1. Corporate Governance Under the Israeli Companies Law 1999
Israeli company law is governed primarily by the Companies Law 1999 (Hok HaChavarot). This law — substantially modeled on US corporate law, particularly Delaware, with Israeli modifications — comprehensively regulates the duties, powers, and liabilities of company directors. It applies to all Israeli registered companies, whether privately or publicly held, and regardless of whether directors are Israeli citizens or foreign nationals.
The Companies Law was a major reform when enacted, replacing the older Companies Ordinance inherited from the British Mandate period. It introduced a modern framework of director accountability, minority shareholder protections, and corporate transparency that brought Israeli company law into line with international best practices. For foreign investors and corporate officers serving on Israeli company boards, understanding this framework is essential.
In addition to the Companies Law, listed companies must comply with the Securities Law 1968 and the regulations issued by the Israel Securities Authority (Reshut Niyarot Erekh). Private companies have substantially fewer regulatory obligations — one reason many Israeli startups prefer to remain private until they are ready for an IPO or acquisition.
2. The Director's Core Duties
Israeli company law imposes two fundamental duties on every director. The first is the duty of care (chovat zehirut). Under Section 252 of the Companies Law, a director must act with the level of care and competence that a reasonable person in the same position — with the same knowledge and experience — would exercise. Crucially, this is an objective standard: a director cannot claim ignorance of basic business information as a defense. The duty requires directors to read board materials, attend meetings, ask informed questions, and genuinely engage with the company's affairs.
The second is the duty of loyalty (chovat emunin). Under Section 254, directors must act in good faith and in the best interests of the company. They must avoid conflicts of interest — if a director has a personal interest in a transaction the company is considering, they must disclose it to the board and may not participate in the vote. They must not divert corporate opportunities to themselves or related parties, and they must maintain confidentiality of company information. The duty of loyalty is fiduciary in nature: it is the foundation of the trust the company places in its directors.
A director who has a personal interest in a matter must make a full disclosure in writing to the board before the matter is discussed or voted on. Failure to disclose renders the transaction voidable and exposes the director to personal liability for any damage caused to the company. In a company with foreign investors or complex ownership structures, conflicts of interest can arise subtly — for example, a director who serves on the boards of both an investor and a portfolio company.
3. Personal Liability of Directors
One of the most important concerns for foreign nationals serving on Israeli boards is the risk of personal liability. Under the Companies Law, directors can face personal liability for: approving transactions in breach of their fiduciary duties; failing to prevent illegal acts of the company when they had the ability to do so; certain tax obligations (the Tax Ordinance allows the Israeli Tax Authority to pursue directors personally for VAT and withholding tax defaults); and environmental violations under Israeli environmental laws.
The Israeli courts apply the business judgment rule — a doctrine imported from US law — which gives directors significant protection when they act in good faith on the basis of adequate information. Courts will not second-guess business decisions made by boards in good faith, even if those decisions turn out to be commercially wrong. The protection applies when: the director was informed; had no personal interest; acted in good faith; and believed the decision was in the company's best interest. The business judgment rule is not a shield against decisions made in bad faith, with conflicts of interest, or without adequate information.
Practical protections available to directors: Directors and Officers (D&O) insurance — most Israeli companies with external investors carry D&O insurance, which covers defense costs and judgments arising from directorial actions. Indemnification agreements — the Companies Law allows companies to indemnify directors for liabilities incurred in their role. This should be documented in both the company's articles of association (takanon) and a separate indemnification agreement signed with each director at appointment. Advance approvals — getting board resolutions to document approval processes protects directors in hindsight.
4. Board Composition Requirements
For private Israeli companies (chevrot prtiyot), which includes most startups and foreign subsidiaries, there is no minimum board size requirement. A single director is legally sufficient, though most investors require at least 3 directors for governance purposes. There are no Israeli citizenship or residency requirements for directors of private companies — foreign nationals commonly serve on Israeli startup boards.
For Israeli public companies — those listed on the Tel Aviv Stock Exchange (TASE) or on a foreign exchange — additional requirements apply. Public companies must have at least two external directors (datsim tzibbur), who meet independence criteria set by the Companies Law and the Securities Law. External directors serve fixed terms and cannot be employees of the company or affiliates. They sit on the audit committee and other oversight committees, providing independent oversight of management.
Annual general meetings (asefot shanatiyot) are mandatory for all Israeli companies above certain thresholds. Standard agenda items include: election/re-election of directors; approval of auditor; review of annual financial statements; and approval of director/officer compensation for public companies. Foreign shareholders participate in general meetings the same way as Israeli shareholders.
5. Additional Requirements for Public Companies
Israeli public companies face significantly enhanced governance requirements under the Companies Law and the Securities Law. These include: a mandatory audit committee (va'adat bikoret) that must include the external directors and a majority of independent directors; a compensation committee (va'adat sagoluyot) to oversee executive compensation policy; an internal auditor (ha'boked ha'pnimi) who reports to the audit committee; and annual disclosure of executive and director compensation in the published financial statements.
Foreign companies listed on the TASE may in some cases qualify for "foreign company" status — meaning they can comply with their home country's corporate governance rules rather than Israeli rules. This is available to companies with a primary listing on certain recognized foreign exchanges (NYSE, NASDAQ, London Stock Exchange, and others). The Israel Securities Authority determines eligibility on a case-by-case basis.