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 C: Corporation as Director
Corporation as Director
235.
[Amendment: 2011-3]
A corporation is eligible to serve as a director in a private company, unless otherwise provided in the articles of association.
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 in the company to serve on its behalf, and may replace such individual, all subject to its duties toward the company.
(b)The name of the individual serving on behalf of the corporation shall be registered in the register of directors, as one who serves on behalf of the corporation.
(c)The duties applicable to a director shall apply to both the individual serving on behalf of a corporation and to the corporation, jointly and severally.
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Contact Us →Section D: Alternate Director
Alternate Director
237.
[Amendment: 2005, 2008-2, 2011-4]
(a)A substitute for a director (hereinafter – "alternate director") may not be appointed unless the articles of association include a provision permitting such appointment.
(b)A person who is not qualified to be appointed as a director, as well as a person serving 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 serving as a director or as an alternate director may be appointed as an alternate director, provided that the articles of association include a provision to that effect.
(d)Where the articles of association include a provision as referred to in subsection (a), a person serving 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 the committee member does not serve as a member of that same board committee; and if the candidate is an alternate director for an external director, the candidate shall be an external director with accounting and financial expertise or with professional qualifications, in accordance with the qualifications of the director being substituted.
(e)An alternate may not be appointed for an external director, except as set out in subsection (d).
(f)A person who is not qualified to be appointed as an independent director may not be appointed as an alternate for an independent director.
Liability of Alternate Director
238.
(a)An alternate director shall have the same legal status as a director.
(b)The appointment of an alternate director shall not relieve the director for whom the alternate serves of liability, 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 the alternate director's tenure.
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Contact Us →Section E: External Director and Independent Director
Duty to Appoint
239.
[Amendment: 2005, 2011-3, 2011-4]
(a)A public company and a private company that is a bond company shall have at least two external directors.
(b)The external directors of a public company shall be appointed by the general meeting, provided that one of the following conditions is met:
(1)The majority of votes at the general meeting shall include a majority of all votes of shareholders who are not controlling shareholders of the company or who do not have a personal interest in approving the appointment, except for a personal interest that does not arise from their relationship with the controlling shareholder, participating in the vote; in counting the total votes of the said shareholders, abstentions shall not be taken into account; the provisions of Section 276 shall apply, with the necessary modifications, to any person who has a personal interest;
(2)The total votes of those opposing from among the shareholders referred to in paragraph (1) did not exceed two percent of all voting rights in the company.
(c)The Minister may prescribe percentages different from the percentage referred to in subsection (b)(2).
(d)In a company where, 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 gender, the external director being appointed shall be of the other gender.
(e)An external director shall not 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 fulfilled with respect to him or her, and the audit committee has confirmed that such conditions are fulfilled, and the provisions of Section 241(b) and (c) shall apply to such declaration.
Eligibility for Appointment
240.
[Amendment: 2005, 2008-2, 2011-3, 2011-4, 2011-5, 2016]
(a)An individual who is a resident of Israel and who is qualified to be appointed as a director shall 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 any part thereof, have been 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 it shall be possible to appoint external directors who are not residents of Israel.
(a1)(1) A person appointed as an external director shall be one who has professional qualifications or one who has accounting and financial expertise, provided that at least one of the external directors shall have accounting and financial expertise.
(2)The Minister, in consultation with the Israel Securities Authority, shall prescribe conditions and criteria for a director with accounting and financial expertise and for a director with professional qualifications.
(b)An individual who is a relative of the controlling shareholder shall not be appointed as an external director, nor shall a person who has, or whose relative, partner, employer, direct or indirect superior, or a corporation in which he or she is the controlling shareholder has, at the time of appointment or in the two years preceding the time of appointment, an affiliation with the company, with the controlling shareholder of the company or a relative of the controlling shareholder at the time of appointment, or with another corporation, and in a company with no controlling shareholder or no holder of a controlling block — also an affiliation with whoever is, at the time of appointment, the chairperson of the board of directors, the chief executive officer, a substantial shareholder, or the most senior officer in the financial field; for the purposes of this subsection —
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 fulfilled with respect to him or her (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 regarding the Declaration.
First External Directors
242.
[Amendment: 2011-4, 2016]
(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 his or her term of office pursuant to Section 245.
(b)The first external directors in 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 such directors, the approval of the board of directors regarding the fulfillment of the eligibility conditions for the appointment of an external director pursuant to Section 239 shall replace the approval of the audit committee for that purpose.
Participation in Committees
243.
At least one external director shall serve on every committee authorized to exercise any power of the board of directors.
Remuneration and Expense Reimbursement
244.
(a)An external director is entitled to remuneration and reimbursement of expenses, as shall be prescribed by the Minister in consultation with the Israel Securities Authority.
(b)An external director shall not receive, in addition to the remuneration to which he or she is entitled and reimbursement of expenses, any consideration, directly or indirectly, in respect of his or her service as a director of the company; for the purposes of this subsection, the grant of an exemption, an undertaking to indemnify, indemnification, or insurance pursuant to the provisions of Section C of Chapter Three shall not be deemed consideration.
Term of Office
245.
[Amendment: 2005, 2011-3, 2011-4, 2014-2, 2015]
(a)The term of office of an external director shall be three years, and the company may, notwithstanding the provisions of Section 240, reappoint him or her 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) upon the occurrence of one of the following:
(1)One or more shareholders holding at least one percent of all voting rights in the company proposed his or her candidacy for an additional term, the appointment was approved at the general meeting by a majority of votes, and all of the following conditions are met:
(a)In counting the total votes of shareholders at the general meeting, votes of shareholders who are controlling shareholders of the company or who have a personal interest in approving the appointment, except for a personal interest that does not arise from a connection with the controlling shareholder, as well as abstentions, shall not be taken into account;
(b)The total votes in favor from among shareholders who are not controlling shareholders of the company or who do not have a personal interest in approving the appointment, except for a personal interest that does not arise from connections with the controlling shareholder, exceeds two percent of all voting rights in the company;
(c)The external director being appointed for an additional term pursuant to this paragraph is not a connected or competing shareholder or a relative of such a shareholder, at the time of appointment, and does not have an affiliation with a connected or competing shareholder, at the time of appointment or in the two years preceding the time of appointment; for this purpose —
Duty to Notify
245a.
[Amendment: 2008-2]
An external director who ceases to fulfill a condition required under this Law for his or her service as an external director shall immediately notify the company thereof, and his or her tenure shall expire upon the giving of such notice.
Termination of Office by the General Meeting
246.
[Amendment: 2011-4]
(a)If the board of directors becomes aware that there is concern that an external director has ceased to fulfill one of the conditions required under this Law for his or her appointment as an external director, or that there is concern that the director has breached the fiduciary duty to the company, the board of directors shall deliberate on the matter at a meeting to be convened at the earliest opportunity after the board becomes aware thereof.
(b)If the board of directors of a public company determines that the external director has ceased to fulfill one of the conditions required under this Law for his or her appointment, or that he or she has breached the fiduciary duty, the board of directors shall convene a special meeting with the termination of the external director's tenure on its agenda.
(c)The reasons of the board of directors of the public company shall be presented to the special meeting and the external director shall be given a reasonable opportunity to present his or her position; the resolution of the special meeting regarding the termination of the external director's tenure shall be passed by the majority required for his or her appointment.
(d)If the board of directors of a private company that is a bond company, after having given the external director a reasonable opportunity to present his or her position, determines that the external director has ceased to fulfill one of the conditions required under this Law for his or her appointment, or that he or she has breached the fiduciary duty to the company, it shall notify the competent authority responsible for appointing the external directors of the company of its decision and the reasons therefor.
Termination of Office by the Court
247.
The court, upon the application of a director or a shareholder, may order the expiry of the tenure of an external director if it finds that he or she has ceased to fulfill one of the conditions required under this Law for his or her appointment as an external director, or that he or she has breached the fiduciary duty to the company.
Appointment at a Special Meeting
248.
[Amendment: 2011-4]
(a)If the position of an external director in a public company becomes 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)If the position of an external director in a private company that is a bond company becomes vacant and two other external directors are not serving in the company, the board of directors shall notify the competent authority responsible for appointing the external directors of the company thereof.
Prohibition on Appointment and Employment
249.
[Amendment: 2011-3, 2011-4]
(a)A company, its controlling shareholder, and a corporation under his or her control shall not confer any benefit, directly or indirectly, upon a person who served as an external director of that company, upon his or her spouse, or upon his or her child, and shall not, inter alia, appoint such person, his or her spouse, or his or her child to serve as an office holder in that company or in a corporation controlled by the controlling shareholder thereof, shall not employ such person, and shall not receive professional services from such person in return for consideration, whether directly or indirectly, including through a corporation under his or her control, unless two years have elapsed since the end of his or her service as an external director of that company, and with respect to a relative who is not his or her spouse or child — one year from the end of his or her service 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, or to the receipt of professional services from such person, by the State or by another government company or government subsidiary whose responsible minister is not the minister responsible for the affairs of the company in which he or she served as an external director.
External Director in a Company that Became a Private Company that is Not a Bond Company
249a.
[Amendment: 2005, 2011-4]
(a)From the day 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)If the company has not resolved on the continuation of the director's tenure, his or her tenure shall terminate upon the expiry of three months from the day the company became a private company that is not a bond company.
Classification of a Director as an Independent Director
249b.
[Amendment: 2008-2, 2011-3, 2011-4]
A public company or a company that is a bond company may classify a director as an independent director if he or she 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 in 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.
[Amendment: 2008-2, 2011-3]
The provisions of Sections 240(f), 244, 245a, 246, 247, 249, and 249a(a) shall also apply to an independent director.
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