Minority Shareholder Oppression in Israel: Rights and Remedies

Are You a Minority Shareholder Being Oppressed?

Under the Israeli Companies Law, shareholders are prohibited from oppressing other shareholders, and controlling shareholders have a duty to act fairly. In practice, however, many companies have minority shareholders who are oppressed or deprived of their rights by majority shareholders who abuse their power. In this article, we explain what minority shareholder oppression means and what legal remedies are available.

By Igal Mor, Adv. & Notary

Accuracy in Legal Advice. Excellence in legal support.

Understanding Minority Shareholder Oppression

Every company should serve the interests of all its shareholders, as each has invested capital in the business. While the Companies Law does not formally distinguish between controlling and minority shareholders in this regard, in practice the difference is significant. Majority shareholders often have the power to harm the economic interests and legitimate expectations of minority shareholders. To prevent such abuse, the Companies Law provides that shareholders must refrain from oppressing other shareholders, and controlling shareholders have an affirmative obligation to act fairly.

Examples of Minority Shareholder Oppression

Minority shareholders may be deprived of their rights through affirmative acts or through omissions by the company or its controlling shareholders. Israeli courts have recognized the following as examples of oppression:

Diversion of profits: Controlling shareholders transferred company profits to other companies they owned, in which the minority shareholder had no stake, effectively burdening the company with their other businesses’ expenses.
Asset stripping: Controlling shareholders transferred company assets and revenue to another company under their control.
Excessive compensation to family members: Family members of the controlling shareholders were employed at unreasonable salaries that did not reflect the corporation’s needs.
Withholding dividends: The company generated profits but minority shareholders did not receive dividends.
Exclusion from decision-making: Essential decisions — such as those regarding major transactions — were made without allowing minority shareholders to voice their opinions.
Mismanagement: Courts have recognized that deprivation and mismanagement causing financial damage to minority shareholders constitutes oppression.

Legal Remedies Available

The legislature anticipated that controlling shareholders might abuse their power and provided affected shareholders with a path to relief. A shareholder who believes they are being oppressed may petition the court to correct the injustice. This authority, found in Section 191 of the Companies Law, grants the court very broad discretion. This has two important implications: first, the term “oppression” or “deprivation” can encompass a wide variety of acts and omissions — it is not a closed list. Second, the court may issue any directive it deems necessary to remedy the harm caused.

Section 191 of the Companies Law

“191. When all or some of a company’s shareholders have been deprived of their rights, or if there are substantial concerns that their affairs will be conducted in such a manner, the court may, at the request of a shareholder, issue instructions it deems necessary to remove or prevent the deprivation, including instructions regarding how the company’s affairs will be conducted in the future, or instructions requiring the company’s shareholders to purchase shares in accordance with Section 301.”

Examples of remedies available under Section 191 include:

Cancellation of oppressive decisions: The court may nullify a decision made by a controlling shareholder or someone acting on their behalf.
Compensation: The court may order the violating party to compensate the deprived shareholders, as well as compensate the company for damages resulting from the breach.
Expanded access to records: While shareholders have a limited right to review company documents, the court may broaden this right in cases of oppression.
Appointment of an investigator: The court may appoint an investigator to examine suspicions of improper conduct by controlling shareholders.

Additional remedies may be available depending on the specific circumstances of each case.

The Burden of Proof

When an oppression claim is filed, the minority shareholders must demonstrate that the controlling shareholders acted in their personal interest and in a manner contrary to the interests of the minority. Importantly, the burden of proof does not require showing fraudulent intent or even full awareness — rather, the court applies a “reasonable person” test. The question is whether a reasonable person, under the same circumstances, would conclude that the controlling shareholders are oppressing the minority. If the answer is yes, the burden of proof shifts to the defendants, who must then demonstrate that their actions were lawful and in the best interest of the company.

Are you a minority shareholder who has suffered financial losses? Contact us to schedule a legal consultation and explore your options for protecting your rights.

Mor & Co. Law Firm’s Commercial Law Department has extensive experience representing minority shareholders, entrepreneurs, businesses, and corporations from Israel and abroad across a wide range of legal areas. If your rights as a shareholder are being violated, we invite you to consult with us to examine your legal options. Contact us by phone at 02-595-3322, via WhatsApp at 050-441-1343, or through the online contact form below.