Shareholder rights in a private company, and the duties that come with them
A share is not merely a slice of profit. It is a bundle of voting, information and property rights, and alongside it sit duties the law imposes on the shareholder personally. This page covers what you are entitled to, what is required of you, and what to do when the rights are not honoured in practice.
“A share is not only a slice of the profit. It is a bundle of rights, and duties come with them.”
Adv. Erez Sapir
The share as a bundle of rights
A shareholder does not own the assets of the company. Section 4 of the Companies Law provides that a company has a legal personality separate from its shareholders and from the members of its board, so the premises, the equipment and the bank account belong to the company and not to you. What you hold is a bundle of rights against the company.
The bundle has three kinds of rights. Control rights, meaning voting and appointment. Information rights, meaning knowing what is happening in the company. And property rights, meaning dividend, sale of the share, and a share of the surplus on liquidation.
The scope of the bundle is set by two documents: the articles and the shareholders agreement. Two shareholders holding the same percentage can hold entirely different rights, if that is what was agreed. That is why a holding percentage on its own is a meaningless number in isolation from the documents.
Source: Companies Law, 5759-1999. Checked September 2026.
Voting rights and influence over decisions
Voting happens at the general meeting. It appoints and removes directors, amends the articles, approves a merger and increases registered capital. Whoever controls the meeting controls the composition of the board, and whoever controls the board sets policy.
So the practical question is not how many shares you hold but what majority is required for which decision. Articles requiring a simple majority for everything give the holder of 51 per cent complete control. Articles requiring a special majority for structural decisions give the minority a real power to stop.
Three mechanisms worth knowing: a veto over a closed list of matters, a right to appoint a director on behalf of the minority, which secures presence in the room and not only at the meeting, and shares of different classes, which allow the right to vote to be separated from the right to profit.
Source: Companies Law, 5759-1999. Checked September 2026.
The right to information
This is the right that erodes first, and without it every other right becomes theoretical. A shareholder who does not know the state of the company cannot know whether their rights were prejudiced, whether the dividend distributed was reasonable, or whether the transaction signed was on market terms.
In practice the right is exercised through the constitutional documents, the financial statements, meeting minutes and the register of shareholders. A systematic refusal to provide information is itself a signal. A court treats it as a circumstance, not as a technicality.
The practical recommendation: anchor an express information right in the shareholders agreement, with fixed dates for delivery of reports and a mechanism for requesting further information. A right written in advance is easily enforced; a right asserted after the fact requires proceedings.
Source: Companies Law, 5759-1999. Checked September 2026.
Dividend, sale of shares and surplus on liquidation
Dividend. Distribution of profits is not an automatic right. It is a decision of the company, subject to the distribution tests in the law. In a private company this is a permanent friction point: the majority holder drawing a management salary does not need a dividend, and the minority holder who does not work in the company needs it badly. Prolonged non distribution, alongside a high salary for the controller, is one of the most common allegations in oppression claims.
Sale of the shares. A private company has no market. Price is negotiated, and the articles or the agreement usually restrict transfer, for example through a right of first refusal. Without a written exit mechanism, a minority shareholder may hold an asset they cannot sell.
Surplus on liquidation. Once all company debts are paid, the balance is divided among shareholders. In practice, a company that ran into difficulty leaves no balance. See liquidation of an insolvent entity and voluntary liquidation.
Source: Companies Law, 5759-1999. Checked September 2026.
The duties imposed on a shareholder
The point most shareholders are unaware of: the law does not stop at imposing duties on office holders. It imposes duties on shareholders themselves.
Section 192 requires a shareholder to act in good faith and in a customary manner towards the company and the other shareholders, and to refrain from abusing their power.
Section 193 imposes a heightened duty: a controlling shareholder, and a holder of a decisive vote, must act fairly towards the company. Fairness is a higher standard than good faith, and the difference is not semantic. It is the basis for a large share of minority shareholder claims.
The practical meaning for a controller: the power to make a decision is not the same as the freedom to make it. A decision taken by a lawful majority can still be challenged if it was made unfairly towards the company or through an abuse of power.
Source: Companies Law, 5759-1999. Checked September 2026.
What changes when you are the minority
A minority shareholder in a private company is in a structurally dependent position. No control of the board, no market in which to sell, and sometimes no information either. Three ways to deal with that, in order of value:
Before investing. Anchor veto rights, a right to appoint a director, an information right and an exit mechanism. This is the only stage at which you have bargaining power.
Along the way. Exercise the information right regularly and document every request. Documentation is what turns a feeling into evidence.
When rights are denied. The Companies Law provides, in section 191 headed the right in a case of oppression, for an application to the court. The court may give directions to remove or prevent the oppression, including an order that the minority shares be purchased. More on the minority shareholder oppression page.
Source: Companies Law, 5759-1999. Checked September 2026.
The two documents that decide everything
The articles are the constitutional document of the company. They set the classes of shares, the rights attaching to each class, the majority required for decisions and the restrictions on transfer. They are public and bind every shareholder, including one who joined later.
The shareholders agreement is a contract among the shareholders themselves. It governs what does not belong in a public document: the balance of power, veto rights, exit mechanisms, non competition and deadlock resolution.
The common failure is that the two contradict each other, because they were written at different times by different people. Where there is a contradiction, the argument moves to which document prevails, and that is litigation that half a day of alignment work would have prevented.
Legal support
We act on both sides of the equation. For an incoming investor we build the protective package before the money moves. For a controlling shareholder we build a structure that allows management without exposure to claims. And where a dispute already exists, we start with what the articles and the agreement actually say, because that is the starting position.
To reach us: 02-5953322 in Jerusalem, 03-3030430 in Tel Aviv, WhatsApp 050-4411343.
Frequently asked questions about shareholder rights
Does a shareholder own the assets of the company?
Am I entitled to a dividend?
What is my right to information about the company?
Does the law impose duties on a shareholder too?
Can shares in a private company be sold?
What do I do when the majority holder ignores my rights?
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