In ‘Corporate Law of Israel’, a chapter written for The Laws of Israel (Christian Walter, et. al., eds., forthcoming), we provide a concise survey of the current state of Israeli corporate law. Israeli law has common law origins thanks to the heritage of the British Mandate in Palestine that was in force until 1948. Applicable law thus consists of an amalgam of statutory provisions and case law, and adheres to the stare decisis principle. Israeli company law relies on a backbone of fiduciary law that draws its main principles and many rules from English law. In recent years, it has become more fashionable to turn to Delaware law for comparative analysis.
Israel’s company law is based primarily on the Companies Law, 1999, statute which provides a modern framework for business entities, both private (closely-held) and public (listed). As of this writing, the Companies Law has been amended more than twenty-five times, in some cases quite substantially and with regard to basic issues, thus making the statutory basis somewhat unstable. Against this backdrop, attention should be paid to the more general legal infrastructure within which the Law is embedded.
As is often the case, the development of Israeli company law has been influenced by the socio-economic environment, namely, by the corporate governance infrastructure in place. Thus, during the first decades of the State of Israel, when the economy was struggling and did not have a capital market to speak of, Israeli company law stagnated as well. The heritage of that period consists primarily of seminal Supreme Court decisions that solidified core principles of fiduciary and company law.
By contrast, the 1999 Companies Law was enacted after Israel had developed a vibrant, open economy that is interconnected with global markets. There are currently several hundred companies listed on the Tel Aviv Stock Exchange and a few dozen Israeli companies listed abroad, mostly on U.S. markets. Nearly invariably, Israeli public companies have a dominant shareholder, making the protection of minority shareholders a salient issue that indeed receives substantial attention by the law. The establishment in 2010 of an economic division in the Tel Aviv District Court with special jurisdiction on company and securities law cases has increased the judicial output. This court has been attentive to public shareholders’ protection, yet its jurisprudence is not uncontroversial.
The above-referenced chapter begins with a description of the law’s approach to corporate legal personality and foundational documents, and, next, to corporate institutional organs, and directors and officers. The main part analyzes the legal duties imposed on directors and officers, control persons, and regular shareholders. In addition to the familiar duties of loyalty and care, which roughly follow the standard common law pattern, Israeli law has some unique features with regard to those duties, as well as certain obligations owed by shareholders. Next, the chapter deals with the regulation of related party transactions. It closes with a review of corporate litigation, focusing on veil-piercing and shareholder derivative suits and class actions.
Itai Fiegenbaum is a PhD candidate at The Buchman Faculty of Law at Tel Aviv University. Amir N. Licht is a Professor of Law at the Radzyner Law School, Interdisciplinary Center (IDC) Herzliya and an Academic Member at the European Corporate Governance Institute (ECGI).