board of directors of a company that is not a reporting corporation shall bring before the annual general meeting a report that includes its explanations regarding events and changes that occurred in the state of the company's affairs and that affected the statements, in such detail as it deems appropriate.
(c)The statements shall be kept at the registered office of the company for at least seven years from the date of their preparation, for inspection by the directors of the company and the shareholders.
(d)A shareholder in a company that is not a reporting corporation is entitled to receive a copy of the statements and of the auditing accountant's opinion thereon.
(e)Copies of the statements of a private company that is not a reporting corporation shall be sent to all persons entitled to receive notice of general meetings, no later than fourteen days before the date set for the annual general meeting, all unless otherwise provided in the articles.
Declaration of the Board of Directors
174.
The board of directors shall declare in the annual report, as referred to in Section 141, that it has complied with the provisions of Section 173(a).
Obligation to Submit Balance Sheets
175.
[Amendment: 2011-4]
(a)A company that is not a reporting corporation shall attach to its annual report the balance sheet included in the statements, if at least one of the following conditions is met:
(1)its articles do not restrict the right to transfer its shares;
(2)its articles do not prohibit the offering of shares or debentures to the public;
(3)its articles do not limit the number of shareholders in the company to fifty, excluding employees of the company or persons who were its employees and who, during their employment and even after the termination of their employment, continue to hold shares in the company; for the purposes of this paragraph, two or more persons who jointly hold one or more shares in the company shall be regarded as a single shareholder.
(b)The Minister may prescribe that the provisions of subsection (a) shall not apply generally or to categories of companies that are not reporting corporations.
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Contact Us →Part 5: Shareholder
Chapter I: Shareholder and Share Certificate
Shareholder in a Private Company
176.
[Amendment: 5776-2]
A shareholder in a private company is one who is registered as such in the register of shareholders.
Shareholder in a Public Company
177.
[Amendment: 5776-2]
A shareholder in a public company is one of the following:
(1)one in whose favor a share is registered with a stock exchange member, and that share is included among the shares registered in the register of shareholders in the name of a registration company;
(2)one who is registered as a shareholder in the register of shareholders.
Share Certificate
178.
(a)A shareholder registered in the register of shareholders is entitled to receive from the company a certificate attesting to their ownership of the share.
(b)A registration company is entitled to receive from the company a certificate attesting to the number and class of shares registered in its name in the register of shareholders.
179.
[Amendment: 5776-2]
Form of Share Certificate
180.
[Amendment: 5776-2]
The Minister may prescribe provisions regarding the text of a share certificate, its form, the manner of its preparation, and its printing.
Forfeiture
181.
(a)A company may set forth in its articles of association or in an allotment agreement a provision whereby the board of directors is entitled to forfeit a share allotted by the company and to sell it, if the consideration which the shareholder undertook to pay (hereinafter – the debtor), in whole or in part, was not provided at the time and on the terms stipulated in the agreement or in the articles of association.
(b)Shares that have been forfeited and have not yet been sold shall be dormant shares, within the meaning of Section 308.
(c)The debtor shall continue to be liable to the company, unless the forfeited shares have been sold and the company has received the full consideration which the debtor undertook to pay, plus the expenses incidental to the sale.
(d)If the consideration received for the sale of the forfeited shares exceeds the consideration which the debtor undertook to pay, the debtor shall be entitled to the return of any partial consideration paid by them for those shares, if any was paid, subject to the provisions of the articles of association or the allotment agreement, provided that the consideration remaining with the company shall not be less than the full consideration which the debtor undertook to pay, plus the expenses incidental to the sale.
(e)Nothing in the provisions of this section shall derogate from any other remedy available to the company against the debtor.
Determining Date for Share Ownership
182.
(a)The shareholders entitled to a dividend, as set forth in Section 306, are the shareholders at the time of the resolution regarding the dividend, or at a later date if another date is specified in that resolution.
(b)The shareholders in a public company entitled to participate and vote at the general meeting are the shareholders at the date to be determined in the resolution convening a general meeting, provided that such date shall not exceed twenty-one days prior to the date of convening of the general meeting, and shall not be less than four days prior to the date of convening.
(c)The Minister may prescribe other provisions with respect to the dates referred to in subsection (b), if required for the purpose of voting by means of voting documents, as set forth in Section 87.
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Contact Us →Chapter II: Rights and Duties of a Shareholder
Rights and Duties of a Shareholder
183.
The rights and duties of a shareholder are as prescribed by this Law, by the articles of association of the Company, and under any law.
Right to Information
184.
Shareholders shall have the right to inspect the following documents of the Company:
(1)Minutes of general meetings, as provided in Section 90;
(2)The register of shareholders and the register of substantial shareholders, as provided in Section 129;
(3)A document in the possession of the Company, as provided in Section 185;
(4)The articles of association and financial statements, as provided in Section 187;
(5)Any document that the Company is required to submit pursuant to this Law or under any law to the Registrar of Companies or to the Securities Authority, which is available for public inspection at the Registrar of Companies or at the Securities Authority, as the case may be.
Inspection of Company Documents
185.
(a)A shareholder is entitled to demand from the Company, stating the purpose of the demand, to inspect any document in the possession of the Company in any of the following cases:
(1)The document concerns an act or transaction requiring approval of the general meeting pursuant to the provisions of Sections 255 and 268 to 275;
(2)In a private company — if such inspection is required for the purpose of making a decision on a matter on the agenda of the general meeting of the Company.
(b)The Company may refuse a shareholder's request if, in its opinion, the request was submitted in bad faith, or if the documents requested contain a trade secret or patent, or if disclosure of the documents is likely to otherwise harm the interests of the Company.
Information on Remuneration of Directors
186.
[Amendment: 5765, 5771-4]
(a)The board of directors of a company that is not a reporting corporation and that is required to appoint an auditor shall, upon demand by one or more shareholders holding at least ten percent of the voting power in the Company, furnish such shareholder with a notice certified by the auditor of the Company, containing full particulars of all payments made by the Company to each of the directors and of the undertakings to make payments assumed by the Company, including with respect to retirement terms, in each of the last three years for which financial statements of the Company have been prepared; the amount shall also include payments received by a director in the director's capacity as an office holder in a subsidiary of the Company.
(b)If the board of directors finds that the demand is submitted in bad faith, it may refuse the demand.
Right to Receive Articles of Association and Financial Statements
187.
[Amendment: 5771-4]
(a)Every shareholder is entitled to receive from the Company, upon request, a copy of the articles of association, and also, in a company that is not a reporting corporation, to receive a copy of the financial statements, as provided in Section 173(d).
(b)A shareholder in a company that is a reporting corporation is entitled to receive from the Company a copy of the financial statements, if the statements have not been published in accordance with the provisions under Chapter VII1 of the Securities Law.
Right to Vote
188.
Every shareholder is entitled to participate in the general meeting and to vote thereat, subject to the provisions of the articles of association with respect to the voting rights attached to each share.
Permission to Enter into Agreements
189.
Shareholders may enter into voting agreements among themselves, subject to the duties imposed upon them under this Law.
Right to Dividend
190.
Every shareholder is entitled to receive a dividend, in accordance with the rights attached to each share, if a resolution to distribute a dividend has been adopted as provided in Section 306.
Right in Cases of Oppression
191.
(a)If the affairs of a company have been conducted in a manner that constitutes oppression of its shareholders, all or some of them, or if there is a substantial concern that they will be so conducted, the court may, upon application by a shareholder, give such directions as appear to it for the purpose of eliminating or preventing the oppression, including directions as to the manner in which the affairs of the Company shall be conducted in the future, or directions to the shareholders of the Company requiring them or the Company, subject to the provisions of Section 301, to purchase shares of the Company.
(b)Where the court has given directions as provided in subsection (a), such amendments as are necessitated thereby, as determined by the court, shall be made to the articles of association and resolutions of the Company, and such amendments shall be deemed to have been duly adopted by the Company; a copy of the resolution shall be sent to the Registrar of Companies, and if the Company is a public company — to the Securities Authority.
Duties of Shareholders
192.
(a)A shareholder shall act in good faith and in an accepted manner in the exercise of the shareholder's rights and in the performance of the shareholder's duties toward the Company and toward the other shareholders, and shall refrain from abusing the shareholder's power in the Company, including, inter alia, in voting at the general meeting and at class meetings, on the following matters:
(1)Amendment of the articles of association;
(2)Increase of the registered share capital;
(3)Merger;
(4)Approval of acts and transactions requiring approval of the general meeting pursuant to the provisions of Sections 255 and 268 to 275.
(b)A shareholder shall refrain from oppressing other shareholders.
(c)The laws applicable to breach of Contract shall apply, mutatis mutandis, to a breach of the provisions of subsections (a) and (b), and with respect to a breach of the provision of subsection (b), the provisions of Section 191 shall also apply, mutatis mutandis.
Duty of Controlling Shareholder and Decisive Power to Act Fairly
193.
[Amendment: 5765]
(a)The following persons are subject to a duty to act fairly toward the Company:
(1)The controlling shareholder of the Company;
(2)A shareholder who knows that the manner of the shareholder's vote will be decisive in a matter to be resolved at a general meeting or at a class meeting of the Company;
(3)A shareholder who, pursuant to the provisions of the articles of association, has the power to appoint or to prevent the appointment of an office holder in the Company, or other power with respect to the Company.
(b)The laws applicable to breach of Contract shall apply, mutatis mutandis, to a breach of the duty of fairness, having regard to the status within the Company of those listed in subsection (a).
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