Shareholder Rights and Obligations in a Private Company in Israel
The Israeli Companies Law establishes a comprehensive framework of rights and obligations for shareholders in private companies. On the rights side, shareholders are entitled to sell their shares, receive dividends from company profits, access certain information, and participate in corporate decision-making. At the same time, shareholders bear important obligations — including the duty to act in good faith toward the company and fellow shareholders.
Receiving Dividends and Transferring Shares
Company shareholders are entitled to dividends — distributions of the company’s profits. This financial return is the primary incentive that motivates investors to acquire equity in a company. While dividends are typically paid in cash, they may also be distributed in other forms, such as company assets or additional shares.
Alongside the right to receive dividends, shareholders also have the right to sell or transfer their shares to other shareholders or to new investors. This right is subject to both statutory provisions and any contractual restrictions set forth in the share purchase agreement. In this context, it is advisable to consult with an attorney who can review the agreement and ensure that any transfer restrictions imposed on shareholders are proportionate and reasonable.
Generally, there are six rights granted to shareholders in the company: vote, ownership, transferability, dividend claim, review of corporate documents, and the right to sue the corporation for wrongful acts.
The Right to Access Information
The Companies Law requires every company to make certain information and documents available to its shareholders — including financial statements and business data — so that they can effectively monitor their investment. However, unlike in a public company, the right to access information in a private company is more limited. Shareholders are generally entitled only to information relevant to matters being presented for a vote at the general meeting; they do not have the right to request documents from the company for informational purposes alone.
The legislature has granted private companies broad discretion regarding the extent of information disclosed to shareholders. The right to information is typically defined in the share purchase agreement. To protect their investment, shareholders should seek legal counsel to ensure that any limitations on their access to information are reasonable and do not leave them at a disadvantage.
The Duty to Act in Good Faith
Along with their rights, shareholders in a private company bear significant duties. The most important is the obligation to act in good faith toward the company and its other shareholders. For example, the Companies Law prohibits controlling shareholders from discriminating against minority shareholders through decisions that worsen their position within the company. If minority shareholders are subjected to oppressive or discriminatory conduct, they may petition the court for an order directing the company to cease the discriminatory action. A shareholder’s breach of the duty of good faith and fair dealing is treated as a breach of contract and creates a cause of action against the offending shareholder.
Shareholders in a private company hold both important rights and meaningful obligations under Israeli law. If you are currently a shareholder or are considering investing in a private company, contact us for a thorough review of the share purchase agreement. We will ensure that your rights are fully protected and advise you on how to fulfill your obligations as a shareholder.
We invite you to schedule a legal consultation to discuss your rights and obligations as a shareholder.
Are you a shareholder in a private company? Understand your rights and protect your interests. Adv. Mor & Co.’s commercial law department has extensive experience representing entrepreneurs, businesses, and corporations — both in Israel and internationally — across all areas of corporate and commercial law. Contact us by calling 02-595-3322 or messaging us on WhatsApp at 050-443-1343.