Disclaimer : The Following is an unofficial translation, and not necessarily an updated one.
The binding version is the official Hebrew text. Re aders are consequently advised to consult
qualified professional counsel before making any de cision in connection with the enactment,
which is here presented in translation for their ge neral information only.

COMPANIES LAW 5759-1999

PART ONE: INTERPRETATION

Definitions
1. In this Law –
“debenture ” – a document issued by a company that evidences t he
existence of a monetary obligation owed by the comp any and defines
its conditions, exclusive of capital notes and bill s of exchange issued by
the company in the course of its business; ” secured debenture ” – a debenture, in which the company’ obligation
under it is secured by a charge on some or all of t he company’s assets;
” means of control ” – each of the following:
(1) the right to vote at the company’s General Meet ing;
(2) the right to appoint a Director of the company;
” General Meeting ” – an Annual Meeting or an extraordinary meeting o f
the shareholders; ” Extraordinary Meeting ” – a General Meeting of the shareholders,
which is not an Annual Meeting; ” Category Meeting ” – a meeting of holders of a category of shares;
” Annual Meeting ” – a shareholders meeting under section 60;
” stock exchange ” – a stock exchange in Israel, a stock exchange
abroad and also a regulated market, as defined in t he Joint Investment
Trusts Law 5754-1994, which received approval by wh oever is
authorized to give it under the Law of the state in which it operates;
” stock exchange in Israel ” – a stock exchange that received a permit
under the Securities Law; ” Court ” – the District Court;
” substantial shareholder ” – a person who holds 5% or more of the
company’s issued share capital or of voting rights in it;
” interested party ” – a substantial shareholder, a person with the po wer
to appoint one or more Directors or the General Man ager, and a person
who serves in the company as a Director or as Gener al Manager;
” controlling parcel ” – shares that give 25% or more of all the voting
rights at the General Meeting; ” dividend ” – any asset given by the company to a shareholder by virtue
of his right as a shareholder, whether in cash or i n any other manner,
including a transfer in kind without equivalent con sideration, and
exclusive of bonus shares; ” Director ” – a member of the company’s Board of Directors an d a
person who de facto serves in a Director’s position , no matter what his
title; ” Outside Director ” – within its meaning in Part Six, Chapter One,
Article Five; ” holding ” and “acquisition ” – within their meaning in the Securities
Law; ” private offering ” – an offer to issue securities of a public compan y,
which is not an offering to the public, or an offer ing by a public company
to sell its securities that it acquired under secti on 308, and which is not

2
an offering to the public; “substantial private offering ” – a private offering to which the
provisions of section 270(5) apply; ” purchase offer ” – a proposal to acquire shares, which is addresse d to
the company’s shareholder public; ” Board of Directors committee ” – a committee set up by the Board of
Directors under the provisions of section 110; ” stock exchange member ” – a person who is a member of a stock
exchange in accordance with the stock exchange by-l aws, within their
meaning in section 46 of the Securities Law; ” company ” – a company incorporated under this Law, under th e
Companies Ordinance, the Companies Ordinance 1921 o r the
Companies Ordinance 1919; ” subsidiary ” – within its meaning in the Securities Law;
” registration company ” – within its meaning in the Securities Law;
” public benefit company ” – within its meaning in Chapter One “A” in
Part Nine; ” merging company ” – a target company and an absorbing company;
” private company ” – a company that is not a public company;
” public company ” – a company, the shares of which are listed for
trading on a stock exchange or were offered to the public by
prospectus, within its meaning in the Securities La w, or were offered to
the public abroad under a public offering document required under a
stature abroad, and which are held by the public; ” absorbing company ” – a company, to which all the assets and
obligations of the target company pass at a merger;
” associated company ” – within its meaning in the Securities Law;
” foreign company ” – a body corporate, other than a partnership, whi ch
was incorporated abroad; ” target company ” – one or more companies about to merge into an
absorbing company in a manner that will result in t he company’s
liquidation; ” Trust Law ” – the Trust Law 5739-1979;
” Amutot Law ” – the Amutot (Nonprofit Companies) Law 5740-1980;
” Securities Law ” – the Securities Law 5728-1968;
” distribution ” – giving a dividend or undertaking to give it, ei ther
directly or indirectly, and also acquisition; and f or this purpose,
” acquisition ” – the direct or indirect acquisition or provision of financing
for the acquisition – by a company, its subsidiary or another body
corporate under its control – of the company’s shar es or of securities
that are convertible into the company’s shares or t hat can be realized
as the company =s shares, or the redemption of redeemable securitie s
that are part of the company =s equity in accordance with section
312(d), and including an undertaking to do any of t hese things – all that
on condition that the seller is not the company its elf or another body
corporate that is wholly owned by the company; ” day of incorporation ” – the date set by the Registrar in the company’s
Certificate of Incorporation as its day of incorpor ation;

3
“entrepreneu r” – a person who performs an act in the name of an d in
place of a company that has not yet been incorporat ed;

4
“index ” – the Consumer Price Index which the Central Bure au of
Statistics publishes; ” merge r”, for purposes of Part Eight – the transfer of al l assets and
liabilities, including conditional, future, known a nd unknown liabilities of
an target company to an absorbing company, in conse quence of which
the target company liquidates itself in accordance with section 323;
” share ” – an array of rights in a company, prescribed in Law and in the
by-laws; ” bonus shares ” – shares with a company allocates without
consideration to its shareholders who are entitled thereto;
” number of votes ” – the number of votes of persons voting, in
accordance with the voting rights prescribed for th e shares by virtue of
which vote the shareholders who participate in the meeting;
” ID number ” –
(1) in respect of a company registered in Israel – its registration
number;
(2) in respect of a registered company that is regi stered abroad – the
state in which it is registered and its registratio n number, if it has a
registration number;
(3) in respect of any other body corporate that has a registration
number under an enactment – its registration number ;
(4) in respect of an individual Israel resident – h is ID number in the
Population Register;
(5) in respect of an individual who is not an Israe l resident – the state
where the passport was issued and the passport numb er;
” address ” –
(1) in respect of an individual Israel resident – h is address, as
recorded in the Population Register, and if he gave another
address – the address he gave;
(2) in respect of an individual who is not an Israe l resident – his
residential address, and if he gave another address – the address
he gave;
(3) in respect of a company registered in Israel – the address of its
registered office;
(4) in respect of a company registered abroad – the address of its
office abroad, and if it gave an address in Israel – the address it
gave;
(5) in respect of any other body corporate that has a registered
address under an enactment – its registered address ;
” offero r”, in a purchase offer – the person who makes the purchase
offer; ” pledge ” – within its meaning in the Pledges Law 5727-1967 , as well as
a floating charge; ” presence of shareholder “, at a General Meeting – the shareholder’s
presence in person or by an agent, or by means of a proxy statement
as said in section 87; ” officer ” – Director, General Manager, Chief Business Manag er,
Deputy General Manager, Vice General Manager, any p erson who
holds a said position in the company, even if he ha s a different title, and

5
also any other manager who is directly subject to the General Manager;

6
“security ” – includes a share, a debenture, or rights to acq uire, convert
or sell each of those, all whether they are registe red or to bearer;
” offeree “, in a purchase offer – the owner of the shares, a cquisition of
which is proposed in the purchase offer; ” series of debentures ” – two or more debentures of equal rank in
respect of the monetary obligation and the surety f or its payment;
” personal interest ” – a person’s personal interest in an act or a
transaction of a company, including the personal in terest of his relative
and of another body corporate in which he or his re lative is an
interested party, and exclusive of a personal inter est that stems from
the fact of holding shares in the company; ” transaction ” – an agreement or contract, as well as a unilater al
decision by a company to grant a right or other ben efit;
” exceptional transaction ” – a transaction that is not in the ordinary
course of the company’s business, a transaction not on market
conditions or a transaction that is liable to have a substantial effect on
the company’s profitability, property or obligation s;
” act ” – a legal act, whether by deed or abstention;
” substantial act ” – an act that is liable to have a substantial eff ect on
the company’s profitability, property or obligation s;
” Companies Ordinance ” – the Companies Ordinance (New Version)
5743-1983; ” premium ” – an amount, by which the consideration for an al location of
the company’s shares exceeds the nominal value of t hose shares;
” relative ” – spouse, brother or sister, parent, parent’s par ent, offspring
or the spouse’s offspring and the spouse of each of these;
” Auditor ” – a Certified Public Accountant appointed in orde r to perform
audit activities, as said in section 154; ” Securities Authority ” – the Authority, within its meaning in the
Securities Law; ” Registrar of Endowments ” – within its meaning in the Trust Law;
” Companies Registrar “, “Registrar ” – the Companies Registrar, as
said in section 36; ” share certificate ” – a certificate that states that its holder is th e owner
of a bearer share; ” floating charge ” – within its meaning in the Companies Ordinance;
” contro l” – within its meaning in the Securities Law;
” derivative action ” – an action brought by a plaintiff in the name of a
company because of its grounds for the action; ” Memorandum ” – within its meaning in the Companies Ordinance, as it
was immediately before this Law came into effect; ” Certificate of Incorporation ” – a certificate signed by the Registrar
that certifies the company’s registration; ” share document ” – a document in which the name of the owner
registered in the company registers is stated, stat ing the number of
shares he owns; ” by-laws ” – a company’s by-laws, as first submitted to the Registrar
with the registration or as lawfully changed;

7
“the Minister ” – the Minister of Justice.

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PART TWO: FOUNDING THE COMPANY

CHAPTER ONE: INCORPORATION
Article One: The Right to Incorporate
The right to incorporate
2. Every person has the right set up a company, on condition that none of
the company’s objectives contradict the Law, are im moral or conflict
with public order.

Company of one person
3. A company can have a single shareholder.
Article Two: The Legal Personality

The company’s legal personality
4. A company is a legal personality qualified for e very right, obligation and
act that conforms to its character and nature as an incorporated body.

Existence of the company
5. The company is in existence from the day of inco rporation stated in the
Certificate of Incorporation, and until the incorpo ration lapses in
consequence of the company’s liquidation.

Raising the curtain
6. (a) (1) In exceptional cases, in which the separ ate legal personality
was used in one of the manners said below, the Cour t may
charge a company =s debt against a shareholder, if it finds
that under the circumstances of the case it is just and right
to do so:
(a) in a manner liable to defraud somebody or to discriminate a creditor of the company;
(b) in a manner that subverts the purpose of the co mpany,
assuming an unreasonable risk in respect of its abi lity
to repay its debts;
on condition that the shareholder was aware of the said use
and taking into consideration his holdings, the way he met
his obligations toward the company under sections 1 92 and
193 and taking into account the company =s ability to meet
its obligations.
(2) For the purposes of this subsection a person sh all also be
deemed to have been aware of the use said in paragr aph
(1)(a) or (b), if he had suspicions about the condu ct or about
the possibility that circumstances causing the said use
existed, but refrained from examining the matter, e xcept

9
when he merely acted negligently.
(b) The Court may relate an attribute, right or obl igation of a
shareholder to the company and a right of the compa ny to its
shareholder, if it concluded that – under the circu mstances of the
case – it is just and right to do so, having taken into consideration
the intention of the statute or of the agreement th at applies to the
matter before it.
(c) The Court may suspend a shareholder =s right to repayment of the
company debt to him until after the company paid in full its
obligations toward other creditors of the company, if it concluded
that conditions existed for relating a debt of the company to the
shareholder, as said in subsection (a).

Restriction on occupation
7. If the Court ordered that a company’s debts be r elated to one of its
shareholders, under the provisions of section 6(a), then it may order
that – during a period which it shall set and which shall not be longer
than five years – that person cannot be a Director or General Manager
of a company, or be directly or indirectly involved in the foundation and
management of a company.

Article Three: Establishment and Registration of Co mpany

Application for registration
8. If a person wishes to register a company, then h e shall submit to the
Registrar an application on a form prescribed by th e Minister, and he
shall attach to it:
(1) a copy of the by-laws;
(2) the first Directors’ declaration of their willi ngness to be Directors,
as prescribed by the Minister.

Fees
9. (a) When a person applies to have a company regi stered, he shall
pay a fee (hereafter: registration fee) when he sub mits the
application.
(b) A company shall pay an annual fee each year.
(c) In this section, Acompany @ includes a foreign company.

Certificate of Incorporation
10. (a) The Registrar shall register a company, if he finds that all
requirements under this Law in respect of registrat ion and of any
matter that is a condition therefor have been met.
(b) The Registrar shall give each company a registr ation number, as
said in section 38(c), and he shall state it in the Certificate of
Incorporation.
(c) When a company has been registered, then the Re gistrar shall
deliver the Certificate of Registration to it.

10
(d) The Certificate of Registration that was delivered to the company
shall be conclusive evidence that all the requireme nts under this
Law on the matter of registration and on any matter that is a
condition therefor have been met.
(e) The provision of subsection (d) shall not repai r any fault in the by-
laws, nor shall it prevent the need for its correct ion.

Article Four: The Company’s Purpose

The Company’s Purpose
11. (a) The company’s purpose is to operate accordi ng to business
considerations for the production of profits, and a mong those
considerations may also be taken into account the i nterests of its
creditors and employees and the public interest; a company may
also contribute a reasonable amount to a worthy cau se, even if
the contribution is not within the framework of afo resaid business
considerations, if a provision to that effect was m ade in the by-
laws.
(b) The provisions of subsection (a) shall not appl y to a company, in
whose by-laws it is stated that it was established only for the
achievement of public purposes for the benefit of t he public.

Article Five: Acts Performed by Entrepreneur

Approval of acts
12. (a) A company may approve acts of an entreprene ur, which were
carried out in its name or in its place before its incorporation.
(b) Retroactive approval is the same as authorizati on in advance, on
condition that a right acquired by another person ( in this Article:
third party) in good faith and for consideration be fore the approval
shall not be infringed.

Status of third party in respect of initiative
13. (a) If a third party knew of the existence of t he initiative at the time of
the act said in section 12, then he has the choice to consider the
entrepreneur his counterpart or to retract the act and to sue the
entrepreneur for his damages, if one of the followi ng applies:
(1) the company did not approve the act within one year after it
was done;
(2) the circumstances indicate that the company is not going to
be incorporated, on condition that the third party so informed
the entrepreneur 30 days in advance;
(3) the company did not approve the act within 30 d ays after the
third party so demanded of it.
(b) If the company approved the act, then the entre preneur no longer
has any right or obligation in connection with it.

11
(c) The entrepreneur and the third party may make the provisions of
this section conditional.

Ignorance of the initiative
14. If, when the act took place, the third party di d not know of the initiative,
then the following provisions shall apply:
(1) the entrepreneur’s act shall obligate or entitl e the entrepreneur, as
the case may be;
(2) when the company has been incorporated, then it may approve
the act, on condition that the approval not negate the nature,
conditions and circumstances of the act; when the c ompany has
approved the act, then the act shall obligate the c ompany and the
entrepreneur, jointly and severally, and it shall e ntitle only the
company.

CHAPTER TWO: BY-LAWS
Article One: Contents of the By-laws and Their Chan ge

Company by-laws
15. Every company shall have by-laws, as specified in this Article.

Effect of by-laws
16. The company’s by-laws, as registered at the tim e of incorporation, are
in effect from the incorporation.

By-laws as a contract
17. (a) The by-laws shall be treated like a contrac t between the company
and its shareholders and between the shareholders t hemselves.
(b) Changes in the by-laws shall be made in the man ner prescribed in
this Law.

Particulars that must be included in by-laws
18. The company’s by-laws shall include the followi ng particulars:
(1) the name of the company;
(2) the company’s objectives;
(3) particulars on the registered share capital, as said in sections 33
and 34;
(4) particulars on the limitation of liability, as said in section 35.

Particulars that may be included in by-laws
19. The company may include in the by-laws subjects that relate to the
company or to its shareholders, including the follo wing:
(1) the rights and obligations of the company’s sha reholders;
(2) provisions on ways of managing the company, and the number of
Directors;
(3) any other subject, which the shareholders deeme d proper to

12
regulate in the by-laws.

Change of by-laws
20. (a) A company may change its by-laws by a decis ion adopted by an
ordinary majority at a General Meeting of the compa ny, unless the
by-laws provide that some other majority is necessa ry, or if a
decision according to section 22 was adopted.
(b) If this Law includes a provision which may be m ade conditional, or
if the by-laws include a provision according to whi ch a certain
majority is required for a change of some or all pr ovisions of the
by-laws, then the company shall be entitled to chan ge the said
provision only by decision adopted at a General Mee ting by that
certain majority or by a proposed majority, whichev er is greater.
(c) If the company’s shares are divided into catego ries, then a
change that infringes on the rights of a category o f shares shall be
made in the company’s by-laws only with the approva l of a
General Meeting of that category, unless the by-law s provide
otherwise; the provisions of subsections (a) and (b ) shall apply,
mutatis mutandis, to the adoption of decisions by a Category
Meeting.
(d) Notwithstanding the provisions of this section, a change of by-
laws that obligates a shareholder to acquire additi onal shares or
to increase the extent of his liability shall not o bligate the
shareholder without his consent.

Effect of change and report
21. (a) A change of the by-laws, other than a chang e as said in section
40, is in effect from the day on which the resoluti on thereon was
adopted in the company or at a later date set by th e company in
its resolution.
(b) If a company adopted a resolution on a change o f its by-laws,
then it shall deliver the text of the decision to t he Registrar within
14 days after the date of the decision.

Restriction on possibility of changing by-laws
22. (a) A company may, in its by-laws or in another contract, restrict its
power to change the by-laws or any of their provisi ons, if a
decision to that effect was adopted by a General Me eting by the
majority required for a change of the by-laws.
(b) A decision adopted as said in subsection (a) sh all be treated like a
decision to change the by-laws and the provisions o f this Article
shall apply to it.

Signing the by-laws
23. (a) The by-laws shall be signed by the first sh areholders, and the
shares allocated to them shall be stated in it, as well as the name,
address and ID number of each shareholder.
(b) An attorney shall certify the signatories’ iden tities by his signature
on the by-laws.

13

Transitional provisions about the memorandum and by-laws
24. A company incorporated before this Law went int o effect may –
(1) change the provisions prescribed in its memoran dum in the
manner and on the conditions prescribed therefor in the
Companies Ordinance, as it read immediately before this Law
went into effect, subject to the provisions of para graph (5);
however, notwithstanding the provisions of the Comp anies
Ordinance, a company may change the provisions pres cribed in
its memorandum in respect of its capital and the na me of the
company, by a majority of 75% of all participants i n the vote, other
than abstentions; the change of the registered capi tal is in effect
from the day on which the decision on the change wa s adopted,
and changing the company =s name does not require the
Minister =s approval;
(2) change its memorandum or repeal it in the manne r prescribed
under section 350(a), (i), (j), (k) and (l);
(3) change the provisions prescribed in its by-laws by a resolution
adopted by a General Meeting by a majority of 75% o f the
participants in the vote, other than abstentions; o r by another
majority if so provided in the company’s memorandum and by-
laws;
(4) prescribe in the by-laws, subject to the provis ions of section 20(b),
a provision on the majority required to change prov isions of the
by-laws, by a resolution adopted by a General Meeti ng by a
majority of 75% of the participants in the vote, ot her than
abstentions; or by greater majority if such a major ity is prescribed
in the company’s memorandum or by-laws; when a new provision
has been prescribed as aforesaid, then the provisio ns of section
20(b) shall apply to its change;
(5) prescribe in the memorandum, by a resolution ad opted by a
General Meeting by a majority of 75% of the partici pants in the
vote, other than abstentions, a provision to change the majority
required to change provisions of the memorandum, wh ich the
General Meeting is qualified to change; the provisi ons of section
20(b) shall apply to this matter, mutatis mutandis.

Article Two: The Company’s Name

Choosing the name
25. A company may be registered under any name, sub ject to the
provisions of this Article and the provisions of an y enactment.

“Ltd” at the end of the company’s name
26. The name of a company, in which the liability o f shareholders is limited
as said in section 35, shall at the end include the notation “Limited” or
“Ltd.”

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Misleading name
27. (a) A company shall not be registered under a n ame that –
(1) is the name of a body corporate duly registered in Israel, or
similar enough to it to mislead;
(2) is a registered trademark in respect of goods o r services in
which there are dealings for purposes that are simi lar to the
purposes of the company that applied for registrati on, or a
name similar enough to it to mislead, unless it was proven to
the Registrar that the owner of the trademark agree d thereto
in writing; for this purpose, ” registered trademark” – within
its meaning in the Trademarks Ordinance (New Versio n)
5732-1972.
(b) Without derogating from the provisions of subse ction (a), a
company shall not be registered under a name which the
Registrar believes to be deceptive or misleading.

Name contrary to public order
28. A company shall not be registered under a name that is liable to injure
public order or sensibilities.

Registrar’s power to order a change of name
29. (a) If a company was registered under a name wh ich under the
provisions of this Article should not have been reg istered, then the
Registrar may demand that it change its name.
(b) If the company did not deliver to the Registrar – within four
months after the date of the demand – notice of the decision to
change its name, then the Registrar may change its name to a
name of his choice.
(c) If the Registrar decided to change a company’s name, then he
shall send the company a change of name certificate , and the
change shall be treated as if had been made by deci sion of the
company and of the Registrar.
(d) The Minister may prescribe provisions on the pu blication of a
change of name.

Injunction
30. The Court may, on the company’s application, or der any person who
took its name or a name similar enough to it to be misleading, or on the
application of whoever was injured by the registrat ion of a company in
violation of the provisions of section 27, order th e company to refrain
from using the name, unless he is satisfied that th e defendant’s right to
use the name predates that of the applicant.

Change of name
31. (a) A company may change its name with the Regi strar’s approval,
and the provisions of sections 25 to 30 shall apply , mutatis
mutandis, to the application for the change and to the requested
name.
(b) If the Registrar approved a company’s change of name, then the

15
Registrar shall register the new name instead of the previous
name and he shall issue it a change of name certifi cate.

Article Three: The Company’s Objectives

Stating the company’s objectives in the by-laws
32. The company shall state its objectives in its b y-laws by setting one of
the following objectives:
(1) to engage in any legal occupation;
(2) to engage in any legal occupation, other than c ategories of
occupations specified in the by-laws;
(3) to engage in categories of occupations specifie d in the by-laws.
Article Four: Registered Share Capital and Its Divi sion

Registered share capital
33. In its by-laws the company shall determine its registered share capital,
including the number and categories of shares.

Nominal value of shares
34. (a) The company’s shares may all have a nominal value or all be
without nominal value.
(b) If the company’s shares are without nominal val ue, then only their
number shall be stated in the by-laws; if the compa ny’s shares
have a nominal value, then in addition to their num ber the nominal
value of each share shall also be stated in the by- laws.
(c) If the company’s shares are without nominal val ue, then the
provisions of this Law on registered and issued sha re capital shall
apply, mutatis mutandis, so that the number of shar es prescribed
in the by-laws shall be the registered share capita l, and the
number of shares allocated by the company shall be the issued
capital.

Article Five: Limited Liability

Limited liability
35. (a) The shareholders’ liability for the company ‘s obligation may be
unlimited, and that shall be stated in the by-laws; if the
shareholders’ liability is limited, then the manner of limitation shall
be specified in the by-laws.
(b) If the company’s shares have a nominal value, t hen the
shareholders are liable at least to the payment of the nominal
value, unless the provisions of section 304 apply.

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CHAPTER THREE: COMPANIES REGISTRAR
Article One: Office of the Companies Registrar

Appointment and qualifications of the Registrar and his Deputy
36. (a) The Minister shall appoint a State employee , who is qualified to
serve as Magistrates Court judge, to be the Compani es Registrar,
and he shall head the Office of the Companies Regis trar.
(b) The Minister may appoint a State employee to be Deputy
Companies Registrar, and he may endow him with the Registrar’s
powers.
(c) If the Registrar is unable to exercise his offi ce, then the Minister
may endow an employee of the Ministry of Justice wi th some or
all of the Registrar’s powers.

The Registrar’s powers
37. (a) The Registrar shall determine whether the c onditions and
requirements prescribed in this Law on the followin g matters have
been met:
(1) incorporation of a company;
(2) change of a company’s name;
(3) recording a document;
(4) merger.
(b) In order to ascertain that a company does what it is obligated to
do under this Law, the Registrar may order it to pr oduce for his
inspection – within a period of not less than 14 da ys after the
demand – the registers and books, which the company must keep
under this Law and which are open for public inspec tion, or up-to-
date copies of them.
(c) If the Registrar finds that the said registers and books are not up-
to-date, then he may order the company to bring the m up-to-date
within a period that he shall prescribe.

Article Two: Keeping Registers
Keeping registers and receiving documents
38. (a) The Registrar shall keep registers for each company and he shall
accept documents and reports to be recorded or to b e filed in the
company’s files, all as the Minister prescribed.
(b) The Minister may order that the delivery of doc uments and
reports, and the recording or filing in the company ‘s files be only
by way of electronic communication (hereafter: elec tronic filing or
reporting).
(c) The Registrar shall keep a Register of Companie s, in which he
shall register every company and give it an identit y number, and
the Registrar may give different types of numbers t o categories of

17
companies, as the Minister shall prescribe.

Submission of documents for recording
39. (a) Every document and every report that must b e submitted to the
Registrar shall bear the company’s identity number and shall be
signed by one of the officers of the company, stati ng his name
and position, as certification that the particulars in it are correct
and complete; for purposes of this section, ” officer of the
company ” – including the company secretary or a person
authorized by it for purposes of this section.
(b) Notwithstanding the provisions of subsection (a ), a document or
report submitted by a company in receivership or li quidation may
be signed by the receiver or liquidator.
(c) The provisions of this section shall apply when there is no
different provision on the matter under any enactme nt.
(d) If the Minister made an order on electronic rep orting, then he may
prescribe that the provisions of subsection (a) on an officer’s
signature not apply to documents and reports submit ted in the
said manner.

Validity depends on recording
40. The acts specified below by a company shall be of no effect, unless
they have been recorded:
(1) a change of the company’s name under the provis ions of section
31;
(2) a change of the company’s objectives;
(3) a change of the by-laws, in consequence of whic h a company
becomes a public benefit company, as said in sectio n 345B(c).

Copies as evidence
41. (a) A copy certified by the Registrar of any do cument kept or
recorded by him shall be accepted in any legal proc eeding as the
original, and it shall constitute conclusive proof that the original
document is in the Office of the Companies Registra r.
(b) If the Minister made an order on electronic fil ing, then the
provisions of subsection (a) shall apply to a print out of the said
reports; for purposes of this section, ” printout” – as defined in the
Computers Law 5755-1995.

Denial of knowledge
42. That a document was recorded or exists in the c ompany or with the
Registrar is not, by itself, proof of the knowledge of its contents.

Inspection
43. The registers kept by the Registrar in the regi sters office shall be open
to inspection by the public, and every person may i nspect them and
receive certified copies of their contents, whether through the Registrar
or through others whom the Registrar authorized for this purpose, all as
the Minister prescribed.

18

Regulations
44. The Minister may prescribe the following: (1) recording and filing procedures, and also the m anner in which
documents and reports are to be submitted for said recording and
filing, all including electronic recording and fili ng;
(2) the manner in which registers are to be kept in the registers office,
and the manner of their inspection by the public;
(3) forms that must be used for the purposes of thi s Law and the
particulars that are to be included in them, includ ing the manner
of transmitting the information by electronic repor ting;
(4) the manner in which the Registrar is to perform his obligations
under this Law;
(5) particulars which a company or a foreign compan y must deliver to
the Registrar about each shareholder or holder of s ome other
right, and also about its creditors and officers;
(6) amounts of registration fees, of annual fees, a nd also of other
fees and payments which the Minister prescribed to be paid for
acts and services which the Registrar provides unde r this Law; the
Minister may set different amounts of fees and paym ents for
different companies, by criteria that he shall pres cribe; the Taxes
(Collection) Ordinance shall apply to the collectio n of fees under
this paragraph.

Article Three: Appeal

Appeal
45. (a) If a person deems himself injured by a deci sion of the Registrar,
then he may appeal against the Registrar’s decision before the
Court.
(b) The Minister may prescribe regulations on the l aw procedure in
appeals.

PART THREE: COMPANY STRUCTURE

CHAPTER ONE: THE COMPANY’S ORGANS,
THEIR AUTHORITY AND LIABILITY FOR THEIR ACTIVITY
Article One: Organs

Organs
46. The company’s organs are the General Meeting, t he Board of Directors,
the General Manager and any person whose action on a certain matter

19
– according to an enactment or by virtue of the by-laws – is deemed the
company’s action on that matter.

Action by organ is action by the company
47. The action and intentions of an organ are actio ns and intentions of the
company.

Article Two: Division of Powers between Main Organs

Powers of organs
48. (a) The General Meeting shall have the powers s pecified in Article
Two of Chapter Two.
(b) The Board of Directors shall have the powers sp ecified in Article
One of Chapter Three
(c) The General Manager shall have the powers speci fied in Chapter
Four.
(d) All organs of the company have all the auxiliar y powers required
for the exercise of their powers.

Residual powers
49. Any power of the company, which was not assigne d to another organ
by the Law or the by-laws may be exercised by the B oard of Directors.

Transfer of powers between organs under the by-laws
50. (a) A company may make provisions in its by-law s, according to
which its General Meeting can assume powers assigne d to
another organ, and also that powers assigned to the General
Meeting be transferred to the Board of Directors, a ll for a specific
matter or for a specific period of time.
(b) If the General Meeting assumed powers which und er this Law are
assigned to the Board of Directors, then the rights , obligations and
responsibility of the Board of Directors in connect ion with the
exercise of those powers shall apply to the stockho lders, mutatis
mutandis, and as part thereof the provisions of Cha pters Three,
Four and Five of Part Six shall apply to them, taki ng into account
their holdings in the company, their participation in the Meeting
and how they voted.

Taking the General Manager’s powers
51. The Board of Directors may order the General Ma nager how to act on a
certain matter; if the General Manager did not comp ly with the
instruction, then the Board of Directors may exerci se the necessary
power to carry out the order in his place, even if the by-laws include no
provision on this.

Organ unable to exercise its function
52. (a) If the Board of Directors is unable to exer cise its powers, and if

20
the exercise of one of its powers is essential for the orderly
management of the company, then – as long as it is unable to
exercise its function – the General Meeting may exe rcise it in its
place, even if there is no provision to that effect in the by-laws, on
condition that the General Meeting determined that the Board of
Directors really is unable to do so and that the ex ercise of the
function is vital as aforesaid; the provision of se ction 50(b) shall
apply to the exercise of the Board of Directors’ po wers by the
General Meeting.
(b) If the General Manager is unable to exercise hi s powers, then the
Board of Directors may exercise them in his place, even if there is
no provision to that effect in the by-laws.

Article Three: Company’s Liability for Activity of Its Organs

Company’s liability in tort
53. (a) A company is directly liable in tort for a civil wrong committed by
one of its organs.
(b) The provision of subsection (a) shall not derog ate from the
company’s vicarious liability in tort under any ena ctment.

Article Four: Liability of Individual Members of Or gans

Liability of individual members of organs
54. (a) Relating an organ’s act or intention to the company shall not
derogate from the personal liability, which individ ual members of
an organ would bear, if not for that relation.
(b) repealed
Article Five: Preventing a Digressive Act
Act that digresses from an authorization
55. (a) A company and persons who act on its behalf shall not carry out
any act that digresses from the objectives prescrib ed in the by-
laws, and they shall also not carry out any act wit hout
authorization or any act that digresses from the au thorization.
(b) If an act said in subsection (a) was carried ou t or if there are
grounds to assume that such an act will be carried out, then the
Court may – on application by the company, by a sha reholder or
creditor of the company who suspects that his right s will be
infringed – make an order to stop or to prevent the act.

Act that digresses from the objectives or without a uthorization
56. (a) If an act performed for a company digresses from the company=s
objectives, or if it is performed without authoriza tion or in

21
digression from the authorization, then it shall be of no effect for
the company, unless the company approved the act in the manner
prescribed in subsection (b), or if the party towar d whom the act
was performed did not know and was not required to know about
the digression or the lack of authorization.
(b) The company’s retroactive approval of an act th at digressed from
the company =s objectives shall be given by the General Meeting,
by a decision adopted by the majority required for changing the
company =s objectives; a said approval of an act without
authorization or in digression from the authorizati on shall be given
by the organ that was qualified to give the authori zation.
(c) An approval said in subsection (b) shall not in fringe any right
acquired by another person in good faith and for co nsideration
before the approval was given.

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CHAPTER TWO: GENERAL MEETING
Article One: Powers of the General Meeting
Powers vested in the General Meeting
57. The company’s decisions on the following matter s shall be adopted by
the General Meeting:
(1) changes in the by-laws, as said in section 20;
(2) exercise of the powers of the Board of Director s in accordance
with the provisions of section 52(a);
(3) appointment of the company’s Auditor, the terms of his
employment and termination of his employment in acc ordance
with the provisions of sections 154 to 167;
(4) appointment of Outside Directors, in accordance with the
provisions of section 239;
(5) approval of acts and transactions that require approval by the
General Meeting under the provisions of sections 25 5 and 268 to
275;
(6) the increase and reduction of the registered sh are capital, in
accordance with the provisions of sections 286 and 287;
(7) a merger, as said in section 320(a).

Must not make conditional
58. (a) A company must not make the provisions of s ection 57
conditional.
(b) The company may, in the by-laws, add subjects o n which
decisions shall be adopted at the General Meeting; however, a
transfer in the by-laws of powers to the General Me eting, in
respect of subjects for which this Law vests the po wer in some
other organ, without the possibility of making that conditional in
the by-laws, shall be done under the provisions of section 50.

Appointment of Directors
59. The annual General Meeting shall appoint the Di rectors, unless there is
a different provision in the by-laws.

Article Two: Annual Meeting and Extraordinary Meeti ng

Convening an Annual Meeting
60. (a) A company shall hold an Annual Meeting ever y year and not later
than fifteen months after the last Annual Meeting.
(b) The agenda of the Annual Meeting shall include a discussion of
the financial reports and of the report by the Boar d of Directors;
the agenda may include the appointment of Directors , the
appointment of an Auditor, as well as a subject, th e discussion of
which at the Annual Meeting is prescribed in the by -laws, or any

23
other subject put on the agenda as said in section 66.

Failure to hold Annual Meeting
61. (a) A private company may include an provision in its by-laws,
according to which it does not have to hold an Annu al Meeting as
said in section 60, except to the extent that that is necessary in
order to appoint an Auditor; if a said provision wa s included, then
the company may refrain from holding Annual Meeting s, except
when one of the shareholders or one of the Director s demanded
that the company hold it.
(b) If no Annual Meeting was held, then the company shall once a
year send the shareholders registered in its Shareh olders
Register financial reports as said in section 172, not later than on
the latest date on which it would have had to hold the Annual
Meeting, if had its by-laws had not included a prov ision as said in
subsection (a).

Annual meeting convened by the Court
62. (a) If an Annual Meeting was not held as said i n section 60, or after
holding it was demanded as said in section 61, then the Court
may – on application of a shareholder or of a Direc tor in the
company, order that it be convened.
(b) If the Court ordered as aforesaid, then the com pany shall bear
reasonable expenses incurred by the applicant in th e Court
proceeding, as the Court determined, and the Direct ors
responsible for not convening the meeting shall rep ay them to the
company.

Convening an Extraordinary Meeting
63. (a) The Board of Directors of a private company shall convene an
Extraordinary Meeting at its own decision and on th e demand of
each of the following:
(1) one Director;
(2) one or more shareholders who have at least 10% of the
issued share capital and at least 1% of the voting rights in
the company, or one or more shareholders who have a t
least 10% of the voting rights in the company.
(b) The Board of Directors of a public company shal l convene an
Extraordinary Meeting at its own decision, and also on the
demand of each of the following:
(1) two Directors or one fourth of the serving Dire ctors;
(2) one or more shareholders who have at least 5% o f the
issued share capital and at least 1% of the voting rights in
the company, or one or more shareholders who have a t
least 5% of the voting rights in the company.
(c) If a Board of Directors received a demand to co nvene an
Extraordinary Meeting, then it shall convene it wit hin 21 days after
the demand was delivered to, it for a time which it shall set in the
invitation under section 67 or in the notice under section 69, on
condition that – for a public company – the date of the meeting be

24
not later than 35 days after the notice was made public, unless a
different provision was prescribed for a meeting to which Article
Seven applies, and – for a private company the prov isions of
section 67 shall apply.
Meeting convened by shareholders
64. (a) If the Board of Directors did not convene t he Extraordinary
Meeting that was demanded under section 63, then wh oever
made the demand – and in the case of shareholders – also part of
them who hold more than half of their voting rights may by
themselves convene the meeting, on condition that i t is not held
later than three months after the demand was submit ted as
aforesaid, and it shall be convened – as far as pos sible – in the
manner in which meetings are convened by the Board of
Directors.
(b) If a General Meeting was convened as said in su bsection (a), then
the company shall cover the reasonable expenses inc urred by the
person who demanded it and the Directors responsibl e for the
failure to convene it must repay them to the compan y.

Application to the Court
65. (a) If the Board of Directors did not call an E xtraordinary Meeting
demanded under section 63, then the Court may – on application
by the person who made the demand – order that it b e convened.
(b) When the Court ordered as aforesaid, then the c ompany shall
cover the reasonable expenses incurred in the legal proceeding
by the person who made the demand and the Directors
responsible for the failure to convene it must repa y them to the
company.

Article Three: Convening and Conducting the General Meeting

Agenda
66. (a) The agenda at a General Meeting shall be de termined by the
Board of Directors, and it shall also include subje cts, because of
which the convening of an Extraordinary Meeting was demanded
under section 63, as well as any subject requested as said in
subsection (b).
(b) One or more shareholders who hold no less than 1% of the voting
rights at the General Meeting may request that the Board of
Directors include a subject on the agenda of a Gene ral Meeting
that will be convened in the future, on condition t hat the subject is
one suitable for discussion at a General Meeting.
(c) At a General Meeting decisions shall be adopted only on subjects
that were specified in the agenda.

Time for delivery of invitations in a private compa ny

25
67. Invitations to a General Meeting in a private company shall be delivered
to every person entitled to participate in it not l ater that seven days
before the time for convening it, on condition that it is not delivered
more than 45 days before the time for convening it, all if not otherwise
prescribed in the by-laws.

Contents of invitation to a General Meeting in a pr ivate company
68. (a) In an invitation to a General Meeting of a private company shall
be stated the time and place where the General Meet ing will take
place, and also the agenda and reasonable details o f the subjects
for discussion.
(b) If the agenda includes a proposal for a change of the by-laws,
then the wording of the proposed change shall be st ated.

Notice of General Meeting in a public company and i ts contents
69. (a) A notice of a General Meeting in a public c ompany shall be made
public or delivered, as the Minister prescribed.
(b) repealed
(c) The notice shall include the agenda, proposed r esolutions and
also arrangements on votes by ballot under the prov isions of
Article Seven.
(d) The Minister may – after consultation with the Securities Authority
– prescribe provisions on the subject of this secti on, including on
the manner of giving details of the subjects, unles s provisions on
this matter are prescribed in another enactment.

Regulations on General Meeting decisions
70. The Minister may prescribe that – when the text of decisions was
specified in invitations or notices – the General M eeting may adopt
decisions that differ from the text of the decision s on the agenda, and
that on subjects and according to criteria that he will prescribe.

Proof of share ownership in a public company
71. A shareholder in a public company, who intends to vote at a General
Meeting, is entitled to receive, unconditionally an d in the manner to be
prescribed by the Minister, from the Stock Exchange member through
whom the share is held, certification that proves h is ownership of the
share (in this Law: proof of ownership); the Minist er may prescribe
conditions and circumstances, under which payment w ill be required for
proof of ownership, and the amount of payment or th e maximum
payment.

General Meeting convened by the Court
72. When there is no practical possibility of conve ning or conducting a
General Meeting in the manner prescribed therefor i n the by-laws or in
this Law, then the Court may – on application by th e company, by a
shareholder entitled to vote at the meeting or by a Director – order that
a meeting be convened and conducted in the manner w hich the Court
will prescribe, and to that end it may issue any su pplementary

26
instructions, which it deems appropriate.

Meeting in Israel
73. If a public company’s shares were offered only to the public in Israel or
are only traded on a stock exchange in Israel, then it shall hold a
General Meeting in Israel.

27
Deferring a General Meeting
74. (a) A General Meeting in which a quorum is pres ent may decide to
defer the meeting, the discussion or the adoption o f a decision on
a subject specified in the agenda, to another date and place, as it
shall decide; the deferred meeting shall only discu ss subjects that
were on the agenda and on which no decision was ado pted.
(b) If a General Meeting was deferred by more than 21 days, then
notices and invitations to the deferred meeting sha ll be issued as
said in sections 67 to 69.
(c) If a General Meeting was deferred by no more th an 21 days
without a change of the agenda, then notice of the new date and
invitations shall be given as soon as possible and not later than
72 hours before the General Meeting; the said notic es and
invitations shall be given according to sections 67 and 69(a),
mutatis mutandis

Category meeting
75. The provisions of this Article and of Articles Four, Five and Six shall
apply, mutatis mutandis, to Category Meetings which the company
must hold.

Article Four: General Meeting in a Private Company

Decision without meeting
76. In a private company a General Meeting resoluti on may be adopted
without calling and without convening a meeting, on condition that the
resolution was adopted unanimously by all sharehold ers entitled to vote
at the General Meeting.

Holding meetings by communications
77. A private company may – unless a contrary provi sion is prescribed in
the by-laws – hold a General Meeting by use of any means of
communication, so that all participating shareholde rs can hear each
other at the same time.

Article Five: Quorum at a General Meeting and Chairman of the Meeting

Quorum at General Meeting
78. (a) The quorum for holding a General Meeting is the presence –
within half an hour after the time set for opening the meeting – of
at least two shareholders who have at least 25% of the voting
rights.
(b) If a quorum is not present at the end of half a n hour after the time
set for opening the meeting, then the meeting shall be postponed
by one week, to the same day, same time and same pl ace, or to a

28
later date, if that was stated in the invitation to the meeting or in
the notice of the meeting.
(c) The provisions of this section shall not apply to a company that
has one shareholder.

Quorum at deferred meeting
79. (a) If a quorum is not present at a meeting def erred as said in
sections 74 or 78 (b) half an hour after its set ti me, then the
meeting shall be held with any number of participan ts.
(b) Notwithstanding the provisions of subsection (a ), if a General
Meeting was convened at the demand of shareholders as said in
sections 63 or 64, then the deferred meeting shall only be held if
at least shareholders in the number required for th e convening of
a meeting, as said in section 63, are present.

Chairman of General Meeting
80. (a) At every General Meeting a chairman shall b e elected for that
meeting.
(b) The election of the meeting’s chairman shall be held at the
beginning of the meeting’s discussions, which shall be opened by
the chairman of the Board of Directors or by a Dire ctor whom the
Board of Directors authorized to do so.

Freedom to make conditional
81. Some or all of the provisions in this Article m ay be made conditional in
the by-laws.

Article Six: Voting at a General Meeting

Freedom to differentiate
82. (a) In its by-laws a company may prescribe diff erent voting rights for
different categories of shares.
(b) The provision of subsection (a) shall not derog ate from the
provision of any other enactment.
(c) If the company did not prescribe different voti ng rights in its by-
laws, then each share shall have one vote.

Manner of voting at meeting
83. (a) A share holder in a public company may vote in person or through
a proxy, and also a vote by ballot under the provis ions of Article
Seven.
(b) A share holder in a private company may vote in person or
through a proxy, unless the by-laws provide otherwi se.
(c) A share holder in a private company may vote in writing, if
provisions to that effect are made in the by-laws.

Vote by count of votes

29
84. A decision at a General Meeting shall be adopted by a count of votes; a
private company may in its by-laws prescribe a diff erent way of
deciding.

Majority at General Meeting
85. Decisions of a General Meeting shall be adopted by an ordinary
majority, unless a different majority is prescribed by Law or by the by-
laws.

Proclamation as evidence
86. The chairman’s proclamation that a decision was adopted or rejected at
a General Meeting, whether unanimously or by a cert ain majority, shall
be a priori evidence of its contents.

Article Seven: Vote by Ballot and Position Paper
Vote at General Meeting by Ballot
87. (a) The shareholders in a public company may vo te at General
Meetings and at Category Meetings on the following subjects by
means of ballots, on which the shareholder shall in dicate how he
votes:
(1) the appointment and discharge of Directors;
(2) approval of acts and of transactions that requi re approval by
the General Meeting under the provisions of section s 255
and 268 to 275;
(3) approval of a merger under section 320;
(4) any other subject in respect of which it is pre scribed in the
by-laws or under them that decisions of the General Meeting
also be adopted by voting by ballot;
(5) additional subjects, which the Minister prescri bed under
section 89.
(b) A ballot shall be sent by the company to all it s shareholders; a
shareholder may indicate on the ballot how he votes and send it
to the company.
(c) A ballot, on which a shareholder indicated how he votes and
which reached the company by the last date set ther efor, shall be
deemed presence at the Meeting, for purposes of the quorum
said in section 78.
(d) If a ballot on a certain matter not voted on at the General Meeting
is received by the company as said in subsection (a ), then it shall
be deemed an abstention on the vote at that meeting on a
decision to hold a deferred meeting under the provi sions of
section 74, and it shall be counted at the deferred meeting held
under the provisions of sections 74 or 79.

Addressing the shareholders

30
88. (a) The Board of Directors, as well as the person at whose demand
the Board of Directors calls the General Meeting un der the
provisions of section 63, may address the sharehold ers in writing
through the company, in order to convince them how to vote on
any of the subjects said in section 87, which will be raised at that
meeting (hereafter: position paper); the company sh all send the
position papers under this subsection to the shareh olders at its
expense, together with the ballot for that meeting.
(b) If a General Meeting was called and subjects fr om among those
specified in section 87 are on its agenda, then a s hareholder in
the company may address the company and request tha t a
position paper on his behalf be sent to the other s hareholders in
the company; a position paper under this subsection may be at
the shareholder’s expense or at that of the company , all as the
Minister prescribed according to the provision of s ection 89;
however, a company may decide that all position pap ers under
this subsection be at its expense.
(c) A company’s Board of Directors may send a posit ion paper to the
shareholders, in response to a position paper sent as said in
subsections (a) or (b), or in response to some othe r approach to
the shareholders.
(d) A shareholder, within the meaning of section 17 7(1), is entitled to
receive from the Stock Exchange member through whom the
share is held – subject to the provisions under sec tion 89(5) and
unconditionally – a ballot and position papers.

Regulations
89. The Minister may, in consultation with the Mini ster of Finance and the
Securities Authority, prescribe provisions on ballo ts and position paper
under this Article, inter alia on the following mat ters:
(1) Subjects to which this Article shall apply, in addition to the
subjects prescribed in section 87;
(2) granting partial or complete exemption from the application of
sections 87 and 88, in respect of categories of cer tain companies,
according to a classification which he shall prescr ibe, also taking
into account the proportion of holdings of the cont rolling member
in those companies, the majority required to adopt decisions at
the General Meetings of certain companies, and also taking into
account where the company’s securities are listed f or trading;
(3) granting exemption from sending ballots and pos ition papers to
part of the shareholders in certain companies, taki ng into account
the portion of voting power or the value of the sha res held by
them, and in the case of shareholders said in secti on 177(1) –
also taking into account the extent of voting power and the value
of shares held with each stock exchange member sepa rately in
each securities account;
(4) the manner of delivering ballots and position p apers to the
shareholders, and the manner of sending ballots to the company,
including through stock exchange members or through a body

31
corporate under their control or through some other body
corporate, the obligation to attach certification t hat attests to the
ownership of the shares on the determining date, an d also times
and schedules for the performance of the acts neces sary to
realize the provisions of this Article;
(5) the maximum amount to be paid for the dispatch of ballots or of
position papers, and the manner in which the paymen ts of
expenses for the above dispatch shall be allocated, as said
above, between the various factors that participate in it;
(6) the publication of position papers and ballots in a manner to be
determined, instead of their delivery to the shareh olders;
(7) the manner of supervising implementation of the provisions of this
Article, including the matter of the obligation to keep records of
the implementation of provisions which he prescribe d;
(8) a pattern for the text of a ballot and of a pos ition paper on
subjects, to which this Article applies.

Article Eight: Minutes of the Meeting

Protocols of General Meetings
90. (a) The company shall edit the protocols of pro ceedings at General
Meetings and it shall keep them in Its registered o ffice during a
period of seven years after the date of the meeting .
(b) A protocol signed by the chairman of the Meetin g constitutes a
priori proof to its contents.
(c) A Register of the protocols of General Meetings shall be kept in
the company’s registered office and shall be open t o inspection by
its shareholders, and a copy thereof shall be sent to each
shareholder who so requested.

Article Nine: Defects in Convening the Meeting

Defects in convening the meeting
91. (a) On the application of a shareholder, the Co urt may order the
annulment of a decision adopted at a General Meetin g, that was
convened or conducted without satisfying all the co nditions set
therefor in this Law or in the by-laws.
(b) If the defect in convening related to the notic e about the place
where or the time when the meeting was convened, th en a
shareholder who arrived at the meeting in spite of the defect shall
not be entitled to demand that the decision be null ified.

32
CHAPTER THREE: BOARD OF DIRECTORS
Article One: Powers of the Board of Directors
Powers and responsibilities of the Board of Directo rs
92. (a) The Board of Directors shall formulate the company’s policy and
shall supervise the exercise of the General Manager ‘s office and
his acts, and as part thereof it –
(1) shall determine the company’s plans of activity , the
principles for financing them and the order of prio rity among
them;
(2) shall examine the company’s financial situation and set the
framework of credit which the company may take;
(3) shall determine the organizational structure an d the wage
policy;
(4) may decide to issue a series of debentures;
(5) is responsible for the preparation and approval of the
financial reports said in section 171;
(6) shall report to the Annual Meeting about the st ate of the
company’s affairs and on its business results, as s aid in
section 173;
(7) shall appoint and dismiss the General Manager, as said in
section 250;
(8) shall decide on the acts and transactions that require its
approval in accordance with the by-laws or under th e
provisions of sections 255 and 268 to 275;
(9) may allocate shares and securities convertible into shares
up to the limit of the company’s registered share c apital,
under the provisions of section 288;
(10) may decide on a distribution said in sections 307 and 308;
(11) shall express its opinion on a special purchas e offer, as said
in section 329;
(12) in a public company a minimum number shall be set of
Directors on the Board of Directors, who have exper tise in
accounting and finance, within its meaning in secti on 240 (in
this Law: Directors with expertise in accounting an d finance);
the Board of Directors shall set the said minimum n umber,
taking into consideration, inter alia, the type of company, its
size, the extent and complexity of the company =s activity,
and subject to the number of Directors set in the b y-laws
under section 219.
(b) The powers of the Board of Directors under this section cannot be
delegated to the General Manager, except as specifi ed in section
288(b)(2).

Board of Directors composed of a single person
93. (a) In a private company the Board of Directors may be composed of
a single person.
(b) The provisions of this Article shall apply to a Board of Directors

33
composed of a single person; the provisions of Article Six shall
apply, mutatis mutandis, to the decisions of a said Board of
Directors; the other provisions of this Chapter sha ll not apply to a
Board of Directors composed of a single person.

Article Two: Chairman of the Board of Directors

Election of the Chairman of the Board of Directors
94. (a) The Board of Directors of a public company shall elect one of its
members to serve as Chairman of the Board of Direct ors, unless
a different method of appointment is prescribed in the by-laws.
(b) In a private company it is not obligatory to ap point a Chairman of
the Board of Directors; if in a private company no Chairman of the
Board of Directors was appointed, then each of the Directors may
convene the Board of Directors and set its agenda, unless there is
a different provision in the by-laws.

Restriction on election of Chairman of the Board of Directors
95. (a) In a public company its General Manager sha ll not serve as
Chairman of the Board of Directors, except under th e provisions
of section 121(c).
(b) In a public company the powers of the General M anager shall not
be vested in the Chairman of the Board of Directors , except under
the provisions of section 121(c).
(c) The provisions of subsection (a) shall not appl y during three
months after the company became a public company.

Conducting meetings of the Board of Directors
96. (a) The Chairman of the Board of Directors shal l conduct the
meetings of the Board of Directors;
(b) If the Chairman of the Board of Directors is ab sent from a
meeting, then the Board of Directors shall elect on e of its
members to conduct the meeting and to sign the minu tes of its
deliberations, but the person elected shall not hav e a casting vote
in votes of the Board of Directors, as said in sect ion 107, all if not
otherwise provided in the by-laws.

Article Three: Convening the Board of Directors

Board of Directors meetings
97. The Board of Directors shall hold meetings in a ccordance with the
company’s needs and at least once a year, and in a public company at
least once in three months.

Convening the Board of Directors
98. (a) The Chairman of the Board of Directors may convene the Board

34
of Directors at any time.
(b) The Board of Directors shall hold a meeting on a specified subject
on the demand of any of the following:
(1) two Directors, and in a company in which the Bo ard of
Directors numbers up to five Directors – one Direct or;
(2) one Director, if a provision to that effect is included in the
company’s by-laws or if what is said in section 257
occurred..
(c) The Chairman of the Board of Directors shall co nvene the Board
of Directors upon a demand said in subsection (b) o r if what is
said in section 122(d) applies because of a notice or report from
the General Manager or because of a notice from the Auditor of
the company under section 169.
(d) If a meeting of the Board of Directors was not convened within 14
days after the date of a demand said in subsection (b), or after the
date of a notice or report of the General Manager t o which what is
said in section 122(d) applies, or after notice of the Auditor under
section 169, then each of those enumerated in subse ctions (a)
and (b) may convene a meeting of the Board of Direc tors, which
shall discuss the subject specified in the demand, notice or report,
as the case may be, unless the by-laws include a di fferent
provision on the time of the meeting.

Article Four: Meetings of the Board of Directors an d Their Conduct

Agenda
99. The agenda of a meeting of the Board of Directo rs shall be set by the
Chairman of the Board of Directors, and it shall in clude:
(1) subjects determined by the Chairman of the Boar d of Directors;
(2) subjects determined as said in section 98;
(3) any subject which a Director or the General Man ager requested –
at a reasonable time before the meeting was convene d – of the
Chairman of the Board of Directors to include in th e agenda,
unless the by-laws provide otherwise.

Notice of meeting of the Board of Directors
100. (a) Notice of a meeting of the Board of Direct ors shall be delivered to
all its members at a reasonable time before the mee ting, unless
there is a different provision on the time of the d elivery in the by-
laws.
(b) A notice under subsection (a) shall be delivere d to the Director’s
address that was given to the Company in advance, a nd in it shall
be stated the time of the meeting and the place whe re it will
convene, as well as reasonable details on all the s ubjects on the
agenda, all if not prescribed otherwise in the by-l aws.
(c) In a public company the by-laws cannot make con ditional the
obligation to give – as part of the notice of a mee ting of the Board

35
of Directors – reasonable details of all the subjects on the
agenda.

Holding meetings by communications
101. The Board of Directors may – unless this possi bility is negated in the
by-laws – hold meetings by use of any means of comm unication, on
condition that all participating Directors can hear each other at the
same time.

Convening the Board of Directors without notice
102. Notwithstanding the provision of section 100, the Board of Directors
may – with the consent of all the Directors – conve ne for a meeting
without notice, unless this possibility is negated in the by-laws.

Decisions adopted without meeting
103. (a) The Board of Directors may adopt decisions even without an
actual meeting, on condition that all the Directors entitled to
participate in the deliberations and to vote on the matter brought
up for a decision agreed not to convene for a discu ssion of that
matter, unless this possibility is negated by the b y-laws.
(b) If decisions were adopted as said in subsection (a), then a
protocol of the decisions – including the decision not to convene a
meeting – shall be drawn up and signed by the chair man of the
Board of Directors.
(c) The provisions of section 108 shall apply, muta tis mutandis, to a
decision said in subsection (a).
(d) The Chairman of the Board of Directors is respo nsible for the
implementation of the provisions of this section.

Quorum at the Board of Directors
104. The quorum for opening a meeting of the Board of Directors is a
majority of members of the Board of Directors, unle ss the by-laws
prescribe differently.

Article Five: Voting in the Board of Directors

Voting in the Board of Directors
105. When the Board of Directors votes each Directo r shall have one vote,
unless the by-laws prescribe differently.

Voting agreements
106. A Director, by being qualified as such, shall not be party to any voting
agreement, and a voting agreement shall be deemed a violation of the
obligation of loyalty.

Adoption of decisions
107. Decisions of the Board of Directors shall be a dopted by an ordinary

36
majority; in case of a tie vote the Chairman of the Board of Directors
shall have an additional vote, all if not prescribe d differently in the by-
laws.
Article Six: Protocols of Board of Directors Meetin gs

Protocols of Board of Directors meetings
108. (a) The company shall prepare protocols of pro ceedings at Board of
Directors meetings and keep them for a period of se ven years
after the date of the meeting. in Its registered of fice or at another
address in Israel, of which it shall inform the reg istrar.
(b) A protocol approved and signed by the Director who chaired the
meeting constitutes a priori proof of its contents.

Article Seven: Defects in Convening a Board of Dire ctors Meeting

Defects in convening the meeting
109. (a) A decision adopted by a Board of Directors meeting that
convened without the prior conditions for its meeti ng having been
met (hereafter: defect in the meeting) may be nulli fied on the
demand of any one of the following:
(1) a Director who participated in the meeting, on condition that
he demanded to refrain from adopting the decision i n
respect of which the defect existed, before it was adopted;
(2) a Director who was entitled to be invited to th e meeting, but
was not present at it, and that within a reasonable time after
he learned of the decision, and not later than the first Board
of Directors meeting that takes place after he lear ned of the
decision;
(3) if the defect in convening related to the time or place of the
meeting, then a Director who came to the meeting in spite of
the said defect shall not be entitled to demand nul lification of
the decisions.
(b) The provisions of subsection (a) shall not dero gate from the
validity of an act performed for the company and wh ich meets the
provisions of section 56(a).

Article Eight: Committees of the Board of Directors

Setting up committees
110. (a) The Board of Directors may set up Board of Directors committees,
unless the by-laws provide otherwise.
(b) A person who is not a member of the Board of Di rectors shall not

37
serve on a Board of Directors committee, to which the Board of
Directors delegated any of its powers.
(c) A person who is not a member of the Board of Di rectors may
serve on a Board of Directors committee which advis es the Board
of Directors or only makes recommendations, unless the by-laws
provide otherwise.

Committee activities
111. (a) A decision adopted or an act performed in a Board of Directors
Committee by virtue of authority delegated to it by the Board of
Directors is equivalent to a decision adopted or an act performed
in the Board of Directors, unless the by-laws presc ribe otherwise.
(b) A Board of Directors Committee shall give curre nt reports to the
Board of Directors on its decisions or recommendati ons.
(c) Articles Two and Seven shall also apply, mutati s mutandis, to
meetings of the committees and on the way they are conducted.
(d) Protocols of Board of Directors Committees shal l be drawn up and
kept as said in section 108.

Restriction on delegation of powers
112. (a) The Board of Directors is not entitled to delegate its powers to
Board of Directors Committees on the following subj ects:
(1) determination of the company’s economic policy;
(2) a distribution, unless it is a case of acquirin g the company’s
shares in accordance with a framework determined in
advance by the Board of Directors;
(3) determining the Board of Directors’ stand on a matter that
requires approval by the General Meeting, or giving an
opinion as said in section 329;
(4) appointment of Directors, if the Board of Direc tors is entitled
to appoint them;
(5) an issue or allocation of shares or of securiti es convertible
into shares or realizable as shares, or of series o f
debentures, except as specified in section 288(b);
(6) approval of financial reports;
(7) Board of Directors approval of transactions and acts that
require Board of Directors approval under the provi sions of
sections 255 and 268 to 275.
(b) A company is not entitled to make the provision s of subsection (a)
conditional in its by-laws, but it may prescribe ad ditional subjects
in its by-laws, on which decisions shall be adopted only by the
Board of Directors.
(a) The Board of Directors may set up committees on the subjects
enumerated in subsection (a) only in an advisory ca pacity.

Cancellation of committee decisions
113. The Board of Directors may cancel decisions of a committee appointed
by it, but the cancellation shall not infringe on t he validity of a
committee decision, according to which the company acted toward

38
another person who did not know of its cancellation.

Article Nine: Audit Committee

Appointment of Committee
114. The Board of Directors of a public company sha ll appoint an Audit
Committee from among its members, and the provision s of Article Eight
shall apply to it, mutatis mutandis.

Committee members
115. (a) The number of members of the Audit Committ ee shall not be
fewer than three, and all Outside Directors shall b e members of it.
(b) The Chairman of the Board of Directors and any Director who is
employed by the company or regularly gives it servi ces shall not
be members of the Audit Committee.
(c) A controlling member or his relative shall not be members of the
Audit Committee.

Invitations to meetings
116. (a) The company’s Internal Auditor shall be gi ven notice of Audit
Committee meetings and he may participate in them.
(b) The Internal Auditor may request of the chairma n of the Audit
Committee that he convene the committee in order to discuss a
subject which he specified in his request, and the chairman of the
Audit Committee shall convene it within a reasonabl e time after
the date of the request, if he thinks that there is a good reason
therefor.
(c) Notice of Audit Committee meetings, in which a subject connected
with the audit of the financial reports is to be ra ised, shall be
delivered to the Auditor, who shall be entitled to participate in the
meeting.

Tasks of the Audit Committee
117. The following are the tasks of the Audit Commi ttee:
(1) to find any defects in the business management of the company,
also in consultation with the company’s Internal Au ditor or with its
Auditor, and to propose to the Board of Directors w ays of
correcting them;
(2) to decide whether to approve acts and transacti ons that require
the approval of the Audit Committee under sections 255 and 268
to 275.

Audit Committee in a private company
118. (a) In a private company the Board of Director s may appoint an Audit
Committee from among its members, for whom the prov isions of
section 115(b) hold true; the tasks of the Audit Co mmittee shall be

39
as specified in section 117.
(b) An Audit Committee with tasks as said in sectio n 117(2) shall – In
a private company – not be appointed with a majorit y of members
who are substantial shareholders or their relatives .

CHAPTER FOUR: GENERAL MANAGER

Appointment of General Manager
119. (a) A public company shall appoint a General M anager and it may
appoint more than one General Manager.
(b) A private company may appoint one or more Gener al Managers; if
it did not appoint a General Manager, then it shall be managed by
the Board of Directors.

Responsibility of General Manager
120. The General Manager is responsible for the cur rent operation of the
company’s affairs within the bounds of the policy d etermined by the
Board of Directors and subject to its directions.

40
Powers of the General Manager
121. (a) The General Manager shall have all the pow ers of management
and implementation, which by this Law or by the by- laws were not
vested in another organ of the company, and he shal l be subject
to supervision by the Board of Directors.
(b) The General Manager may – with the Board of Dir ectors’ approval
– delegate powers to other persons who report to hi m.
(c) Notwithstanding the provisions of section 95, t he General Meeting
of a public company may decide that the Chairman of the Board
of Directors of the company may be authorized – for periods, each
of which shall not be longer than three years after the date on
which the decision was adopted – to hold the positi on of General
Manager or to exercise his powers, on condition tha t the majority
at the General Meeting –
(1) include at least two thirds of the votes of sha reholders who
are not controlling members of the company or their
representatives and who are present at the vote; th e count
of the aforesaid shareholders’ votes shall not take
abstentions into account;
(2) the total number of opposing votes from among t he
shareholders said in paragraph (1) does not exceed 1% of
the total of voting rights in the company.

Obligation to report to Board of Directors
122. (a) The General Manager must inform the Chairm an of the Board of
Directors of any extraordinary matter that is subst antive for the
company; if the company does not have a Chairman of the Board
of Directors or if he is unable to exercise his pos ition, then the
General Manager shall inform all members of the Boa rd of
Directors as aforesaid.
(b) The General Manager shall submit reports to the Board of
Directors on subjects, at times and to an extent, a s the Board of
Directors will prescribe.
(c) The Chairman of the Board of Directors may – at any time at his
own initiative or on decisions by the Board of Dire ctors – demand
reports from the General Manager on subjects relate d to the
company’s affairs.
(d) If a notice or report from the General Manager requires action on
the part of the Board of Directors, then the Chairm an of the Board
of Directors shall convene a meeting of the Board o f Directors
without delay.

41
PART FOUR: COMPANY ADMINISTRATION

CHAPTER ONE: REGISTERED OFFICE

Registered office
123. (a) From the day on which a company was regist ered it must keep a
registered office, to which every notice to the com pany may be
addressed.
(b) Notice of the address of the registered office shall be delivered to
the Registrar with the application for the company’ s registration;
notice of a change in the registered office’s addre ss shall be
delivered to the Registrar within 14 days after the change; the
Registrar shall record the address of the company’s registered
office.
(c) Service of a document on the company shall cons ist of its deposit
in the company’s registered office, as recorded wit h the Registrar
at the time of delivery, or of dispatch to it by ma il.
(d) Service of a document from the Companies Regist rar to the
company or from the Securities Authority to a publi c company
may be, notwithstanding the provisions of subsectio n (c), by
deposit in the place where the Registrar or the Sec urities
Authority, as the case may be, is satisfied that th e company
actually manages its affairs.

Documents to be kept in the registered office
124. Without derogating from the provisions of any enactment, the company
shall keep the following documents in its registere d office:
(1) the company’s by-laws;
(2) protocols of sessions of General Meetings, as s aid in section 90;
(3) protocols of meetings of the Board of Directors , as said in
sections 103 and 108;
(4) protocols of meetings of Board of Directors Com mittees, as said
in section 111;
(5) copies of the company’s notices to its sharehol ders during the last
seven years;
(6) the company’s financial reports, as said in sec tion 171;
(7) the Shareholders Register, and in a public comp any also the
Register of Substantial Shareholders, as said in se ctions 127 and
128;
(8) the Register of Directors, as said in section 2 24.

How documents are to be kept
125. A company may keep the aforesaid documents by electronic means, on
condition that those entitled to inspect them are a ble to obtain copies of
the documents.

Getting copies
126. (a) A person entitled to inspect documents spe cified in section 124 is
entitled to obtain copies of them against a payment , which shall

42
not exceed the company=s expense only for giving the copies .
(b) The Minister may set maximum payments.
CHAPTER TWO: SHAREHOLDERS REGISTER
AND REGISTER OF SUBSTANTIAL SHAREHOLDERS
Article One: The Registers

Shareholders Register
127. A company shall keep a Shareholders Register.

Register of Substantial Shareholders
128. A public company shall keep a Register of Subs tantial Shareholders, in
addition to the Shareholders Register.

Inspecting the Registers
129. The Shareholders Register and the Register of Substantial
Shareholders shall be open for inspection by any pe rson.

Article Two: Shareholders Register

Contents of Shareholders Register
130. (a) In the Shareholders Register shall be reco rded –
(1) in respect of registered shares – (a) the name, ID number and address of every shareholder, all as was communicated to the company ;
(b) the number of shares and category of shares own ed
by each shareholder, stating their nominal value, i f
any, and if any amount has not yet been paid on
account of the consideration set for the share – th e
amount that has not yet been paid;
(c) the date of the shares’ allocation or the dates of their
transfer to the shareholder, as the case may be;
(d) if the shares were given serial numbers, then n ext to
the name of each shareholder the company shall stat e
the numbers of the shares recorded in his name;
(2) in respect of bearer shares – (a) the fact that shares were issued to bearer, the date of
the allocation and the number of shares;
(b) the serial numbers of the bearer shares and of the
share certificate.
(3) in respect of dormant shares, within their mean ing in section
308 – also their number and the date on which they became
dormant, all as is known to the company.
(4) in respect of shares which under section 309(b) or under
section 333(b) do not carry voting rights – also th eir numbers
and the dates on which they became shares which do not
carry voting rights, all as is known to the company .

43
(b) The company shall keep all the information recorded in the
Shareholders Register, as said in subsection (a), a nd it shall bring
changes in it up-to-date as early as possible after the day on
which it learned of them.
Entering trustee in Shareholders Register
131. (a) A shareholder who is a trustee shall repor t that to the company,
and the company shall register him in the Sharehold ers Register,
stating the fact that he is a trustee, and for purp oses of this Law
he shall be treated like a shareholder.
(b) The provisions of subsection (a) shall not appl y to a shareholder
within the meaning of section 177(1), unless a repo rting obligation
applies to him under other statutory provisions.

Registration company
132. (a) In a company, the shares of which are list ed for trading on a stock
exchange in Israel, it is possible to register in t he Shareholders
Register, in addition to the provisions of section 130(a)(1), also a
registration company; however, a registration compa ny shall not
be deemed a shareholder in the company and the shar es in its
name are owned by the persons entitled to them, as said in
section 177(1).
(b) A shareholder by virtue of entitlement as said in section 177(1)
may be registered in the Shareholders Register inst ead of the
registration of those shares in the name of the reg istration
company, and the number of shares registered in the name of the
registration company shall be changed accordingly.

Shareholders Register as evidence
133. (a) The Shareholders Register shall be a prior i evidence of the
correctness of its contents.
(b) If what is registered in the Shareholders Regis ter conflicts with a
share document, then the evidentiary value of the S hareholders
Register outweighs the evidentiary value of the sha re document.

Correction of entry
134. If a person is registered in the Shareholders Register without being
entitled thereto, or if he is not registered in the said Register even
though he is entitled thereto, or if the entry is n ot complete or accurate,
and if the company refused to make the necessary co rrection, then the
Court may – on application by the injured person or by any shareholder
in the company – grant the relief it deems appropri ate under the
circumstances of the case, including correction of the Register.

Article Three: Registration of Share Certificate

Issue of share certificate
135. If a share certificate was issued in place of a registered share, then the

44
share shall be recorded, as said in section 130(a)(2), and the
shareholder’s name shall be deleted from the Shareh olders Register.

Cancellation of share certificate
136. If a shareholder lawfully holds a share certif icate, then he may return
the certificate to the company for cancellation and for the share’s
conversion into a registered share; upon cancellati on the name of the
shareholder must be registered in the Shareholders Register, stating
the number of shares registered in his name, as pre scribed in section
130(a)(1), on condition that there is no provision in the by-laws that a
share certificate must not be canceled.

Article Four: Register of Substantial Shareholders and
Additional Shareholders Register Abroad

Contents of Register of Substantial Shareholders
137. In the Register of Substantial Shareholders sh all be kept all the reports
received by the company under the Securities Law on the holdings of
company shares by substantial shareholders.

Additional Shareholders Register
138. (a) A company may keep an additional Sharehold ers Register abroad
(hereafter: additional Register).
(b) If a company keeps an additional Register, then it shall state in its
Register under section 130 (hereafter: Main Registe r) the number
of shares registered in the additional Shareholders Register and
their numbers, if they are numbered.

Regulations
139. The Minister may make provision on the operati on of an additional
Register, as said in section 138, including provisi ons on the up-dating of
the Main Register by particulars in the additional Register.

CHAPTER THREE: REPORTS

Article One: Reports of a Private Company
Reports of a private company
140. A private company shall send the Registrar an annual report, as said in
section 141, and it shall also report to the Regist rar as specified in this
Law and on the following matters:
(1) changes in the by-laws, as said in section 21, including decisions
on name changes as said in section 31, and increase s or

45
decreases of the registered capital, as said in sections 286 and
287;
(2) a change of the address of the registered offic e, as said in section
123;
(3) a notice under section 159 that the company doe s not have an
Auditor;

(4) appointments to the Board of Directors and chan ges in its
composition, as said in section 223;
(5) share allocations, as said in section 292;
(6) share transfers, as said in section 299, within 14 days after the
transfer;
(7) a merger, as said in section 317;
(8) conversion of a private company into a company that is a
reporting body corporate, as defined in the Securit ies Law;
(9) its conversion into a private company, as said in section 343.

Annual report of a private company
141. (a) Once a year a private company shall draw u p and submit to the
Registrar an annual report, as the Minister shall p rescribe, within
14 days after the General Meeting.
(b) A private company that does not hold an Annual Meeting, as said
in section 61, shall submit the annual report once a year, not later
than 14 days after the financial reports were sent to the
shareholders, and in respect of an inactive company that does not
prepare financial reports under the provisions of s ection 172(g) –
once a year.
(c) In this Article, Aprivate company @ – a company that is not a public
company within its meaning in section 142.

Article Two: Reports of a Public Company

Reports of a Public Company
142. (a) In this Article, except for purposes of se ction 145(1), Apublic
company @ – including a company that is a reporting body
corporate, as defined in the Securities Law.
(b) A public company shall report to the Securities Authority, to the
stock exchange at which the company’s securities ar e listed for
trading, and to the Companies Registrar, as require d by this Law,
by the Securities Law and by any other enactment.

Inspection at the Securities Authority
143. (a) The reports submitted to the Securities Au thority as said in
section 142 shall be open to inspection by the publ ic at the
Securities Authority, and any person may inspect th em and obtain
certified copies of their contents, either through the Securities

46
Authority or through others whom the Authority authorized for that
purpose, unless the inspection of them was restrict ed under any
enactment.
(b) A certified copy as said in subsection (a) shal l be accepted in any
legal proceeding as an original, and it shall const itute conclusive
proof of the fact that the original document is in the possession of
the Securities Authority.
(c) If rules were made under the Securities Law abo ut electronic filing
or reporting, then the provisions of subsection (b) shall apply to
the output of the said reports; for the purposes of this section,
” output ” – as defined in the Computers Law 5755-1995.

144. Repealed
Public company’s report to the Registrar
145. Without derogating from the provisions of any statute, a public
company shall report to the Registrar under this La w only on the
matters specified below:
(1) a decision to change the name, as said in secti on 31;
(2) a change in the address of the registered offic e, as said in section
123;
(3) a merger, as said in section 317;
(4) its conversion into a public company, as said i n section 343.

CHAPTER FOUR: INTERNAL AUDITOR IN A PUBLIC COMPANY

Must appoint Internal Auditor
146. (a) The Board of Directors of a public company shall appoint an
Internal Auditor; the Internal Audit shall be appoi nted on the
proposal of the Audit Committee.
(b) A person who is an interested party or an offic er of the company,
a relative of one of these, the Auditor or anybody on his behalf
shall not serve as Internal Auditor of the company.

Internal Audit Law
147. The provisions of sections 3(a), 4(b), 8 to 10 and 14(b) and (c) of the
Internal Audit Law 5752-1992 shall apply to the Int ernal Auditor, subject
to the other provisions of this Chapter and mutatis mutandis, as the
case may be.

Internal Auditor’s superior
148. The Chairman of the Board of Directors or the General Manager shall
be the organizational superior of the Internal Audi tor, as shall be
prescribed in the by-laws, or in the absence of any provision in the by-
laws – as shall be prescribed by the Board of Direc tors.

47
Work program
149. The Internal Auditor shall submit an annual or periodic work program
for approval by the Board of Directors or for appro val by the Audit
Committee, or – if there is no provision in the by- laws – as the Board of
Directors shall prescribe, and the Board of Directo rs or the Audit
Committee, as the case may be, shall approve it wit h the changes it
deems appropriate.

Urgent examination
150. The Chairman of the Board of Directors or the Chairman of the Audit
Committee may order the Internal Auditor to conduct an internal audit –
in addition to the work program – on matters where an urgent need for
an examination arose.

Tasks of Internal Auditor
151. The Internal Auditor shall examine, inter alia , whether the company’s
acts are correct in terms of obedience to the law a nd of orderly
business practice.

Submission of report
152. The Internal Auditor shall submit a report of his findings to the
Chairman of the Board of Directors, to the General Manager and to the
Chairman of the Audit Committee; a report on matter s which he
examined under section 150 shall be submitted to th e person who
ordered the Internal Auditor to make the examinatio n.

Termination of office
153. (a) An Internal Auditor’s term in office shall not be terminated without
his concurrence, and he shall not be suspended from office,
unless the Board of Directors so decided after it h eard the
position of the Audit Committee and after the Inter nal Auditor was
given a reasonable opportunity to state his case be fore the Board
of Directors and before the Audit Committee.
(b) For the purposes of subsection (a), the quorum for opening the
meeting of the Board of Directors shall not be less than a majority
of the members of the Board of Directors, the provi sions of the
closing passage of section 104 notwithstanding.

CHAPTER FIVE: AUDITOR
Article One: Appointment of Auditor

Must appoint Auditor
154. (a) A company shall appoint an Auditor, who sh all audit the annual
financial reports and express his opinion of them ( hereafter: the
audit); the Minister may prescribe that certain oth er acts, which an

48
Auditor performs under any enactment also are an act of audit for
purposes of this Chapter.
(b) An Auditor shall be appointed at every Annual M eeting and shall
serve in office until the end of the following Annu al Meeting;
however, a General Meeting may – if there is a prov ision to that
effect in the by-laws – appoint an Auditor who shal l serve for a
longer period, which shall not extend beyond the en d of the third
annual General Meeting after the one at which he wa s appointed.
(c) A private company, for which the provision of s ection 61 holds
true, may appoint an Auditor who shall serve until the end of one
audit or – if there is a provision to that effect i n the by-laws – until
the end of three audits.

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Appointment of first Auditor
155. (a) The Board of Directors may appoint the com pany’s first Auditor at
any time before the first annual General Meeting, a nd it may set
his remuneration; the first Auditor appointed shall serve until the
end of the first annual General Meeting.
(b) If the provisions of section 61 apply to a priv ate company, then
the provisions of section 154(c) shall apply to the conclusion of
the service of the first Auditor appointed by the B oard of Directors.

Joint Auditors
156. A company may appoint several Auditors, who sh all perform the audit
jointly.

Appointment by Extraordinary General Meeting
157. If the position of Auditor fell vacant and the company does not have an
additional Auditor, then the company’s Board of Dir ectors shall convene
an Extraordinary General Meeting at the earliest po ssible time, and the
appointment of an Auditor shall be on its agenda.

Inactive companies
158. (a) Notwithstanding the provisions of section 154, if the business
turnover of a private company does not exceed NS 50 0,000 a
year or if the business turnover of a private comp any that is a
public benefit company does not exceed the amount s aid in
section 19(c) of the Amutot Law (in this Law: inact ive company),
then it may decide at a General Meeting that no aud itor be
appointed for it, unless shareholders who hold 10% or more of the
company =s issued capital object; the amount said in this
subsection shall be linked to the index once a year , at the
beginning of February; the Minister shall publish t he said amount
in Reshumot, up-dated for that year;
in this subsection: ” turnover ” – the total of receipts from any source and of an y kind,
which were received during the previous year; ” year ” – a 12 month period from January through December .
(a1) If the General Meeting decided as said in subs ection (a), then the
company shall do the following:
(1) send a notice to the Registrar within 14 days a fter the
decision;
(2) attach to its annual report a declaration signe d by an officer,
in which it states that the company did not appoin t an
auditor and did not draw up audited financial repor ts, since
the conditions of subsection (a) applied.
(b) repealed

Appointment by Registrar
159. (a) If an Auditor ceased to serve in a company and if no other was
appointed in his place as provided in section 157, then the
company shall so inform the Registrar within 90 day s after the day

50
on which the Auditor ceased to serve as aforesaid; however,
notification to the Registrar shall not derogate fr om the company’s
obligation to appoint an Auditor, as long as no Aud itor was
appointed for it under subsection (b); if the compa ny appointed an
Auditor after it notified the Registrar, then it sh all so inform the
Registrar within 14 days.
(b) If the Registrar received notification that an Auditor has ceased to
serve, as said in subsection (a), and as long as he has not
received notification that a new Auditor was appoin ted, then the
Registrar may appoint an Auditor who shall serve in that position
until the end of the next annual General Meeting, a nd he may set
the remuneration which the company shall pay him.
(c) The Minister may prescribe provisions and condi tions for the
appointment of an Auditor to be appointed by the Re gistrar, the
beginning of his service and his remuneration.

Article Two: Independence

Auditor =s independence
160. (a) The Auditor shall be independent of the co mpany, both directly
and indirectly.
(b) The Minister may prescribe provisions on the in dependence of the
Auditor, including provisions on the independence o f Certified
Public Accountants who are partners in a partnershi p that is the
Auditor, or on the independence of Certified Public Accountants
who are shareholders in the Company of Certified Pu blic
Accountants that is the Auditor.

Must make additional audit
161. If an audit was carried out while there were r elations of dependence
under section 160, then an additional audit shall b e carried out by
another Auditor, unless – when the matter became kn own to the Board
of Directors – five years had passed since the said audit was carried
out.

Article Three: Termination of Auditor’s Service

Termination of service
162. (a) The General Meeting may terminate the serv ice of an Auditor.
(b) If the termination of an Auditor’s service or i ts non-renewal is on
the agenda of a public company, then the opinion of the Audit
Committee shall be brought before the General Meeti ng, after the
Auditor was given an appropriate opportunity to pre sent his
position before it.

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Termination of service because of dependence
163. (a) If the Board of Directors learned that the re are relations of
dependence under the provisions of section 160, the n it shall
inform the Auditor without delay that he must act f or the
instantaneous termination of the dependence; if the dependence
was not terminated, then the Board of Directors sha ll convene an
Extraordinary Meeting within a reasonable time, wit h the
termination of the Auditor’s service on its agenda.
(b) A General Meeting convened as said in subsectio n (a) shall
decide to terminate the Auditor’s service; however, after the
Auditor’s position was presented to it, the General Meeting may
decide not to accept the Board of Directors’ propos al to terminate
the service, if it concluded that the Auditor is no t dependent on
the company.

The Auditor’s stand
164. (a) The Board of Directors shall give the Audi tor a reasonable
opportunity to explain his stand before the General Meeting, on
the agenda of which is the termination or non-renew al of his
service, and as part thereof it shall invite the Au ditor to participate
in the meeting.
(b) If an Auditor resigned for reasons in which the company’s
shareholders have an interest, then the Board of Di rectors shall
make that known to the company..
(c) Without derogating from the provision of any en actment, the
Board of Directors shall inform the shareholders of the Auditor’s
reasons for his resignation in whatever detail it f inds appropriate,
and it may also inform them of its stand on the mat ter.

Article Four: Remuneration of Auditor
Remuneration of Auditor
165. (a) The remuneration of the Auditor for the au diting work shall be set
by the General Meeting, or by the Board of Director s if the
General Meeting authorized it to do so and in accor dance with the
terms of the authorization, or – if the matter is p rescribed in the
by-laws – as prescribed there.
(b) If the remuneration for the auditing work was s et by the Board of
Directors, then the Board of Directors shall report the
remuneration of the Auditor to the Annual Meeting.

Conditional remuneration and indemnification prohib ited
166. (a) A company shall not make the remuneration of the Auditor
conditional on conditions that restrict the manner in which the
audit is carried out or that link the remuneration to the results of
the audit.
(b) A company or any person on its behalf must not indemnify the

52
Auditor directly or indirectly for any obligation imposed on him for
an infraction of his professional responsibility wh ile providing
services that statutorily ought to be provided by a n auditor, or
because he failed to fulfill any other obligation t hat is lawfully
imposed on him.

Remuneration for additional services
167. (a) The terms for additional services by the A uditor to the company,
such as do not constitute the audit, shall be set b y the Board of
Directors, but it may be prescribed in the by-laws that the terms
for aforesaid services, including payments and unde rtakings by
the company toward the Auditor, be set by the Gener al Meeting;
(b) The Board of Directors shall report to the Gene ral Meeting about
the Auditor’s terms for additional services, includ ing payments and
undertakings by the company toward the Auditor; for the purposes
of this section, AAuditor @ includes a partner, employee or relative
of the Auditor, including a body corporate under hi s control.

Article Five: Powers, Obligations and Responsibilit y of the Auditor

Powers of the Auditor
168. (a) The Auditor may at any time examine the do cuments of the
company that he needs in order to fulfill his respo nsibility, and he
shall receive explanations on them.
(b) The Auditor may participate in every General Me eting in which
financial reports on which he performed audits are to be
submitted, and also in Board of Directors meetings that discuss
approval of financial reports or Board of Directors meetings
convened under section 169; the Board of Directors shall inform
the Auditor of the time and place of the General Me eting or of the
Board of Directors meeting.

Obligation to report
169. (a) If, in the course of the audit, the Audito r learns of substantive
defects in the accounting control of the company, t hen he shall
report it to the Chairman of the Board of Directors .
(b) When the Auditor has informed the Chairman of t he Board of
Directors of defects said in subsection (a), then t he Chairman of
the Board of Directors shall without delay convene a meeting of
the Board of Directors in order to discuss the subj ects of which he
was informed.

Responsibility for opinion
170. (a) The Auditor is responsible toward the comp any and toward its
shareholders for what he said in his opinion on the financial
reports.
(b) The provision of subsection (a) shall not derog ate from any other

53
responsibility on the part of the Auditor under any enactment.

54
CHAPTER SIX: FINANCIAL REPORTS

Financial reports
171. (a) A public company – including a private com pany that is a
reporting body corporate, as defined in the Securit ies Law and
exclusive of a public company said in subsection (d ) – shall keep
accounts and it shall also draw up financial report s in accordance
with the Securities Law.
(b) A private company, other than a private company that is a
reporting body corporate, as defined in the Securit ies Law, shall
keep accounts and it shall also draw up financial r eports as said in
this Law.
(a) The financial reports shall be approved by the Board of Directors,
signed in its name and brought before the Annual Me eting.
(b) The provisions of this Chapter that apply to a private company
shall also apply to a public company, the securitie s of which were
offered only to the public abroad or which are list ed only on an
Exchange abroad.
(c) The Minister may prescribe provisions and condi tions for the
procedure of approving financial reports; in respec t of a company
said in subsection (a), the provisions and conditio ns shall be
prescribed after consultation with the Securities A uthority.

Drawing up financial reports in private companies
172. (a) A private company shall draw up financial reports that include a
balance sheet as of December 31 (hereafter: determi ning date)
and a profit and loss account for the one year peri od that ended
on that day, and also additional financial reports, all as required
by accepted bookkeeping rules (in this Chapter: the reports); the
Auditor shall audit the reports.
(b) A private company may prescribe in its by-laws that –
notwithstanding the provisions of subsection (a) – the reports shall
be for a year that does not end on the determining date, but on
another date prescribed in the by-laws (hereafter: special date).
(c) The private company’s financial reports shall b e drawn up within
six months after the determining date or the specia l date, as the
case may be, or within some other period prescribed in the by-
laws, on condition that no period longer than nine months be
prescribed.
(d) The financial reports shall be drawn up accordi ng to accepted
bookkeeping rules, and they shall properly reflect what they are
supposed to reflect in accordance with those rules.
(e) The Minister may prescribe rules on the identit y and number of
signatories on the reports; as long as aforesaid ru les have not
been prescribed, the reports shall be signed by at least one
Director.
(f) The Minister may prescribe particulars that mus t be included in
the reports; when the Minister prescribed said part iculars, then
they shall apply in spite of what is prescribed by accepted

55
bookkeeping rules.
(g) An inactive company, as said in section 158, ma y decide by a
decision adopted at a General Meeting – to which sh areholders
did not object as specified in section 158(a) – tha t it does not
have to prepare financial reports under this Chapte r; however, a
said decision shall not derogate from any the effec t of statute to
prepare or submit reports, including audited report s.

Presentation of reports to the shareholders
173. (a) The Board of Directors of a private compan y shall bring the
reports approved by it before the Annual Meeting, a nd in a
company to which the provisions of section 61 apply it shall send
the reports to the shareholders.
(b) The Board of Directors of a private company sha ll bring before the
Annual Meeting a report – with details it deems app ropriate – that
includes its explanations of the events and changes that occurred
in the standing of the company and which affected t he reports.
(c) The reports shall be kept in the company’s regi stered office for at
least seven years after they were drawn up, for ins pection by the
private company’s Directors and shareholders.
(d) A shareholder in a private company is entitled to receive a copy of
the reports and of the Auditor’s opinion on them.
(e) Copies of the reports of a private company shal l be sent to all
persons entitled to receive notification of General Meetings, not
later than 14 days before the date for holding the Annual Meeting,
all if not otherwise prescribed in the by-laws.

Declaration by the Board of Directors
174. The Board of Directors shall declare in the an nual report said in section
141 that it complied with the provision of section 173(a).

Must submit balance sheets
175. (a) A private company shall attach to its annu al report the balance
sheet included in its reports, if at least one of t he following
conditions applies to it:
(1) its by-laws do not restrict the right to transf er its shares;
(2) its by-laws do not prohibit an offering of its shares or
debentures to the public;
(3) its by-laws do not limit the number of sharehol ders in the
company to up to fifty, other than company employee s or
persons who were company employees and who continue to
be shareholders in the company even after they ceas ed
being company employees; for purposes of this parag raph,
two or more persons who jointly own one or more sha res in
the company shall be deemed a single shareholder.
(b) The Minister may prescribe that the provisions of subsection (a)
do not apply, either generally or to categories of private
companies.

56
PART FIVE: SHAREHOLDERS

CHAPTER ONE: SHAREHOLDERS AND SHARE DOCUMENTS

Shareholder in a private company
176. A shareholder in a private company is a person who is registered as
such in the Shareholders Register, or who holds a s hare certificate.

Shareholder in a public company
177. A shareholder in a public company is any one o f the following:
(1) A person to whose credit a share is registered with a stock
exchange member, and that share is included among t he shares
registered in the name of a registration company in the
Shareholders Register;
(2) a person registered as a shareholder in the Sha reholders
Register;
(3) a person who holds a share certificate.

Share document
178. (a) A shareholder registered in the Shareholde rs Register is entitled
to receive from the company a document in evidence of his
ownership of the share.
(b) A registration company is entitled to receive f rom the company a
document in evidence of the number and category of shares
registered in its name in the Shareholders Register .

Share certificate
179. If a provision to that end is prescribed in it s by-laws, then a company
may issue a certificate for a fully paid up share, and the provisions of
section 135 shall apply.

Text of share certificate and share document
180. The Minister may prescribe provisions on the w ording, format, way of
preparation and printing of share documents or shar e certificates.

Foreclosure
181. (a) A company may, in its by-laws or in the al location agreement,
prescribe a provision according to which the Board of Directors
has the right to foreclose a share allocated by the company and to
sell it, if some or all of the consideration which the shareholder
(hereafter: the debtor) undertook to pay was not pa id by the time
and on the conditions prescribed in the agreement o r in the by-
laws.
(b) Shares that were foreclosed and have not yet be en sold shall be
dormant shares, within their meaning in section 308 .
(c) The debtor shall continue to owe the company, u nless the
foreclosed shares were sold and the company receive d the full
consideration which he undertook to pay, with the a ddition of
costs attendant upon the sale.

57
(d) If the consideration received from the sale of foreclosed shares
exceeded the consideration which the debtor underto ok to pay,
then the debtor shall be entitled to the refund of the partial
consideration – if any – which he paid for them, su bject to the
provisions of the by-laws or of the allocation agre ement, on
condition that the consideration that remains in th e company not
be less than the full consideration which the debto r undertook to
pay, with the addition of costs attendant upon the sale.
(e) The provisions of this section shall not deroga te from any other
remedy of the company from the debtor.

Determining date for ownership of share
182. (a) The shareholders entitled to a dividend, a s said in section 306,
are the shareholders on the date of the decision on the dividend
or on a later date, if another date was set in that decision.
(b) The shareholders in a public company who are en titled to
participate and vote at a General Meeting are the s hareholders on
the date set in the decision to convene the General Meeting, on
condition that that date not be more than 21 days b efore the date
on which the General Meeting meets, and not less th an four days
before the date of the meeting.
(c) The Minister may prescribe other provisions abo ut the dates said
in subsection (b), if that is necessary for voting by ballots as said
in section 87.

CHAPTER TWO: RIGHTS AND OBLIGATIONS OF SHAREHOLDER

Rights and obligations of shareholder
183. The rights and obligations of a shareholder ar e as prescribed in this
Law, in the company’s by-laws and under any enactme nt.
Right to information
184. Shareholders have the right to inspect the com pany documents
specified below:
(1) protocols of General Meetings, as said in secti on 90;
(2) the Shareholders Register and the Register of S ubstantial
Shareholders, as said in section 129;
(3) a document in the company’s possession, as said in section 185;
(4) by-laws and financial reports, as said in secti on 187;
(5) any document which the company must submit unde r this Law
and under any enactment to the Companies Registrar or to the
Securities Authority and which is available for pub lic inspection at
the Companies Registrar or the Securities Authority , as the case
may be.

Inspection of company documents
185. (a) A shareholder may demand from the company, stating the

58
purpose of the demand, to inspect any document in the
company’s possession in each of the following cases :
(1) the document relates to an act or transaction t hat requires
approval by the General Meeting under the provision s of
sections 255 and 268 to 275;
(2) in a private company – if that is necessary in order to reach
a decision on a subject on the agenda of the compan y’s
General Meeting.
(b) The company may refuse the shareholder’s demand if it believes
that the demand was not made in good faith or that the requested
documents include a commercial secret or a patent, or that the
disclosure of the documents is otherwise liable to have an
adverse effect on the company’s welfare.

Information on Directors’ remuneration
186. (a) On the demand of one or more shareholders who have at least
10% of the voting power in the company, the Board o f Directors of
a private company that must appoint an auditor must deliver to
them a notification certified by the Company’s Audi tor, which
includes full particulars of all the payments paid by the company
to each of its Directors and of undertakings to pay which it
assumed, including the matter of retirement terms, in each of the
last three years for which the company’s financial reports have
been drawn up; the amount shall also include paymen ts received
by a Director as an officer of a subsidiary of the company.
(b) If the Board of Directors concludes that the de mand was not
made in good faith, then it may refuse it.

Right to obtain by-laws and financial reports
187. (a) Every shareholder is entitled to receive f rom the company, on his
request, a copy of the by-laws and also – in a priv ate company –
a copy of the financial reports, as said in section 173(d).
(b) The Minister may determine the entitlement of s hareholders in a
public company to obtain from the company a copy of the
financial reports.

Voting rights
188. Every shareholder is entitled to participate i n a General Meeting and to
vote in it, subject to the provisions of the by-law s on the voting rights
attached to each share.

Right to make agreements
189. Shareholders may make voting agreements among themselves, subject
to the obligations incumbent on them under this Law .

Right to dividend
190. Every shareholder is entitled to receive divid ends, in accordance with
the rights attached to each share, if a distributio n of dividends was
decided as said in section 306.

59

Rights in case of discrimination
191. (a) If any of the affairs of the company were conducted in a manner
that discriminates against some or all of its share holders or if
there is substantive suspicion that they will be so conducted, then
the Court may – on application of a shareholder – i ssue
instructions it deems appropriate in order to corre ct or prevent the
discriminatory treatment, including instructions ac cording to which
the company’s affairs will be conducted in the futu re, or
instructions to the company’s shareholders under wh ich they or
the company – subject to the provisions of section 301 – shall
acquire some of its shares.
(b) If the Court gave instructions as said in subse ction (a), then the
changes made necessary thereby shall be made in the company’s
by-laws and decisions, as the Court shall prescribe , and those
changes shall be treated as if they had been lawful ly adopted by
the company; a copy of the decision shall; be sent to the
Companies Registrar and – if the company is a publi c company –
to the Securities Authority.

Shareholders’ obligations
192. (a) In exercising his rights and fulfilling hi s obligations toward the
company and towards the other shareholders, a share holder shall
act in good faith and in the customary manner, and he shall
refrain from abusing his power in the company, inte r alia, when
voting at General Meetings and at Category Meetings on the
following matters:
(1) changing the by-laws;
(2) increasing the registered share capital;
(3) mergers;
(4) approval of acts and transactions that require approval by
the General Meeting under the provisions of section s 255
and 268 to 275.
(b) A shareholder shall refrain from taking advanta ge of other
shareholders.
(c) The enactments that apply to breach of contract shall apply to
violations of the provisions of subsections (a) and (b), and to
violations of subsection (b) shall also apply the p rovisions of
section 191, mutatis mutandis.

Controlling member must act fairly
193. (a) The following must act fairly towards the company:
(1) a controlling member of the company;
(2) a shareholder who knows that how he votes will be decisive
for a decision at a General Meeting or at a Categor y Meeting
of the company;
(3) a shareholder who, in accordance with the provi sions of the
by-laws has the power to appoint or to prevent the
appointment of an officer in the company, or any ot her

60
power over the company.
(d) The statutes that apply to breach of contract s hall apply to
violations of the obligation of fairness, mutatis m utandis, taking
into consideration the status in the company of tho se enumerated
in subsection (a).

61

CHAPTER THREE: DERIVATIVE ACTIONS AND CLASS ACTIONS
Article One: Derivative Action and Derivative Defen se

Prior conditions for bringing action
194. (a) Any shareholder and any Director of a comp any (in the Chapter:
plaintiff) may bring a derivative action if the pro visions of this
Article apply.
(b) If a person wishes to bring a derivative action , then he shall write
to the company and demand that it exercise its righ ts fully by
bringing action (in this Chapter: demand).
(c) Demands shall be addressed to the Chairman of t he company’s
Board of Directors, and they shall specify the fact s that create the
grounds for the action and the reasons for bringing it.

Company’s reaction
195. If a company received a demand, then it may ac t in one of the following
ways:
(1) perform the act or adopt the decision by which the grounds for the
demand are eliminated;
(2) reject the plaintiff’s demand for reasons that shall be specified in
the decision;
(3) decide to bring action.

Company’s reply to plaintiff
196. The company shall inform the plaintiff within 45 days after the demand
was received of the way it acted, as said in sectio n 195, giving
particulars of the action taken and of the factor t hat decided to do so,
including the names of people who participated in a dopting the
decision; if a participant or an officer in the com pany has a personal
interest in the decision, then that shall be stated in the decision and in
the notification to the plaintiff.

Right to bring derivative action
197. A plaintiff may, with the Court’s permission, bring a derivative action
under the provisions of section 198, if one of the following applies:
(1) In his opinion, the action taken or the decisio n adopted did not
eliminate the grounds for the action;
(2) the company rejected the plaintiff’s demand, as said in section
195(2);
(3) the company informed the plaintiff that it deci ded to bring action,
as said in section 195(3), but the action was not b rought within 75
days after the notice;
(4) the company did not reply to the demand in acco rdance with the
provisions of section 196.

Approval of derivative action

62
198. (a) A derivative requires approval by the Court, and it shall approve it
if it is satisfied that the action and its conduct are, a priori, to the
benefit of the company, and that the plaintiff is n ot acting
otherwise than in good faith.
(b) The Court may approve a derivative action befor e the times set in
sections 196 or 197 have elapsed, if it concluded t hat bringing
action at that time will cause it to be prescribed, and it may make
its approval conditional on the fulfillment of cond itions set in this
Article for bringing a derivative action.
(c) In this Article, ” Court” – the Court qualified to hear the action.

Fees and costs
199. (a) When a derivative action is brought, the p laintiff shall only pay
part of the Court fees, in a proportion to be set b y the Minister.
(b) If the Court approved a derivative action, then the company shall
refund the fee the plaintiff paid to him and it sha ll pay the
remainder of the Court fees in respect of the deriv ative action in
the manner and at the rate set by the Minister, and
notwithstanding the provision of any statute non-pa yment of the
Court fee shall not impede hearing the action; the Court may –
(1) order how and when Court fees are to be paid, i ncluding
division of payment of the fee between the plaintif f and the
company;
(2) order the company to pay the plaintiff amounts set by it to
cover his costs, or to deposit security for their p ayment;
(3) the company to deposit surety to cover the defe ndant=s
costs.

Costs
200. If the Court pronounced judgment in a derivati ve action and adjudged
costs to the defendant, then the company shall pay the costs adjudged
as aforesaid, unless the Court determined – for spe cial reasons that
shall be recorded – that the plaintiff pay the cost s, and it may impose
payment of the plaintiff’s costs on the company, an d it may also impose
on the plaintiff payment of all or some of the cost s caused to the
company, taking into account the judgment and the o ther
circumstances of the case.

Advocate =s fees in a derivative action
200A.(a) The Court shall set the fees of the advoca te who represented the
plaintiff in a derivative action; the advocate shal l not accept legal
fees in an amount greater than the amount set by th e Court.
(a) The fees shall be paid by the company, unless t he Court decided
– for special reasons that shall be recorded – that the plaintiff pay
the legal fees.

Remuneration
201. If the Court found in the company’s favor, the n it may order

63
remuneration to be paid to the plaintiff who took the trouble to bring the
derivative action and to prove it.

Arrangement or compromise
202. A plaintiff shall drop a derivative action or make an arrangement or
compromise with the defendant only with the Court’s approval; all
particulars of the arrangement or compromise shall be specified in the
application for approval, including the considerati on proposed to the
plaintiff.

Derivative defense
203. (a) If action was brought against a company, t hen the Court may – on
application by a shareholder or Director (in this C hapter –
defender) – permit him to defend in the company’s n ame
(hereafter: derivative defense), on condition that it is satisfied that
conducting the derivative defense is to the company ‘s benefit, and
that the defender is not acting otherwise than in g ood faith.
(b) The provisions of this Article on derivative ac tions shall apply,
mutatis mutandis, to a derivative defense, as far a s the Minister
has not prescribed provisions for derivative defens es.

Prohibited distribution
204. The creditor of a company may submit a derivat ive action in the
company’s name because of a prohibited distribution which was made
in the company, and the provisions of this Article shall apply, mutatis
mutandis.

Company being wound up
205. No derivative action shall be brought and no d erivative defense shall be
conducted in the name of a company, for which a liq uidator was
appointed under Chapter Twelve of the Companies Ord inance.

Regulations
206. The Minister may prescribe provisions on deriv ative actions and
derivative defenses, including provisions on the pr ocedures for their
approval, the amount of Court fees and when and how they shall be
collected.

NOTE: Article Two: Class Action (sections 207, 208 and 210
through 218) was repealed and replaced by the Class Action Law 5766-
2006. Section 209 was amended and remains in effect as shown
below. – Tr.

Financing by the Authority
209. (a) A person who proposes to bring a class act ion under the
provisions of the Class Action Law 5766-2006 on gro unds that
stem from an interest in a security issued by the G overnment, in

64
an option or future as defined in section 64(b) of the Joint
Investment Trusts Law 5754-1994, or in the security of a public
company, and also a class plaintiff in a said class action may
apply to the Securities Authority that it bear his costs; in this
section, ” public company ” – a company, the securities of which
are listed for trading on an Exchange in Israel or were offered to
the public in Israel under a prospectus, within its meaning in the
Securities Law.
(b) If the Securities Authority is satisfied that t here is a public interest
in the action and that there is reason to expect th at the Court will
approve it as a class action, then it may bear the plaintiff’s costs in
an amount and on conditions which it shall set.
(c) If the Court finds in the plaintiff’s favor, th en it may order in its
judgment that the Securities Authority be indemnifi ed for its
expenses.

PART SIX: OFFICERS OF THE COMPANY

CHAPTER ONE: APPOINTMENT AND SERVICE OF OFFICERS
Article One: Beginning and Termination of Director’ s Term of Office

Number of Directors
219. (a) In its by-laws a company may determine the number of its
Directors and their maximum and minimum numbers.
(b) In a private company there shall be at least on e Director.
(c) In a public company there shall be at least two public Directors, as
said in section 239, and at least one of them shall be a Director
with accounting or financial expertise and the othe rs with
professional qualifications, within their meaning i n section 240 (in
this Law: professionally qualified Directors).
(d) In a public company there shall be – in additio n to an outside
Director with accounting and financial expertise –s everal Directors
with accounting and financial expertise, in a numbe r which the
Board of Directors prescribed.

First Directors
220. The first Directors of a company shall be the Directors who were
appointed by the founders and who made a declaratio n as said in
section 8; the term of office of the first Director s shall end at the end of
the first Annual Meeting, unless the by-laws prescr ibe otherwise.

Beginning of term of office
221. A Director’s term of office shall begin on the day of his appointment or

65
at a later time, if the by-laws permit an appointment that begins in the
future.

Term of office
222. The term of office of Directors appointed by a General Meeting shall
end at the conclusion of the Annual Meeting first c onvened after the
date of the appointment, unless there is a differen t provision in the by-
laws.
Reporting changes
223. A private company shall report the appointment of a Director and the
end of a Director’s term of office to the Companies Registrar within 14
days after the day on which he was appointed or on which his term was
concluded.

Register of Directors
224. In its registered office the company shall kee p a Register of the
members of its Board of Directors and of their subs titutes, if substitutes
for them were appointed under the provisions of sec tion 237, and the
Register shall be open for inspection by any person .
Article Two: Restrictions on Appointments and Termination of Office

Obligation of disclosure
225. If a person is a candidate for service as a Di rector, then he shall
disclose to the person who appoints him whether he was convicted by a
final judgment of an offense said in section 226, f ive years not yet
having passed since the judgment that convicted him was handed
down.

Restriction on appointment because of conviction
226. (a) In a public company a person shall not be appointed Director, if
he was convicted by a final judgment of one of the offenses
specified below, unless five years have passed sinc e the
judgment that convicted him was handed down:
(1) offenses under sections 290 to 297, 392, 415, 4 18 to 420,
and 422 to 428 of the Penal Law 5737-1977, and unde r
sections 52C, 52D, 53(a) and 54 of the Securities L aw;
(2) a conviction in a Court abroad for an offense o f bribery,
deceit, offenses of Directors in a body corporate o r utilization
of inside information;
(3) a conviction for any other offense, if the Cour t decided –
because of its character, severity or circumstances – that he
is not fit to serve as Director of a public company .
(b) At the time of the conviction or thereafter the Court may prescribe
– on application by a person who wishes to be appoi nted Director,

66
that – in spite of his conviction as said in subsections (a)(1) and
(2) and paying special attention to the circumstanc es under which
the offense was committed – it does not prevent him from serving
as Director of a public company.
(c) The Minister may designate offenses in addition to those
prescribed in subsection (a)(1).

Restriction on appointment
227. (a) A minor, a legally incompetent, or a perso n who was declared
bankrupt shall not be appointed Director, as long a s he has not
been discharged, and also not a body corporate that resolved on
voluntary liquidation or against which a liquidatio n order was
issued.
(b) If what is said in subsection (a) holds true fo r a candidate for
Director, then he shall disclose that to the person who makes the
appointment.

Termination of term of office
228. (a) Without derogating from the provisions of any enactment, in each
of the following cases a Director’s term of office shall be
terminated before the end of the period for which h e was
appointed:
(1) he resigned or was dismissed as said in section s 229 to
231;
(2) he was convicted of an offense, as said in sect ion 232;
(3) by decision of the Court, as said in section 23 3;
(4) he was declared bankrupt, and if he is a body c orporate – he
decided on voluntary liquidation or a liquidation o rder was
issued against him.
(b) A company is not entitled to make conditions in its by-laws for the
provisions of this section, but it may add in its b y-laws other
grounds for the termination of a Director’s term of office.

Director’s resignation
229. (a) A Director may resign by giving notice to the Board of Directors, to
the Chairman of the Board of Directors or to the co mpany, and
the resignation shall go into effect when the notic e was delivered,
unless a different time was set in the notice.
(b) The Director shall give the reasons for his res ignation.
(c) When notice of a Director’s resignation is rece ived, then the
resignation and the reasons given for it shall be b rought before
the Board of Directors and recorded in the protocol of the first
Board of Directors meeting convened after the resig nation.

Dismissal of Director
230. (a) The General Meeting may dismiss a Director at any time, unless
the by-laws provide otherwise, on condition that th e Director be
given a reasonable opportunity to present his posit ion to the
General Meeting.

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(b) If there is a provision in the by-laws, according to which a Director
is appointed otherwise than by the General Meeting, then he can
be dismissed from his position only by whoever was entitled to
appoint him and in the manner prescribed therefor i n the by-laws,
unless the by-laws provide otherwise.

Must terminate term of service
231. If the company learned that a Director was app ointed in contradiction to
the provisions of sections 226 or 227(a), or that D irector violated the
provisions of sections 225, 227(b) or 232, then – a t the first Board of
Directors meeting convened after it so learned – th e Board of Directors
shall decide to terminate the service of that Direc tor if it concluded that
the aforesaid conditions hold true, and his term of office shall end from
the time of the decision.

Termination of term of service in consequence of of fense
232. If a Director was convicted by a final judgmen t of an offense said in
sections 226(a)(1) or (3), then he shall so inform the company and the
term of his service shall end when the notice is gi ven, and in a public
company he can be reappointed to serve as Director only after five
years passed as said in section 226.
Disqualified by Court decision
233. On application by the company, a Director, sha reholder or creditor, the
Court may order a Director’s term of service to be terminated, if it finds
that one of the following holds true:
(1) the Director is permanently unable to exercise his office;
(2) in respect of a Director who serves in a public company – during
the term of his service he was convicted by a Court abroad of
offenses specified in section 226(a)(2).

Obligation of loyalty
234. If a Director violated his obligation of discl osure under sections 225,
227(b) or 232, then he shall be deemed to have viol ated his obligation
of loyalty to the company.
Article Three: Body Corporate as Director

Body corporate as Director
235. A body corporate is qualified to serve as Dire ctor, unless the by-laws
provide otherwise.

Individual serves on behalf of a body corporate
236. (a) A body corporate that serves as Director s hall appoint an
individual qualified to be appointed Director in th e company to
serve on its behalf, and it may replace him, all su bject to its

68
obligations toward the company.
(b) The name of the individual who serves on behalf of the body
corporate shall be registered in the Register of Di rectors as the
person who serves on behalf of the body corporate.
(c) The obligations that apply to a Director shall apply, jointly and
severally, to the individual who serves on behalf o f a body
corporate and to the body corporate.

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Article Four: Substitute Director

Substitute Director
237. (a) A substitute for a Director (hereafter: Su bstitute Director) can be
appointed only if there is a provision in the by-la ws that permits
that.
(b) A person not qualified to be appointed Director , as well as a
person who serves as Director or Substitute Directo r, shall not be
appointed and shall not serve as Substitute Directo r.
(c) Notwithstanding the provisions of subsection (b ), in a private
company a person who serves as Director or Substitu te Director
may be appointed Substitute Director, if the by-law s include a
provision to that effect.
(d) If the by-laws include a provision as said in s ubsection (a), then a
Substitute Director may be appointed member of a Bo ard of
Directors committee together with whoever serves as Director, on
condition that the candidate Substitute Director fo r appointment
as a committee member does not serve on the same Bo ard of
Directors Committee, and that – if he is Substitute Director for an
outside Director, then the candidate outside direct or shall have
the accounting and financial expertise or the profe ssional
qualification in accordance with the replaced Direc tor=s
qualifications.
(e) A substitute cannot be appointed Outside Direct or, except as
specified in subsection (d).

Responsibility of Substitute Director
238. (a) A Substitute Director shall be treated li ke a Director.
(b) The appointment of a Substitute Director does n ot negate the
responsibility of the Director, as whose substitute he was
appointed, and it shall be in effect, taking the ci rcumstances of the
case into consideration, including the circumstance s under which
the Substitute Director was appointed and the lengt h of his term
of service.

Article Five: Outside Director

Obligation to appoint
239. (a) At least two Outside Directors shall serve in a public company.
(b) The Outside Director shall be appointed by the General Meeting,
on condition that one of the following holds true:
(1) the majority of votes at the General Meeting in cludes at least
one third of all the votes of the shareholders who are not
controlling members in the company or their represe ntatives
and who participate in the vote; abstentions shall not be
included in the total of the votes of the aforesaid

70
shareholders;
(2) the total of opposing votes from among the shar eholders
said in paragraph (1) does not exceed 1% of all the voting
rights in the company;
(c) The Minister may set proportions different from those set in
subsection (b)(2)
(d) If, when an Outside Director is being appointed , all members of
the Board of Directors of the company are of one ge nder, then the
Outside Director appointed shall be of the other ge nder.

Qualification for appointment
240. (a) As Outside Directors shall be appointed Is rael residents who are
qualified to be appointed Directors; however, a pub lic company,
the shares of which or part thereof were offered to the public
abroad, or are listed for trading on an Exchange ab road, may
appoint an Outside Director who is not an Israel re sident.
(a1) (1) As Outside Directors shall be appointed pe rsons with
professional qualifications or with expertise in ac counting
and finance, on condition that at least one Outside Director
have accounting and finance expertise.
(2) The Minister shall, in consultation with the Se curities
Authority, set conditions and criteria for Director s with
accounting and financial expertise and for Director s with
professional qualifications.
(b) No individual shall be appointed an Outside Dir ector if – at the
time of the appointment or during the two years tha t preceded the
appointment – he, his relative, partner, employer o r a body
corporate of which he is a controlling member had a n interest in
the company, in a person who was a controlling memb er of the
company at the time of the appointment, or in anoth er body
corporate;
for purposes of this subsection – ” interest ” – an employment relationship, commercial or
professional ties in general or control, as well as service as an
officer, other than service as a Director appointed to serve as
Outside Director in a company about to offer shares to the public
for the first time; the Minister may, in consultati on with the
Securities Authority, determine that – on condition s he prescribed
– certain matters shall not constitute an interest.
” other body corporate ” – a body corporate, in which the
company or a controlling member of it is a controll ing member at
the time of the appointment or during the two years before the
time of the appointment.
(c) No individual shall be appointed an Outside Dir ector if his other
positions or affairs create or are liable to create a conflict of
interest with his position as Director, or if they are liable to
constrain his ability to serve as Director.
(d) A Director in one company shall not be appointe d Outside
Director in another company, if at that time a Dire ctor of the other

71
company serves as Outside Director in the first company.
(e) An individual shall not be appointed Outside Di rector in a public
company, if he is employed by the Securities Author ity or
employed by a stock exchange in Israel.
Declaration
241. (a) A General Meeting, on the agenda of which is the appointment of
an Outside Director, shall not be convened unless t he candidate
declared that he meets the conditions for his appoi ntment as
Outside Director (hereafter: the declaration).
(b) The declaration shall be kept in the company’s registered office
and it shall be open to inspection by all persons.
(c) The Minister may prescribe provisions about the declaration.

First Outside Directors
242. The first Outside Directors shall be appointed by a General Meeting,
which shall be convened not later than three months after the date on
which the company became a public company.

Participation in committees
243. At least one Outside Director shall serve on e very committee that is
empowered to exercise one of the functions of the B oard of Directors.

Remuneration and refund of expenses
244. (a) An Outside Director is entitled to remuner ation and to the refund
of expenses, as the Minister shall prescribe in con sultation with
the Securities Authority.
(b) An Outside Director shall not receive – in addi tion to the
remuneration to which he is entitled and to the ref und of expenses
– any direct or indirect consideration for his serv ice as Director of
the company; for purposes of this section the grant of an
exemption, an undertaking to indemnify, indemnifica tion or
insurance under the provisions of Article Three in Chapter Three
shall not be deemed a consideration.

Term of service
245. (a) The term of service of an Outside Director shall be three years,
and the company may – notwithstanding the provision s of section
240 – appoint him to one additional term of three y ears.
(b) An Outside Director shall not be dismissed and his tenure shall
not be terminated, except in accordance with the pr ovisions of
sections 233, 246 and 247.

Termination of service by General Meeting
246. (a) If the Board of Directors learns of a susp icion that an Outside
Director no longer meets one of the conditions requ ired under this
Law for the appointment of an Outside Director, or of a suspicion
that the Director violated his obligation of loyalt y toward the
company, then the Board of Directors shall discuss the matter at
the meeting first convened after it learned of the matter.

72
(b) If the Board of Directors determined that the Outside Director no
longer meets one of the conditions required under t his Law for his
appointment or that he violated his obligation of l oyalty, then the
Board of Directors shall call an Extraordinary Meet ing with
removal of the Outside Director from office on its agenda.
(c) The reasons of the Board of Directors shall be presented to the
General Meeting and the Outside Director shall be g iven a
reasonable opportunity to present his stand; the Ge neral
Meeting’s decision to terminate an Outside Director ‘s term of
office shall be adopted with the same majority that was necessary
for his appointment.

Termination of service by the Court
247. On application by a Director or shareholder th e Court may order the
service of an Outside Director to be terminated, if it found that he no
longer meets one of the conditions required under t his Law for his
appointment or that he violated his obligation of l oyalty to the company.

Appointment at Extraordinary Meeting
248. If the position of an Outside Director fell va cant and if two other Outside
Directors are not serving in the company, then the Board of Directors
shall convene an Extraordinary Meeting at the earli est possible time,
with the appointment of an Outside Director on the agenda.

Must not appoint and employ
249. A company shall not appoint a person who serve d in it as Outside
Director to the position of an officer in it, shall not employ him as an
employee and shall not accept professional services from him for
consideration, either directly or indirectly, inclu ding through a body
corporate under its control, unless two years have passed since the end
of his service as Outside Director in that company.

Outside Director of a company that became a private company
249A.(a) From the day on which a public company bec ame a private
company, the provisions of this Article shall not a pply to persons
who serve or served as Outside Directors of the com pany.
(b) If the company did not decide to continue the D irector=s service,
then his tenure shall be terminated three months af ter the
company became a private company.

CHAPTER TWO: APPOINTMENT AND DISMISSAL OF OTHER OFFICERS

Appointment and dismissal of General Manager
250. The General Manager shall be appointed and dis missed by the Board

73
of Directors, unless the by-laws provide otherwise.

Appointment and dismissal of officers
251. Officers of a company, other than the Director s and the General
Manager, shall be appointed and dismissed – in a pu blic company by
the General Manager, and in a private company by th e Board of
Directors, all if there is no other provision in th e by-laws.
CHAPTER THREE: OBLIGATIONS OF OFFICERS
Article One: Obligation of Caution

Obligation of Caution
252. (a) An officer owes the company an obligation of caution, as said in
sections 35 and 36 of the Civil Wrongs Ordinance (N ew Version).
(b) The provision of subsection (a) shall not derog ate from an officer’s
obligation of caution toward any other person.

Means of caution and level of competence
253. An officer shall act at a level of competence at which a reasonable
officer would have acted in the same position and u nder the same
circumstances, inter alia by adopting means that ar e reasonable under
the circumstances of the case to obtain information on the profitability
of the act brought to him for his decision or of th e act performed by him
by virtue of his position, and to obtain other info rmation of importance
for the said acts.

Obligation of caution for Directors with expertise or qualifications
253A.The appointment of a Director with accounting or financial expertise or
with professional qualifications under section 219( d) or 240(a1) does
not change his responsibility and that of the other Directors of the
company, which is imposed on them under any statute .

Article Two: Obligation of Loyalty
Obligation of loyalty
254. (a) An officer owes an obligation of loyalty t o the company, shall act
in good faith and shall act to its benefit, and int er alia he shall –
(1) refrain from any act that involves a conflict o f interest
between the performance of his function in the comp any and
his performance of any other function or his person al affairs;
(2) refrain from any activity that involves competi tion with the
company’s business;
(3) refrain from exploiting a business opportunity of the
company in order to obtain a benefit for himself or another
person;
(4) disclose to the company any information and del iver to it any

74
document that relates to its affairs, which came into his
possession by virtue of his position in the company .
(b) The provisions of subsection (a) shall not dero gate from any
obligation of loyalty by the officer toward any oth er person.

Approval of act
255. (a) A company may approve any of the acts enum erated in section
254(a), on condition that all the following conditi ons have been
met:
(1) the officer acted in good faith and the act or its approval are
not cause the company harm;
(2) the officer disclosed the nature of his persona l interest in the
act – including all substantive facts and documents – to the
company at a reasonable time before the approval wa s
discussed.
(b) The company’s approval of acts that are not sub stantive acts shall
be given under the provisions of Chapter Five on th e approval of
transactions, and the company’s approval of substan tive acts shall
be given under the provisions of Chapter Five on th e approval of
exceptional transactions; the provisions of Chapter Five on the
validity of transactions shall apply, mutatis mutan dis, to the validity
of acts.

Remedies
256. (a) The enactments that apply to breach of con tract shall apply,
mutatis mutandis, to a breach of trust committed by an officer
against the company.
(b) Without derogating from the generality of the p rovision of
subsection (a), an officer who committed breach of trust against
the company shall be treated like a person who brea ched his
contract with the company.
(c) A company may cancel an act performed by an off icer in the
company’s name toward another person or demand from that
other person the compensation due to it from the of ficer, even
without cancellation of the act, if that person kne w of the officer’s
breach of trust toward the company, and if he knew or should
have known that the act had not been approved.
(d) If a person received the Board of Directors’ ce rtification that all the
necessary approvals of the act had been given, then it is assumed
that he need not have known that the approval of th e act, as
required under this Chapter, was missing.

Disclosure of defect
257. If a Director learns of any matter of the comp any in which a priori
violations of Law or infractions of orderly busines s practice were
discovered, then he shall act without delay to conv ene a Board of
Directors meeting, as said in section 98(b)(2).

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Article Three: Exemption, Indemnification and Insur ance

Company’s power to grant exemption, indemnification and insurance
258. (a) A company does not have the right to grant any of its officers
exemption from his responsibility for a breach of t rust toward it.
(b) A company has the right to grant an officer exe mption from his
responsibility for a breach of the obligation of ca ution toward it
only in accordance with the provisions of this Chap ter.
(c) A company has the right to insure the responsib ility of its officer or
to indemnify him only in accordance with the provis ions of this
Chapter.

Authorization to grant exemption
259. (a) A company may in advance exempt its office r from all or some of
his responsibility for damage due to his violation of the obligation
of caution toward it, if there is a provision to th at end in the by-
laws.
(b) Notwithstanding the provision of subsection (a) , a company does
not have the right to release a Director in advance from his
responsibility toward it in consequence of a violat ion of the
obligation of caution in a distribution.

Permission on the matter of indemnification
260. (a) If the company’s by-laws include one of th e provisions specified in
subsection (b), then it may indemnify its officer i n respect of a
liability or expense specified in paragraphs (1), ( 1a) and (2), with
which he was charged or which he expended in conseq uence of
an act which he performed by virtue of holding offi ce in it:
(1) a monetary liability imposed on him by a judgme nt in favor of
another person, including a judgment imposed on him in a
compromise or in an arbitrator’s decision that was approved
by a Court;
(1a) reasonable trial expenses, including advocates = fees,
expended by an officer in consequence of an investi gation
or procedure conducted against him by an authority
competent to conduct an investigation or procedure, and
which was concluded without an indictment against h im and
without any monetary obligation imposed on him in l ieu of a
criminal proceeding, or which ended without an indi ctment
against him, but with a monetary obligation imposed on him
in lieu of a criminal proceeding for an offense tha t does not
require proof of criminal intent; in this paragraph –
” concluding a procedure without an indictment on a
matter on which a criminal investigation was begun ”
means closing the case under section 62 of the Crim inal
Law Procedure Law [Consolidated Version] 5742-1982 (in
this subsection: the Criminal Procedure Law), or a stay of

76
proceedings by the Attorney General under section 231 of
the Criminal Procedure Law; A monetary obligation in lieu of a criminal proceedin gA –
a monetary obligation imposed under Law in lieu of a
criminal proceeding, including an administrative fi ne under
the Administrative Offenses Law 5746-1985, a fine f or an
offense designated a finable offense under the prov isions of
the Criminal Procedure Law, a monetary composition or a
forfeit;
(2) reasonable legal expenses, including advocates’ fees, which
the officer incurred or with which he was charged b y the
Court, in a proceeding brought against him by the c ompany,
in its name or by another person, or in a criminal prosecution
in which he was found innocent, or in a criminal pr osecution
in which he was convicted of an offense that does n ot
require proof of criminal intent.
(b) The provision on indemnification in the by-laws can be any one of
the following
(1) a provision that permits the company to give an undertaking
in advance that it will indemnify its officer in ea ch of the
following (in this Law: undertaking to indemnify):
(1) as specified in subsection (a1), on condition that the
undertaking to indemnify be limited to events that – in
the opinion of the Board of Directors – are to be
expected in the light of what the company actually
does when the undertaking to indemnify is given, an d
also to an amount or criterion set by the Board of
Directors as reasonable under the circumstances, an d
that – in the undertaking to indemnify – the events are
stated which according to the Board of Directors ar e to
be expected in the light of what the company actual ly
does when the undertaking to indemnify is given, an d
also the amount or criterion set by the Board of
Directors as reasonable under the circumstances;
(2) as specified in subsections a(a1) or (2);
(2) a provision that permits the company to indemni fy its officer
retroactively (hereafter: permission to indemnify).

Insurance of liability
261. If the company’s by-laws include a provision t o that end, then it may
enter into a contract for the insurance of an offic er’s responsibility for
any liability that will be imposed on him in conseq uence of an act which
he performed by virtue of being its officer, in eac h of the following
spheres:
(1) violation of the obligation of caution towards the company or
towards another person;
(2) breach of trust against the company, on conditi on that the officer
acted in good faith and that he had reasonable grou nds to
assume that the act would not cause the company any harm;

77
(3) a monetary obligation that will be imposed on him to the benefit of
another person.

Change of by-laws
262. (a) In a private company in which the shares a re divided into
categories, a decision to include a provision on ex emption or
indemnification in the by-laws requires – in additi on to approval by
the General Meeting – also approval by Category Mee tings.
(b) In a public company, in which the officer is a controlling member
as defined in section 268, the decision of the Gene ral Meeting to
include a provision on exemption, indemnification o r insurance in
the by-laws requires – in addition to the majority required for a
change of the by-laws – also approval by the shareh olders who do
not have a personal interest in the approval of the decision, as
required in respect of an exceptional transaction u nder the
provisions of section 275(a)(3).

Invalid provisions
263. A provision in the by-laws, which permits the company to enter into a
contract for the insurance of its officer; a provis ion in the by-laws or a
Board of Directors decision to permit indemnificati on of an officer; or a
provision in the by-laws that exempts an officer fr om responsibility
toward the company for any of the following shall n ot be valid:
(1) a violation of the obligation of loyalty, excep t in respect of
indemnification and insurance against a violation o f the obligation
of loyalty, as said in section 261(2);
(2) a violation of the obligation of caution, which was committed
intentionally or rashly, except when it was committ ed only by
negligence;
(3) an act committed with the intention to realize a personal illegal
profit;
(4) a fine or monetary composition imposed on him.

No conditions
264. (a) Any provision in the by-laws, in a contrac t or given in any other
manner, which directly or indirectly makes the prov isions of this
Article conditional shall be of no effect.
(b) An undertaking to indemnify or to insure an off icer’s responsibility
in consequence of a breach of trust toward the comp any, other
than a violation of the obligation of trust said in section 261(2),
shall not be valid, and an officer shall not, direc tly or indirectly,
accept such an undertaking; acceptance of a said un dertaking
constitutes a breach of trust.

CHAPTER FOUR: RIGHTS OF DIRECTORS

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The right to receive information
265. (a) Every Director has the right to examine th e company’s documents
and registers and to receive copies of them, and to examine the
company’s assets to the extent necessary in order t o meet his
obligations as a Director.
(b) The company has the right to prevent the examin ation of a
company document or asset by a Director, if the Boa rd of
Directors holds that the Director does not act in g ood faith and
that a said examination is liable to harm the compa ny’s welfare.
(c) On application by an Outside Director the Court may prescribe
that the right said in subsection (a) apply also to the documents
and registers of an associated company, if it is sa tisfied that the
requested information is important for the exercise of the Outside
Director’s office.

May employ advisers
266. (a) In special cases an Director may – in orde r to exercise his office –
obtain professional counseling at the company’s exp ense, if
payment of the expense was approved by the company’ s Board of
Directors or by the Court.
(b) Before it decides on an application said in sub section (a), the
Court shall weigh, inter alia, whether the company’ s experts do
not provide the support required by the Director fo r the exercise of
his office, whether the amount requested is reasona ble in the light
of the grounds for requesting the counseling, and t he company’s
financial condition.

Right to sue
267. (a) If a Director has reasonable grounds to as sume that an act by an
officer is about to occur, which is liable to const itute a breach of
the officer’s obligation, then he may – after he ac ted as said in
section 257, if the circumstances made that possibl e – apply to
the Court that it enforce the obligation or prevent the act; the
Court may issue an order that will prevent the act or give any
other relief, which it deems appropriate under the circumstances
of the case.
(b) The company shall bear all the expenses incurre d by the Director
who applied to the Court under this section, includ ing Court fees
and advocates’ fees, at the time set by the Court, unless the Court
prescribed otherwise.

CHAPTER FIVE: TRANSACTIONS WITH INTERESTED PARTIES

Definition of controlling member
268. In this Chapter, ” controlling member” – a controlling member within

79
the meaning of the term in section 1, including a person who holds 25%
or more of voting rights at the company’s General M eeting, if there is no
other person who holds more than 50% of the voting rights in the
company; for purposes of holding, two or more perso n who hold voting
rights in the company and each of whom has a person al interest in the
approval of the same transaction up for approval by the company shall
be deemed one holder.

Obligation of disclosure
269. (a) If a company officer or a controlling memb er in a public company
knows that he has a personal interest in an existin g or proposed
transaction of the company, then – without delay an d not later
than the Board of Directors meeting at which the tr ansaction is
first discussed – he shall disclose to the company the nature of
his personal interest, including every substantive fact or
document.
(b) The provision of subsection (a) shall not apply when the personal
interest stems only from the personal interest of a relative in a
transaction that is not exceptional.
(c) If an interested party, within the meaning of t he term in section
270(5), or a person about to become a controlling m ember in
consequence of a private offering knows that he has a personal
interest in a substantive private offering, then he shall disclose the
nature of his personal interest – including every s ubstantive fact
or document – to the public company without delay.

Transactions that require special approval
270. The below specified transactions of a company require approval as
prescribed in this Chapter, on condition that the t ransaction does not
harm the company’s welfare:
(1) a transaction between the company and its offic er and also a
transaction between the company and another person, in which
an officer in the company has a personal interest; however –
(b) an officer in a parent company and also in a su bsidiary
under its complete control and ownership, shall not be
deemed to have a personal interest in a transaction between
the parent company and the subsidiary, only because he is
an officer in both;
(c) an officer in several subsidiaries that are who lly owned and
wholly controlled by the same person shall not be d eemed to
have a personal interest in a transaction between a foresaid
subsidiaries, by the very fact of being an officer of the
contracting companies;
(2) granting exemption, insurance, an undertaking t o indemnify or the
indemnification of an officer who is not a Director ;
(3) a contract of the company with its Director in respect of the
conditions of his service, including the grant of e xemption,
insurance, an undertaking to indemnify or indemnifi cation under a
permit to indemnify, as well as a company’s contrac t with its

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Director on conditions of his employment in other assignments
(hereafter: service and employment conditions);
(4) an exceptional transaction of a public company with its controlling
member or an exceptional transaction of a public co mpany with
another person in which the controlling member has a personal
interest, including a private offering that is a tr ansaction in which
the controlling member has a personal interest; and also a
contract of a public company with its controlling m ember or with
his relative, and if he also is an officer of the c ompany – in respect
of his service and employment conditions, and if he is a company
employee and is not its officer – in respect of his employment by
the company;
(5) (a) a private offering, to which one of the fol lowing applies:
(1) the offering gives 20% or more of the total eff ective
voting rights in the company before the issue, all or
part of the consideration for which is not cash or
securities listed for trading on an Exchange, or wh ich is
not on market conditions, and in consequence of it a
substantial shareholder =s holdings of the company =s
securities will increase, or in consequence thereof a
person will become a substantial shareholder after the
issue (in this Law: interested party);
(2) in consequence thereof a person will become a controlling member of the company;
(b) for the purposes of this paragraph all private offerings, for
which one of the following holds true, shall be dee med a
single private offering:
(1) they were made in the course of twelve consecut ive
months to the same offeree, to somebody on his
behalf, to his relative, to a body corporate under his or
his relative =s control, and if the offeree is a body
corporate – also to controlling members of the offe ree,
to relatives of the controlling members or to a bod y
corporate controlled by the controlling member of h is
relative;
(2) they were made in the course of twelve consecut ive
months and the same asset was fixed as consideratio n
for them, and different securities of one company s hall
be deemed the same asset;
(3) they are part of one transaction or the one is conditional on the other;
(c) for purposes of Amarket conditions @ in this paragraph, an
offer will be deemed an offer on market conditions, if the
Board of Directors determined on the basis of detai led
reasons that the offering is on market conditions, unless it is
proven differently, and for purposes of holding in this
paragraph, securities that can be converted into or exercised
as shares, which that person holds or which will be issued to
him under the private offering, shall be treated as if they had

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been converted or exercised.

Transactions that are not exceptional
271. A transaction, for which the contents of secti on 270(1) hold true and
which is not an exceptional transaction, does requi re approval by the
Board of Directors, unless the by-laws prescribe a different manner of
approval.

Exceptional transactions with officers
272. (a) A transaction by a company, for which the contents of section
270(1) hold true and which is an exceptional transa ction, or for
which the contents of section 270(2) hold true, req uires approval
by the Audit Committee and then by the Board of Dir ectors.
(b) If a private company does not have an Audit Com mittee, then the
transaction requires approval only by the Board of Directors, and f
the officer is a Director – then also approval by t he General
Meeting.

Service and employment conditions
273. A transaction by a company, for which the cont ents of section 270(3)
hold true, requires approval by the Board of Direct ors and then approval
by the General Meeting, and in a public company the transaction
requires approval by the Audit Committee before the approval by the
Board of Directors.

Private offering
274. A substantive private offering requires the Bo ard of Directors’ approval
and thereafter approval by the General Meeting.

Transaction with controlling member
275. (a) If the contents of section 270(4) hold tru e for transaction, then it
requires approval by the following in the following order:
(1) the Audit Committee;
(2) the Board of Directors;
(3) the General Meeting, on condition that one of t he following
applies:
(a) the majority of votes at the General Meeting in cludes
at least one third of all the votes of shareholders who
do not have a personal interest in the approval of the
transaction and who participate in the vote; absten tions
shall not be included in the total of the votes of the
aforesaid shareholders;
(b) the total of opposing votes from among the shareholders said in subparagraph (a) does not
exceed 1% of all the voting rights in the company.
(b) The Minister may prescribe proportions differen t from that
said in subsection (a)(3)(b).

Disclosure of personal interest

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276. If a shareholder participates in a vote under section 275, then he shall
inform the company before the vote – and if the vot e is by proxy, on the
proxy document – whether or not he has a personal i nterest in the
approval of the transaction; if the shareholder did not inform as
aforesaid, then he shall not vote and his vote shal l not be counted.

Cumulative approvals
277. If more than one alternative of the alternativ es said in section 271
applies to a transaction, then the transaction acqu ires approval
according to the provisions that apply to each of t he alternatives.

Abstention by Directors
278. (a) If a Director has a personal interest in a the approval of a
transaction – other than a transaction as said in s ection 271 –
brought for approval by the Audit Committee or the Board of
Directors, then he shall not be present at the disc ussion and shall
not participate in the vote in the Audit Committee and at the Board
of Directors.
(b) Notwithstanding the provisions of subsection (a ), a Director may
be present at the discussion in the Audit Committee and he may
participate in the vote, if most of the members of the Audit
Committee have a personal interest in the approval of the
transaction, and a Director may also be present at the discussion
in the Board of Directors and he may participate in the vote, if
most of the members of the Directors of the company have a
personal interest in the approval of the transactio n.
(c) If most of the Directors in the company’ Board of Directors have a
personal interest in the approval of a transaction as said in
subsection (a), then the transaction also requires approval by the
General Meeting.

Audit Committee in a public company
279. The Audit Committee of a public company shall not be entitled to grant
an approval required under this Chapter, unless – w hen the approval is
given – its members its members include two Outside Directors and at
least one of them was present at the meeting, at wh ich the Committee
decided to grant the approval.

Invalid transaction
280. (a) A transaction of a company with its office r or a transaction of a
public company with its controlling member shall be of no effect
for the company, the officer or the controlling mem ber, if the
transaction was not approved in accordance with the provisions of
this Chapter, if there was a substantive defect in the process of
approval or if the transaction was carried out in s ubstantive
digression from the approval.
(b) A transaction said in subsection (a) shall also be of no effect
toward any other person, if that person knew of the officer’s or the
controlling member’s personal interest in the appro val of the

83
transaction and if he knew or should have known that there the
transaction had not been approved as required by th is Chapter.

Cancellation of transaction
281. A company may cancel a transaction with anothe r person that requires
approval as said in this Chapter, other than a tran saction said in section
271, and it may demand compensation from him for th e damage
caused to it even without cancellation of the trans action, if that person
knew of the personal interest of the company office r in the approval of
the transaction or of the personal interest of the controlling member in
the public company in the approval and if he knew o r should have
known that the transaction had not been approved as required by this
Chapter.

Approval by Board of Directors
282. If a person received the Board of Directors’ c ertification that all the
necessary approvals of the transaction had been obt ained, then it is
assumed that he need not have known that an approva l of the
transaction required under this Chapter was missing .

Remedies
283. (a) If an officer did not disclose his persona l interest as said in
section 269, then he shall be treated like a person who committed
a breach of trust; if a controlling member did not disclose his
personal interest as said in that section, then he shall be treated
like a person who committed a violation of his obli gation of
fairness.
(b) If an interested party violated the obligation to disclose as said in
section 269, or if a shareholder did not disclose h is personal
interest as said in section 276, then the company m ay sue him for
the damages caused to it by the lack of disclosure.

Regulations
284. The Minister may – after consultation with the Securities Authority –
prescribe that provisions in this Chapter shall not apply to certain
categories of transactions.
PART SEVEN: THE COMPANY’S CAPITAL

CHAPTER ONE: SECURITIES AND ACTS WITH THEM
Article One: Free to Diversify

Free to diversify
285. A company may have shares, debentures or other securities, each of

84
which has different rights.

Article Two: Registered Share Capital

Increasing the registered share capital
286. The General Meeting may increase the company’s registered share
capital by categories of shares, as it shall prescr ibe.

Cancellation of registered share capital
287. The General Meeting may cancel registered shar e capital that has not
yet been allocated, on condition that there are no undertakings of the
company – including conditional undertakings – to a llocate the shares.

Article Three: Issuing Securities

Authority to issue shares and convertibles
288. (a) The Board of Directors may issue or alloca te shares and other
securities, either convertible into or realizable a s shares, up to the
limit of the company’s registered share capital; fo r this purpose,
securities that can be converted into or realized a s shares shall be
treated as if they had been converted or realized o n the date of
their allocation.
(b) The power of the Board of Directors, which is s pecified in
subsection (a), can be delegated as specified in pa ragraphs (1) or
(2) –
(1) to a Board of Directors committee – in respect of the issue
or allocation of securities as part of an employee
remuneration program, or as part of employment or
remuneration contracts between the company and its
employees, or between the company and the employees of
a connected company, to which the Board of Director s of
that company agreed in advance, on condition that t he issue
or allocation is under a program that includes deta iled
criteria and was worked out and approved by the Boa rd of
Directors;
(2) to a Board of Directors committee, the general manager or
the person who holds the said position (in this sec tion: the
general manager), or to another person whom the gen eral
manager recommended – in respect of the allocation of
shares in consequence of the exercise or conversion of the
company =s securities.

Authority to issue debentures
289. (a) The Board of Directors may decide to issue series of debentures,
within the framework of its authority to borrow in the company’s

85
name, and within the limits of that authority.
(b) The provisions of subsection (a) does not negat e the power of the
General Manager or of a person authorized by him to borrow in
the company’s name, to issue individual debentures, capital notes
and bills of exchange, within the limits of his aut hority.

Entitlement to participate in future issues
290. (a) In a private company, the issued capital o f which consists of one
category of shares, each shareholder shall be offer ed shares in
proportion to his proportion of the issued share ca pital; the Board
of Directors may offer to another person the shares a shareholder
refused to acquire or to the offer of which he did not respond until
the last date set therefor in the offer, all if the re are no different
provisions in the by-laws.
(b) If a company incorporated before this Law went into effect and if
in its by-laws it explicitly made conditional secti on 42 of Schedule
Two of the Companies Ordinance, as it was immediate ly before
this Law went into effect, then its by-laws shall b e deemed to
make the provisions of subsection (a) conditional.

Allocation not for cash
291. A company shall not allocate a share, all or p art of the consideration of
which is not to be paid in cash, unless the conside ration for the share
was specified in a written document.
Report of allocation
292. A private company must deliver the following d ocuments to the
Registrar within 14 days after the allocation of sh ares:
(1) a report on a form to be prescribed by the Mini ster, specifying the
particulars of the allocation;
(2) if section 291 applies to the allocation – the document said in that
section.

Article Four: Transfer of Securities

Transferability
293. It is assumed in respect of every security tha t it can be transferred in
accordance with the provisions of this Law.
Restriction on transferability
294. A company may include a provision in its by-la ws that restricts the
transferability of shares, on conditions that shall be prescribed in the
by-laws.
Joint owners
295. Part of a share cannot be transferred, but it is possible for a share to
have several joint owners, and each has the right t o transfer his right,
unless the right to do so was restricted in the by- laws.

86
Bearer securities
296. (a) A bearer security is a security, the consi deration for which was
paid to the company in full, and for which a certif icate to that
effect was issued.
(b) Possession of the note is a priori proof of its ownership.

Negotiability
297. A bearer security is a negotiable instrument, transferred by delivering
the certificate to the transferee.

Acquisition on the stock exchange
298. The provisions of section 34 if the Sale Law 5 728-1968 shall apply to a
person who acquired a security in trading on an exc hange, and he shall
be treated like a person who acquired it from a per son engaged in the
sale of assets of the category of the item sold, th e sale being the
ordinary course of his business.

Change of Register
299. In each of the following cases a company shall change the entry of
ownership of shares in the Shareholders Register, a s said in section
130(a)(1):
(1) a writ of the share’s transfer, signed by the t ransferor and the
transferee, was delivered to the company and the re quirements of
the by-laws, if any, were complied with;

(2) a Court order to correct the register was deliv ered to the
company;
(3) it was proved to the company that lawful condit ions for the
transfer of the right have been complied with;
(4) some other condition was complied with, which u nder the by-laws
suffices for a change in the Shareholders Register.

Forced sale
300. (a) A public company may prescribe in its by-l aws that any person
entitled to its shares by operation of Law – includ ing the executor
of a will, estate administrator, liquidator and tru stee in bankruptcy
– shall have to propose to the company or to the ot her
shareholders that they acquire the shares to which he is entitled,
against their fair value as will be agreed between the parties, and
in the absence of agreement – as the Court will dec ide on
application by the company or by the other sharehol ders, all
subject to the provisions of the by-laws and to the provisions of
this Law.
(b) If, after 90 days passed since the proposal of the person entitled
to the shares, the fair value of the shares was not agreed on, and
if no application was made to the Court, then the s hares shall be
registered in the name of the person entitled to th em.

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CHAPTER TWO: PRESERVATION AND DISTRIBUTION OF CAPIT AL
Article One: Permitted Distribution

Not conditional
301. (a) A company may make a distribution only und er the provisions of
this Chapter; however, a company may undertake in i ts by-laws or
in a contract that it will not make distributions w ithin limitations
additional to the provisions of this Chapter.
(b) A distribution in contradiction to the provisio ns of this Chapter is a
prohibited distribution.

Permitted distribution
302. (a) A company may make a distribution out of i ts profits (hereafter:
profit criterion), on condition that there is no re asonable suspicion
that the distribution will keep the company from me eting its
existing and expected obligations when they fall du e (hereafter:
criterion of the ability to pay).
(b) In this section –
“profits “, for purposes of the profit criterion – a profit balance or
profits accrued in the last two years, whichever is the larger
amount, all according to the last adjusted audited or surveyed
financial reports prepared by the company, subtract ing earlier
distributions if they were not already subtracted f rom surpluses,
on condition that the date for which the financial reports were
drawn up is not more than six months earlier than t he distribution;
” adjusted financial reports ” – financial reports adjusted to the
index or financial reports that take or will take t heir place, all in
accordance with accepted bookkeeping rules; ” surpluses ” – amounts included in the company’s equity, which
stem from its net profit as determined under accept ed
bookkeeping rules, and also other amounts included in the equity
according to accepted bookkeeping rules, which are not share
capital or premiums, which the Minister decided sho uld be treated
like surpluses.
(c) The Minister may prescribe provisions on the ma tter of
assumptions to be made about the company’s ability to comply
with the conditions of the criterion of the ability to pay, as well as
exemptions and relaxations on the matter of the adj ustment of
financial reports.

Distribution with Court approval
303. (a) The Court may – on application by a compan y – permit it to make
a distribution that does not comply with the profit criterion, on
condition that it is satisfied that it meets the te st of the ability to
pay its obligations

88
(b) The company shall inform its creditors in a manner to be
prescribed by the Minister that it applied to the C ourt as said in
subsection (a).
(c) A creditor may apply to the Court and object to the company’s
application for permission to make the distribution .
(d) After the Court has given objecting creditors a n opportunity to
state their arguments, it may approve the company’s application in
whole or in part, reject it or make its approval su bject to
conditions.

Allocating shares at less than their nominal value
304. (a) If a company decided to allocate shares wi th a nominal value for a
consideration that is less than the nominal value, including bonus
shares, then it must convert into share capital par t of its profits
within their meaning in section 302(b), of share pr emiums, or of
any other source included in its equity in its last financial reports,
in an amount equal to the difference between the no minal value
and the consideration.
(b) The Court may – on the company’ application and on conditions
which it shall prescribe – allow the company to mak e a share
allocation for a consideration that is less than th eir nominal value,
otherwise than provided in subsection (a).

Regulations
305. The Minister may prescribe provisions for the implementation of this
Chapter.

Article Two: Dividends

Right to dividend or to bonus shares
306. (a) A shareholder has the right to receive a d ividend or bonus shares,
if the company so decided.
(b) If the company’s capital includes shares of dif ferent nominal
values, then the dividends or bonus shares shall be distributed in
proportion to the nominal value of each share, unle ss the by-laws
provide differently.

Decision to distribute dividend
307. A company’s decision to distribute dividends s hall be adopted by the
company’s Board of Directors, but a company may pre scribe in its by-
laws that the decision be adopted in one of the fol lowing two manners:
(1) at the General Meeting, after the Board of Dire ctors’
recommendation was brought before it; the meeting m ay accept
the recommendation or reduce the amount, but it mus t not
increase it;
(2) in the company’s Board of Directors, after the General Meeting
set the maximum amount of the distribution;
(3) in some other manner prescribed in the by-laws, on condition that

89
the Board of Directors was given a suitable opportunity to
determine – before the distribution is made – that the distribution
is not a prohibited distribution.

Article Three: Acquisition

Results of acquisition
308. (a) If a company acquired one of its shares, t hen it may cancel it; if
the company did not cancel the said share, then the share shall
not give any rights whatsoever (hereafter: dormant share) as long
as the dormant share is owned by the company.
(a) If a company acquired securities that can be co nverted into or
exercised as shares of the company, then it may can cel them; if
the company did not cancel the said securities, the n the company
may again sell them; shares converted or exercised as aforesaid
shall be dormant shares as long as they are owned b y the
company.

Acquisition by controlled body corporate
309. (a) A subsidiary or some other body corporate under the parent
company’s control (in this section: acquiring body corporate) may
acquire shares or securities that can be converted into or
exercised as shares of the parent company to the ex tent to which
the parent company is allowed to make a distributio n, on condition
that the subsidiary’s Board of Directors or the Dir ectors of the
acquiring body corporate determined that – had the acquisition
been by the parent company – the acquisition would have been a
permitted distribution.
(b) If a parent company’s share was acquired by a s ubsidiary or by an
acquiring body corporate, then the share shall not give voting
rights as long as it is owned by the subsidiary or by the acquiring
body corporate.
(c) If a prohibited distribution was made, then the refund said in
section 310 shall be made to the subsidiary or to t he acquiring
body corporate and the provisions of section 311 sh all apply,
mutatis mutandis, to the Directors of the subsidiar y and to the
Directors of the acquiring body corporate; however, if the parent
company’s Board of Directors determined that the di stribution is
permitted, then the responsibility shall be that of the parent
company’s Directors, as said in section 311.
(d) Notwithstanding the provisions of subsection (a ), acquisition by a
subsidiary or by an acquiring body corporate that i s not wholly
owned by the parent company constitutes a distribut ion in an
amount equal to the amount of the acquisition, mult iplied by the
proportion of rights in the subsidiary’s capital or in the capital of
the acquiring body corporate held by the parent com pany.

90
Acquisition of securities that can be converted into shares
309A. The acquisition of securities that can be con verted into shares, up to
the amount that on the last adjusted financial repo rts was shown as a
short or long term obligation because of the said s ecurities, shall not be
deemed a distribution.

Article Four: Prohibited Distribution

Results of prohibited distribution
310. (a) If a company made a prohibited distributio n, then the shareholder
must return to the company whatever he received, un less he did
not know and did not need to know that the distribu tion carried out
was prohibited.
(b) It is assumed that a shareholder in a public co mpany, who at the
time of the distribution is not a Director, General Manager or
controlling member of the company, did not know and did not
need to know that the distribution carried out was a prohibited
distribution.

Directors’ responsibility for prohibited distributi on
311. If a company carried out a prohibited distribu tion, then every person
who was a Director at the time of the distribution shall be treated like a
person who thereby committed breach of his obligati ons under sections
252, 253 or 254, as the case may be, unless he prov ed one of the
following:
(1) that he opposed the prohibited distribution and took all reasonable
steps to prevent it;
(2) that he exercised reasonable reliance on inform ation under which
– had it not been misleading – the distribution wou ld have
permitted;
(3) that under the circumstances of the case he did not know and did
not need to know of the distribution.

Article Five: Redeemable Securities

Redeemable securities
312. (a) Notwithstanding the provisions of section 302, a Company may
include in its by-laws a provision the allows it to issue securities
that can be redeemed on conditions that will be pre scribed in the
said provision (hereafter: redeemable securities).
(b) If a company issued redeemable securities, then it is entitled to
redeem them and the restrictions prescribed in this Chapter shall
not apply to the redemption.
(c) If a company issued redeemable securities, then it is entitled to
attach to them some of the characteristics of share s, including the

91
right to vote and the right to participate in profits.
(d) Redeemable securities shall not be deemed part of the company’s
equity, no matter what they are called, unless the right to redeem
them is restricted to the case of the company’s liq uidation after
the payment of all the company’s obligations to its creditors at the
time of the liquidation; if the right to redeem the securities was
restricted as aforesaid, then the provisions of thi s Law shall apply
to the matter of distribution, notwithstanding the provisions of
subsection (b).

Transitional provisions
313. Redeemable shares issued in accordance with se ction 141 of the
Companies Ordinance, as it stood immediately before this Law went
into effect, shall be deemed part of the company’s capital, and they
may be redeemed subject to the provisions of this C hapter, on the
conditions and in the manner prescribed in the by-l aws.

PART EIGHT: ACQUISITION OF COMPANIES

CHAPTER ONE: MERGER

Approvals in the company
314. A merger requires approval by the Board of Dir ectors and by the
General Meeting in each of the merging companies, i n accordance with
the provisions of this Chapter.

Merger that affects adversely a company’s ability t o pay
315 (a) The Board of Directors of a merging company , which considers
whether to approve the merger, shall discuss and de termine –
taking the company’s financial situation into accou nt – whether in
its opinion there is a reasonable suspicion that in consequence of
the merger the merged company will not be able to m eet the
company’s obligations to its creditors.
(b) If the Board of Directors determined that there is a suspicion as
said in subsection (a), then it shall not approve t he merger.

Merger proposal
316. If each of the Boards of Directors of the merg ing companies approved
the merger, then they shall jointly draw up a propo sal for the approval
of the merger (hereafter: merger proposal) and sign it.

Notice to Companies Registrar
317. (a) A merging company shall deliver the merger proposal to the
Companies Registrar within three days after the Gen eral Meeting
was called.

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(b) A merging company shall inform the Companies Registrar of the
General Meeting’s decision within three days after the decision
was adopted, shall inform him that notice was given to the
creditors under section 318, and shall also deliver to the Registrar
a copy of the Court decision under sections 319 to 321 within
three days after a said decision was given.

Notice to creditors
318. (a) A merging company shall send the merger pr oposal to the
company’s secured creditors not later than three da ys after the
date on which the merger offer was submitted to the Registrar.
(b) A merging company shall inform its non-secured creditors of the
merger proposal and its contents, as the Minister s hall prescribe.

Objection by creditors
319. On the application by a creditor of a merging company the Court may
order that the implementation of the merger be dela yed or prevented, if
it concludes that there is a reasonable suspicion t hat in consequence of
the merger the absorbing company will not be able t o meet the merging
company’s obligations, and it may issue instruction s for the protection
of the creditors’ rights.

Approval of merger
320. (a) A merger requires approval by the General Meeting of each of the
merging companies.
(a1) Notwithstanding the provision of subsection (a ), a merger does
not require approval by a General Meeting in each o f the following
instances:
(1) in a target company that is wholly owned and co ntrolled by
the merging company;
(2) in the merging company, if all the following ap ply:
(a) the merger does not involve a change of the memorandum and by-laws of the merging company;
(b) the merging company does not allocate more than
25% of the voting power in the company as part of t he
merger, and in consequence of the allocation no
person will become a controlling member of the
merging company, as defined in section 268; for thi s
purpose, securities that can be converted into or
exercised as shares, which that person holds or whi ch
will be allocated to him as part of the merger, sha ll be
treated as if they had been converted or exercised;
(c) the circumstances, which require approval by th e
General Meeting under subsections (c) and (d) do no t
obtain.
(b) If the target company’s shares are divided into categories, then
the merger also requires approval by Category Meeti ngs in the
target company.
(c) At the vote in the General Meeting of a merging company, shares

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of which are held by the other merging company or by a person
who holds 25% or more of any of the means of contro l in the other
merging company, the merger shall not be approved i f it is
opposed by the shareholders who hold most of the vo ting rights
among participants in the vote, other than abstenti ons, who are
not part of the other merging company, the person w ho holds as
aforesaid or anybody on their behalf, including the ir relatives or
bodies corporate under their control; however, a pe rson shall not
be deemed to have holdings in the other merging com pany if his
holdings stem only from the shareholdings in the me rging
company.
(d) If a person holds 25% or more of any kind of me ans of control in
several merging companies, then the merger proposal shall
require approval as said in subsection (c) in each of the said
merging companies.
(e) Shareholders who participate in the vote shall inform the company
before the vote – or, if the vote is by proxy, then on the proxy
document – whether their shares are held by the oth er merging
company or by a person said in subsection (c), or t hat they are
not held as aforesaid; if a shareholder did not del iver this
information, then he shall not vote and his vote sh all not be
counted.
(f) The provisions of section 275(a)(3) shall not a pply to a merger
proposal that requires approval as said in subsecti on (c).

Approval by the Court
321. (a) If the General Meeting of a merging compan y approved the
merger proposal according to section 320(a), then t he Court may
– on application by shareholders who hold at least 25% of all the
voting rights in the company – determine that the c ompany
approved the merger, even if the merger was not app roved by all
Category Meetings of the merging company under sect ion 320(b),
or even of the merger proposal did not win the majo rity of the
General Meeting of the merging company required und er section
320(c).
(b) The Court shall approve an application for appr oval of a merger
only if its is satisfied that the merger proposal i s fair and
reasonable, taking into consideration the estimated valuation of
the merging companies and the consideration offered to the
shareholders.
Restrictive trade practices
322. If a company received notification from the Co ntroller of Restrictive
Business Practices, within the meaning of the term in the Restrictive
Business Practices Law 5748-1988, then it shall inf orm the Registrar –
within three days after it received the notificatio n – if that can delay or
impede implementation of the merger, or if it remov es a said delay or
impediment; when a notice of delay or impediment ha s been received
by the Registrar, then the merger shall not be carr ied out as long as the

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delay or impediment has not been removed.

Results of merger
323. If the Companies Registrar received all the ap provals of the merger
required under this Chapter from each of the mergin g companies, and if
thirty days have passed since the resolution was ad opted by the
General Meeting of each of the merging companies, a nd fifty days
since the day on which the merger proposal was subm itted to the
Companies Registrar, then the merger shall be carri ed out as follows:
(1) all assets and obligations of the target compan y, including
conditional, future, known and unknown obligations shall be
transferred and vested in the absorbing company;
(2) in any legal proceeding, including execution pr oceedings, the
absorbing company shall be treated as if it were th e target
company;
(3) the Registrar shall transfer the target compan y’s register of
charges, within its meaning in section 181 of the C ompanies
Ordinance, to the register of charges of the absorb ing company;
(4) the target company shall be liquidated and the Registrar shall
delete it from his Registers;
(5) the Registrar shall give the absorbing company a certificate as
evidence that the merger was carried out, and he sh all record the
fact of the merger in the Register of the absorbing company.

May make conditional
324. The provisions of this Chapter shall not preve nt a company from
undertaking – in a contract or in the by-laws – to refrain from entering
into a merger or to make a merger subject to condit ions.

Floating charge in merging company
325. A floating charge on some or all of the assets of a merging company,
which restricts the company’s right to create charg es, shall not have
precedence over a floating charge created in the ot her merging
company before the merger.

Regulations on merger
326. The Minister may prescribe rules for the imple mentation of this Chapter,
inter alia on the particulars that must be included in the merger
proposal and on additional rights to of information that must be given to
creditors or to categories of creditors, as well as on the registration of
the transactions that arise out of the merger; in r espect of a merging
public company the provisions shall be made after c onsultation with the
Securities Authority.

Transitional provisions on mergers
327. (a) If a company incorporated before this Law went into effect, then it
shall be assumed that its by-laws include a provisi on according to
which approval of a merger requires a majority of t hree fourths of
the shareholders participating in the vote – other than abstentions

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– at the General Meeting, and the provisions of section 20 shall
apply.
(b) If there are floating charges – at least one of which was created
shortly before this Law went into effect – on the a ssets of several
merging companies, so that after the merger it will not be possible
to differentiate between the assets covered by each floating
charge, then the floating charges shall be combined at the
merger, unless agreement was obtained from the cred itors, for the
protection of whose rights the said charges were cr eated, that the
charges be changed in a manner that creates a diffe rentiation
between the assets subject to each charge, or to th e distribution
of the consideration from the realization of assets subject to those
charges.

CHAPTER TWO: SPECIAL PURCHASE OFFER

Acquisition of controlling parcel or of control
328. (a) An acquisition, in consequence of which a person becomes the
owner of a controlling parcel shall not be carried out in a public
company, if there is no owner of a controlling parc el in the
company, and also no acquisition shall be carried o ut, in
consequence of which the proportion of the acquirer ‘s holdings
rises above 45% of the voting rights in the company , if there is no
other person who holds more than 45% of the voting rights in the
company, except by way of a purchase offer under th e provisions
of this Chapter (hereafter: special purchase offer) .
(b) The provisions of subsection (a) shall not appl y –
(3) to an acquisition of shares in a private offer ing, on condition
that the General Meeting approved the acquisition a s a
private offering, the purpose of which is to give t he offeree a
controlling parcel if there is no holder of a contr olling parcel
in the company, or as a private offering, the purpo se of
which is to give 45% of the voting rights in the co mpany, if
there is no person who holds 45% of the voting righ ts in the
company;
(4) acquisition from the owner of a controlling par cel, in
consequence of which a person will become the owner of a
controlling parcel;
(5) acquisition from whoever holds more than 45% of the voting
rights in the company, in consequence of which the
purchaser =s holdings will increase to more than 45% of the
voting rights in the company.
(c) To a special purchase offer shall apply the pro visions of this
Chapter, in addition to provisions under any enactm ent on
purchase offers, to the extent that they do not con flict with the

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provisions of this Chapter.

Opinion of the Board of Directors
329. If a special purchase offer was made, then the Board of Directors of the
target company shall express its opinion to the off erees on the
advantages of the special purchase offer, or it sha ll refrain from
expressing its opinion on the advantages of the spe cial purchase offer,
if it cannot do so, on condition that it report the reasons for its
abstention; the Board of Directors shall also discl ose any personal
interest of each of the Directors in the purchase o ffer or in its
consequences.

Obligations of officers
330. (a) If an officer of a target company by virtu e of his position performs
acts – other than acts said in subsection (b) – the purpose of
which is to cause an existing or expected special p urchase offer
to fail or to affect adversely the chance of its ac ceptance, then he
shall be responsible to the offeror and to the offe rees for their
damages that are due to his action, unless he acted in good faith
and if he had reasonable grounds for believing that the action
taken was to the benefit of the company.
(b) An officer may negotiate with the offeror about an improvement of
the terms of his offer, and he may also negotiate w ith others in
order to formulate a competing purchase offer.

Agreement of shareholders
331. (a) A special purchase offer shall be addresse d to all offerees, and
the offerees may announce their agreement or their opposition to
the special purchase offer.
(b) A special purchase offer shall only be accepted by vote of a
majority among the offerees who announced their sta nd on it and
agreed to the offer.
(c) Not be taken into account when counting the vot es of the
offerees, shall be the votes of a controlling membe r of the offeror
or of the person who owns a controlling parcel of s hares in the
company or of persons on his behalf or on that of t he offeror,
including their relatives and bodies corporate unde r their control.
(d) If a special purchase offer was accepted, then all offerees who
had not announced their stand on the purchase offer or who had
opposed it may agree to the proposal, not later tha n four days
after the last date for acceptance of the purchase offer, or by
another date to be set by the Minister for this pur pose, and they
shall be treated like persons who agreed to the off er from the
beginning.

Minimal response
332. A special purchase offer shall not be accepted , unless shares that carry
at least 5% of the voting rights in the company wer e bought under it.

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Consequences of prohibited acquisition
333. (a) Shares acquired in violation of the provis ions of this Chapter shall
not carry any rights whatsoever and they shall be d ormant shares,
within their meaning in section 308, as long as the y are owned by
the acquirer.
(b) Without derogating from the provision of subsec tion (a), if the
proportion of a person’s holdings of voting rights – other than by
an acquisition in accordance with the provisions of section 328 –
increased to a degree that gives him a controlling parcel, there
being no holder of a controlling parcel in the comp any, or
increased to a proportion in excess of 45% of the v oting rights in
the company, there being no other person who holds more than
45% of the voting rights in the company, also becau se company
shares became dormant in consequence of a distribut ion, then
shares in his possession in excess of 25% or of 45% , as the case
may be, shall not carry voting rights as long as th ey are in his
possession.
(b1) As soon as possible after he learned of the fa ct, a shareholder
shall report to the company about shares held by hi m, which do
not give voting rights.
(c) A violation of the provisions of this Chapter c onstitutes a violation
of a legal obligation toward the company’s sharehol ders.

Subsequent purchase offer and subsequent merger
334. If a special purchase offer was accepted, then the offeror, any person
in control of him when the offer was made and any b ody corporate
under their control shall not make another offer to purchase the
company’s shares during one year after the date of the purchase offer,
unless they undertook to do so in the special purch ase offer.

Regulations
335. The Minister may, after consultation with the Securities Authority,
prescribe provisions for the implementation of this Chapter, inter alia on
ways of delivering the special purchase offer to th e offerees and of
receiving their notifications, and as part thereof he may make
applicable provisions that apply to proxies, and he may also set the
times according to which a special purchase offer s hall be conducted
and when the Board of Directors shall give its opin ion.

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CHAPTER THREE: FORCED SALE OF SHARES
Article One: Acquisition of Minority Shares
by the Controlling Member in a Public Company

Full purchase offer
336. (a) A person shall acquire shares or a categor y of shares of a public
company to the point where after the acquisition he has a holding
of more than 90% of the public company’s shares or of a category
of the shares, only by way of a purchase offer for all the shares or
the category of shares (hereafter: full purchase of fer), which was
accepted in accordance with the provisions of this Chapter.
(b) If a person holds more than 90% of all the shar es of a public
company, as said in subsection (a), or of a categor y of shares,
then he shall not acquire additional shares as long as he holds
shares to the said degree.
(c) Notwithstanding the provisions of subsection (b ), if on November
1, 2000, a person held shares to the extent said in subregulation
(b) according to the Law in effect immediately befo re the said day,
then he shall acquire additional shares only by mea ns of a full
purchase offer that was accepted by the offerees, w here the
proportion of offerees that did not accept the offe r constitute less
than half of the issued share capital or of the iss ued share capital
of the category of shares in respect of which the o ffer was made;
if a full purchase offer was accepted as said in th is subsection,
then all the shares the offeror had offered to acqu ire shall pass
into his ownership, and the records of share owners hip shall be
changed accordingly.

Forced sale
337. (a) If a full purchase offer was accepted by t he offerees, so that the
holdings of offerees who did not accept the offer a mount to less
than 5% of the issued share capital or of the issue d capital in the
category of shares in respect of which the offer wa s made, then
all the shares which the offeror intended to buy sh all pass to his
ownership and the Registers of share ownership shal l be changed
accordingly.
(b) If a full purchase offer was not accepted as sa id in subsection (a),
then the offeror shall not acquire from offerees wh o responded
favorably shares that will give him a holding of mo re than 90% of
all the shares or of all of the category of shares in respect of
which the offer was made.

Redress of valuation
338. (a) On application by any person who was an of feree in a full
purchase offer that was accepted as said in section s 336(c) and
337(a), the Court may determine that the considerat ion for the
shares was less than their fair value, and that the fair value shall

99
be paid as determined by the Court.
(b) An application said in subsection (a) shall be submitted not later
than three months after the date on which the full purchase offer
was accepted; it is possible to request that an app lication said in
subsection (a) be brought as a class action, and th e provisions of
section 209 shall apply.

Converting public company into private company
339. If a full purchase offer was accepted in accor dance with the provisions
of this Article, and if the offer was for the compa ny’s single category of
shares or for each of the categories of the company ‘s shares held by
the public, then the company shall become a private company.

Consequences of prohibited acquisition
340. (a) Shares acquired in violation of the provis ions of this Chapter shall
not carry rights and shall be dormant shares, withi n their meaning
in section 308, as long as they are held by the acq uirer.
(b) A violation of the provisions of this Chapter c onstitutes a violation
of a legal obligation toward the company’s sharehol ders.

Article Two: Authority to Acquire Shares
of Opposing Shareholders in a Private Company

Authority to acquire shares of opposing shareholder s in a private
company
341. (a) If a person offered to buy the shares or a category of the shares
of a private company (in this Article: the offeror) , and if
shareholders in whose possession are 80% of the sha res to be
transferred agreed to the proposal within two month s, then –
within one month after the end of the said two mont hs – the
offeror may, in a manner to be prescribed by the Mi nister,
announce to every shareholder who had not agreed to the offer
(in this Article: opposing shareholder) that he wis hes to acquire
his shares; in the count of the said shareholders s hall not be
included the offeror’s controlling member or anybod y on the
controlling member’s or the offeror’s behalf, inclu ding their
relatives and bodies corporate under their control.
(b) If the offeror announced as said in subsection (a), then the
opposing shareholders must sell their shares and th e offeror must
acquire them on the conditions proposed to the shar eholders who
agreed to the transfer, unless the Court decided ot herwise on
application by an opposing shareholder, which was s ubmitted
within one month after the date of the announcement .
(c) If the offeror announced as said in subsection (a) and if no other
decision was made by the Court, then one month afte r the date of
his announcement – and if at that time an applicati on by an

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opposing shareholder was pending before the Court, after the
Court decided – the offeror shall send a copy of hi s
announcement to the company and transmit to it the
consideration for the shares which he must acquire under this
section and the company shall record the offeror as the owner of
those shares.
(d) A proportion different from that stated in subs ection (a) may be
prescribed in the company’s by-laws; a decision to change the by-
laws as aforesaid shall be adopted as said in secti on 20.

Transitional provision
342. If a company incorporated before this Law went into effect, then it shall
be treated as if its by-laws include a provision, a ccording to which
approval of a proposal said in section 341 shall re quire a majority of
shareholders who have 90% of the shares to be trans ferred; however, a
decision to change the by-laws, so that the said ma jority percentage will
be reduced, shall be adopted in the manner prescrib ed under section
350(a), (i) (k) and (l), or by agreement of all sha reholders in the
company.

By-laws
342A. The Minister may, after consultation with the Securities Authority,
prescribe provisions for the implementation of this Chapter, including on
the ways in which a full purchase offer is to be co mmunicated to the
offerees and their notifications are to be received , and as part thereof
he may make the provisions on ballots applicable, a nd he may also set
the times, according to which a full purchase offer shall be conducted.

PART NINE: GENERAL PROVISIONS

CHAPTER ONE: CHANGE OF CATEGORY OF BODY CORPORATE

Company becomes a private or a public company
343. (a) A private company that became a public com pany or a public
company that became a private company shall so info rm the
Companies Registrar within 14 days after that event .
(b) The Minister may, after consultation with the S ecurities Authority,
prescribe provisions for the implementation of this section,
including provisions on documents that shall be tra nsmitted from
the Companies Registrar to the Securities Authority , or from it to
the Companies Registrar.

Change of liability of shareholders
344. (a) A company, in which the shareholders’ liab ility is not limited may
change its by-laws and prescribe – with the Court’s approval of an

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application under section 350(a) and on conditions which the
Court shall set – that the liability of its shareho lders is limited; the
Minister may prescribe provisions for the implement ation of this
section.
(b) A company, in which the shareholders’ liability is limited may
change its by-laws with the consent of all its shar eholders and
prescribe that the liability of its shareholders is not limited.
Converting a cooperative society into a company
345. (a) A registered cooperative society (in this section – society) that
wishes to be registered as a company shall prepare a plan for its
organization as a company and submit it for approva l by the
Registrar of Cooperative Societies, within the mean ing of that
term in the Cooperative Societies Ordinance.
(b) The Minister may, in consultation with the Mini ster of Labor and
Social Welfare, prescribe the conditions on which t he Registrar of
Cooperative Societies may approve a plan submitted to him under
the provisions of subsection (a), including conditi ons the purpose
of which is to assure that the status of the societ y’s creditors not
change for the worse.
(c) If the Registrar of Cooperative Societies appro ved the plan, then
the plan shall be brought for approval of a General Meeting of the
society, notification of which had been duly given 21 days in
advance and in which the plan had been specified; i f the plan is
adopted by a majority of at least three fourths of the members
entitled to vote and voting in person or by proxy, then the by-laws
shall be drawn up in accordance with this Law, and a copy of
thereof shall be submitted to the Companies Registr ar together
with the application for registration, and fees sha ll be paid as the
Minister will prescribe.
(d) If the Companies Registrar approved the registr ation then he shall
so inform the Registrar of Cooperative Societies, w ho shall cancel
the society’s registration as a Cooperative Society and publish a
notice to that effect in Reshumot; after the cancel lation the
Companies Registrar shall register the society as a company.
(e) When the society has been registered as a compa ny, the
Registrar of Cooperative Societies shall transfer t o the Companies
Registrar a copy of all the entries in his Register of Charges,
which relate to charges created by the society befo re it was
registered as a company and which existed at the ti me of the
registration, and official copies of all the docume nts in his
possession that create or witness those charges, an d the
Companies Registrar shall register the charges and the particulars
of each charge in the official copy without any fee .
(f) All assets and obligations, including known and unknown, existing
and conditional obligations of the society shall pa ss to the
company with the registration, and all legal procee dings to which
the society is party may be continued with the comp any being the
party to those proceedings.

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CHAPTER ONE “A”: PUBLIC BENEFIT COMPANY

Public benefit company
345A. (a) A public benefit company is a company the by-laws of which
prescribe only public purposes and also forbid any distribution of
profits or any other distribution to its shareholde rs (in this Chapter:
distribution of profits).
(b) In this Chapter, ” public purposes” – any purpose specified in the
Schedule; the Minister may, with approval by the Kn esset
Constitution, Law and Justice Committee, change the Schedule.

Registering a public benefit company
345B.(a) Whoever wishes to register a company, the by-laws of which
prescribe only public purposes and also forbid any distribution of
profits, shall declare before the Registrar that he wishes to
register a public benefit company; two copies of th e following
documents shall be attached to the application:
(1) documents according to section 8, including by- laws that
determine that the company is a public benefit comp any
according to the requirements of this Chapter;
(2) a declaration by the first members of the Audit Committee
that they are prepared to serve as Audit Committee
members, formulated like the declaration of first d irectors,
mutatis mutandis;
(3) the name and address of the entrepreneur;
(4) a detailed list of the assets that will be vest ed in the
company, registration of which is applied for, and the
sources from which they will be transferred;
(5) a declaration of the shareholders, the first di rectors and the
first Audit Committee members that they know that t he
registration of a public benefit company is being a pplied for.
(b) When the Registrar finds that the registration of a public benefit
company or a change of by-laws under subsection (c) is being
applied for, then he shall register the company or the change of
by-laws only after the Registrar of Endowments has certified that
– after its registration or after the change of the by-laws – it will
comply with the conditions said in section 345A(a), that its by-laws
are in accord with the provisions of this Chapter, and that after all
the information requested for this purpose has been provided; the
Registrar of Endowments shall give his reply within 45 days after
he received all the documents and information requi red for this
matter.
(c) When a company has adopted a decision to change its by-laws,
in consequence whereof it will meet the conditions said in section
345A(a), then it shall inform the Registrar thereof in an affidavit
signed by a majority of its Directors and its gener al manager, and
the said decision shall be of effect only after the change was
registered by the Registrar; the documents said in subsection (a)
shall be attached, mutatis mutandis, to the company ‘s application

103
for registration of the change of the by-laws.
(d) After a public benefit company has been registe red or after a
change of by-laws has been registered, the company shall receive
a certificate of registration or an amended certifi cate of
registration, in which shall be stated that it is a public benefit
company and that certification thereof by the Regis trar of
Endowments has been received.
(e) When the Registrar has registered a public bene fit company or
when he has registered a said change of a company’s by-laws, he
shall transmit to the Registrar of Endowments a cop y of the
certificate of registration or of the amended certi ficate of
registration, as well as a copy of the documents de livered under
subsections (a) or (c), as the case may be, for pur poses of its
registration in the Register, as said in section 34 5C.
(f) When a company’s certificate of registration st ates that it is a
public benefit company and the certification of its registration has
been received from the Registrar of Endowments, the n it shall be
deemed a company registered in the Register as said in section
345C.
(g) If the company did not make the declaration bef ore the Registrar
as said in this section, that shall not derogate fr om the fact that it
is a public benefit company and it must submit an a pplication to
the Registrar of Endowments for registration in the Register as
said in section 345C, together with a copy of its C ertificate of
Incorporation and a list of the shareholders and Di rectors of the
company, as well as the documents said in subsectio n (a); upon
receipt of notice from the Registrar of Endowments, as said in
section 345C(c), that the said company was register ed in the
Register, the Registrar shall amend the company’s C ertificate of
Incorporation as said in subsection (d), mutatis mu tandis.
(h) The Minister may prescribe forms for the submis sion of
applications under this section, as well as additio nal documents
that shall be attached to the application.

Register of Public Benefit Companies
345C.(a) The Registrar of Endowments shall keep a r egister of Public
Benefit Companies (in this Chapter: the Register).
(b) The Register shall be open for inspection by t he public and all
persons may inspect it.
(c) When the Registrar of Endowments receives from the Registrar
the Certificate of Incorporation of a public benefi t company and
the documents that were delivered to him in its res pect under
section 345B(e), he shall register it in the Regist er; when the
Registrar of Endowments receives an application fro m a public
benefit company for registration in the Register, t hen he shall
register it in the Register and give notice of the registration to the
company and to the Registrar, if he certified that its by-laws
accord with the provisions of this Chapter, and tha t after all the
information requested on this matter was provided.

104
(d) (1) Without derogating from the obligation of a public benefit
company to submit an application for its registrati on under
the provisions of section 345B, if the Registrar of
Endowments learns in some other manner that there i s a
company that acts only for public purposes and proh ibits the
distribution of profits, then he shall register it in the Register.
(2) Registration as said in paragraph (1) shall be made after the
Registrar of Endowments sends notice to the company by
registered mail, that he intends to register it in the Register;
if the company does not react to the notice within 45 days
after the notice was sent, then the Registrar of En dowments
shall register it in the Register and give notice t hereof to the
company and to the Registrar.
(3) When the Registrar received the notice from th e Registrar of
Endowments he shall correct the company’s Certifica te of
Incorporation as said in section 345B(d) and delive r it to the
company, and the company shall be deemed a public
benefit company.
(e) The Minister may prescribe the particulars that are to be included
in the Register.

Adding “P.B.C.” to the company’s name
345D. (a) A public benefit company that is register ed in the Register shall
write next to its name on every document, sign or p ublication
issued on its behalf the remark “Public Benefit Com pany” or
“(P.B.C.)”.
(b) A company that is not a public benefit company, as well as a
public benefit company that was not registered in t he register,
shall not add the remark said in subsection (a) to its name and it
shall not present itself in any other manner as a p ublic benefit
company.

Restrictions on changes of the by-laws
345E. (a) Notwithstanding the provisions of section 20, a public benefit
company does not have the right to change, either d irectly or
indirectly, the purposes set in its by-laws, includ ing the provisions
of the by-laws that deal with the disposition of as sets upon
liquidation, or the provisions of its by-laws that prohibit the
distribution of profits, and it shall not – directl y or indirectly –
include in its by-laws any provision that conflicts with the
provisions of section 345G; any said change of the by-laws shall
be without effect, unless the change was approved a ccording to
the provisions of this section.
(b) Notwithstanding the provisions of subsection ( a), a public benefit
company may – according to the provisions of sectio n 20 –
replace a public purpose set in its by-laws, includ ing the
provisions of its by-laws on the disposition of its assets upon
liquidation, with another public purpose, and it ma y also add a
public purpose to the public purposes set in its by -laws or detract

105
one from them; before the General Meeting adopts a decision on
a said change of public purposes, the Board of Dire ctors shall
present to it particulars of the assets accumulated for the
company’s purposes before the requested change, and of the
obligations the company assumed in this context, al so toward
contributors to the company.
(c) A decision of the General Meeting said in subs ection (b) requires
registration by the Registrar of Endowments or appr oval by the
Court, as specified below, as the case may be:
(1) if the public purpose that the company proposes to replace
in, detract from or add to its by-laws is proximate to the
public purpose that it replaces or to the other pub lic
purposes set in its by-laws (in this section: proxi mate
purpose), then the said change requires registratio n by the
Registrar of Endowments; if the Registrar of Endowm ents
believes that the said purpose is not a proximate p urpose,
then he shall so inform the company and it shall ac t as said
in paragraph (2);
(2) if the public purpose that the company proposes to replace
in or add to its by-laws is not a proximate purpose , or if in its
by-laws there is no purpose proximate to the purpos e that it
proposes to detract from it, then the change requir es
approval by the Court.
(d) The Registrar of Endowments shall register a ch ange of purpose
said in subsection (c)(1) only if he is satisfied t hat it is proper and
just to do so under the circumstances, having taken into
consideration the company’s purposes, its activity before the
change and the obligations the company assumed for purposes of
the change.
(e) The Court shall decide on an application to cha nge the purposes
of a public benefit company under this section afte r it gave the
Registrar of Endowments an opportunity to present h is stand; the
Court shall approve a change of purposes only if it s is satisfied
that it is proper and just to do so under the circu mstances, having
taken into consideration the company’s purposes and its activity
before the change, and that on the conditions and w ith the
arrangements that it shall prescribe.
(f) The Registrar shall register a change of purpos es of a public
benefit company under section 40 only after the Reg istrar of
Endowments registered the said change or after he r eceived from
the company a copy of the Court’s decision that app roves the said
change under this section.
(g) The Minister may prescribe provisions on the ob ligation of a public
benefit company to give notice of its intention to change its
purposes or on a change of the purposes, on ways to give that
notice and when that should be done, having taken i nto
consideration the categories of companies, and he m ay authorize
the Registrar of Endowments to prescribe the said p rovisions in
respect of a certain company, having taken the comp any’s

106
purposes and activity into consideration.

Activity in digression from purposes
345F.Notwithstanding the provisions of section 56(b ), in a public benefit
company the retroactive approval of an act that dig ressed from the
purposes set in the by-laws shall be by the General Meeting, with
approval by the Court; the Court shall approve a sa id act only if it is
satisfied that it is proper and just to do so under the circumstances of
the case, having taken the company’s purposes into consideration.

Prohibited distribution
345G (a) Notwithstanding the provisions of section 301, a public benefit
company must not distribute profits, whether direct ly or indirectly,
including any profit distribution to the company’s entrepreneur,
and any distribution of profits made by it shall, f or purposes of this
Law, be deemed a prohibited distribution.
(b) The provisions of this section shall not apply to reasonable
presents of little value, given as is customary und er the
circumstances of the case.

Audit committee
345H. (a) The General Meeting of a public benefit c ompany shall appoint an
Audit Committee according to provisions under subse ction (h), as
far as they have been made; officers of the company shall not be
Audit Committee members.
(b) The provisions of Articles Two and Seven of Ch apter Three in
Part Five shall apply, mutatis mutandis, to the cal l for and conduct
of meetings of the Audit Committee; for purposes of these
provisions a public benefit company shall be treate d like a public
company.
(c) The provisions of sections 114, 115(a), 117 an d 118(a) shall not
apply to the Audit Committee of a public benefit co mpany.
(d) The responsibilities, rights and obligations o f Audit Committee
members shall be like those of Directors of the com pany, subject
to the provisions of section 345J.
(e) The Audit Committee’s responsibilities are as follows:
(1) to examine whether the acts of the company and of its
institutions are in order, including whether the co mpany’s
acts are in accord with its purposes;
(2) to examine whether the company’s objectives are achieved
efficiently and economically;
(3) to follow up on the implementation of decisions by the
General Meeting and the Board of Directors;
(4) to propose to the Board of Directors ways of co rrecting
shortcomings in the way the company is managed;
(5) to check the company’s monetary affairs, its ac count books
and its wage payments, including the allocation of the
company’s money to the advancement of its purposes;
(6) to decide whether to approve acts and transacti ons that

107
require Audit Committee approval under sections 255 and
268 to 278;
(7) to examine any other matter connected to the co mpany’s
activity;
(8) to bring its conclusions before the Board of Di rectors and the
Annual Meeting, in the light of the examinations sa id in this
subsection.
(f) The Audit Committee shall send notices of its m eetings and of the
items on the agenda to the company’s auditor and to the
company’s internal auditor, and they may participat e in Audit
Committee meetings.
(g) The Audit Committee may demand that the Board o f Directors or
the General Meeting be convened, in order to presen t its
conclusions to them, and if the Board of Directors or General
Meeting was not convened – to convene it and the pr ovisions of
sections 64 or 98, as the case may be, shall apply, mutatis
mutandis.
(h) The Minister may prescribe provisions about – (1) the minimum number of Audit Committee members w ho
shall serve in public benefit companies with a turn over in
excess of an amount he prescribed;
(2) the qualification required of Audit Committee m embers,
either in general or for categories of public benef it
companies.
(i) In this Chapter, ” turnover” – the annual amount of intakes of a
public benefit company from all sources and of all kinds, that were
received on the average during the three preceding fiscal years,
and if three years have not yet passed since the co mpany was
founded – the said intakes received on the average in the years
that passed since it was founded.

Internal auditor
345I. The Board of Directors of a public benefit co mpany with a turnover in
excess of NS10 million, or in excess of a greater a mount set by the
Minister, shall appoint an internal auditor under t he provisions of
sections 146 to 153, mutatis mutandis.

Pay of Directors, Audit Committee members and other officers
345J. (a) A Director or an Audit Committee member a nd also a body
corporate controlled by any of these, shall not dir ectly or indirectly
provide services for pay to the public benefit comp any otherwise
than as a Director or Audit Committee member, as th e case may
be; the Minister may prescribe provisions in respec t of categories
of companies, having taken their purposes and the n umber of
their employees into consideration, under which it will be possible
to appoint an employee or a provider of services fo r pay to the
company to be a Director, other than the chairman o f the Board of
Directors, on condition that the number of said Dir ectors not
exceed one fourth of all Board of Directors members ; for

108
purposes of this subsection: “control” – within its meaning in
section 1, including the assumption that a person c ontrols a body
corporate, if he holds 25% or more of the body corp orate’s issued
capital or of the voting rights in the body corpora te, and a person
and his relative shall be treated like one person.
(b) The Minister shall prescribe provisions in res pect of the pay or
remuneration payable to Directors and Audit Committ ee members
in a public benefit company, and on the terms of th eir service,
including restrictions in respect of the said pay, remuneration and
terms of service; and the Minister may prescribe sa id provisions in
respect of other officers in a public benefit compa ny, including the
terms of their employment; provisions under this su bsection may
be prescribed for categories of public benefit comp anies.
(c) If an officer or member of an Audit Committee received pay in
violation of provisions under this section, includi ng for services he
provided to the company, then he shall have to retu rn to the
company whatever he received, unless he proved that he did not
know and did not have to know of the existence of a pay
restriction when he contracted with it.

Expenses for the management of a public benefit com pany
345K. The Minister may prescribe the maximum propor tion of expenses that
a public benefit company may incur for its manageme nt, including for
pay and remuneration, as a ratio of its turnover or of the money it
expended for the advancement of its purposes; afore said provisions
may be prescribed for categories of public benefit companies.

Approval of certain transactions
345L. (a) The provisions of section 255 and provisi ons under Chapter Five
in Part Six, other than section 279, which apply to public
companies, shall apply to the transactions of a pub lic benefit
company, even if it is a private company, mutatis m utandis and
subject to other provisions in this Chapter, and wi th the following
changes:
(1) a transaction of a public benefit company with a Director,
with a member of the Audit Committee or with a body
corporate controlled by any of them shall require – in
addition to the provisions of section 275 – also ap proval by
the Court after it gave the Registrar of Endowments an
opportunity to present his stand; the Court shall a pprove the
transaction only after it is satisfied that, under the
circumstances of the case, it is just and proper to do so; in
this paragraph, ” transaction” – other than a transaction for
the provision of services that is prohibited under section
345K(a), and other than a contract under the provis ion of
this Law for the payment of remuneration to that pe rson in
respect of his service as Director or Audit Committ ee
member, as the case may be;
(2) an exceptional transaction of a public benefit company with

109
any of the persons specified below or with a body corporate
controlled by any of them, shall require – in addit ion to the
provisions of section 275 – also approval by the Co urt, after
it gave the Registrar of Endowments an opportunity to
present his stand: a Director’s relative, an Audit Committee
member’s relative, the shareholder of the company o r his
relative, or the entrepreneur of the company or his relative.
(3) a transaction of the public benefit company wit h any of the
persons specified in paragraph (2), which is not an
exceptional transaction, requires approval by the A udit
Committee and thereafter by the Board of Directors, and
notice of the transaction’s approval and its partic ulars shall
be communicated to the Registrar of Endowments; if the
Registrar of Endowments holds that the transaction is an
exceptional transaction, then he shall so inform th e company
within thirty days after the company’s notice was r eceived
and the transaction shall require approval as said in
paragraph (2).
(b) The provisions of subsection (a)(1) and (3) sha ll not apply to a
transaction in a minimal amount or to transactions, the terms of
which are identical with other transactions of the company with
the general public.
(c) Without derogating from the provisions of subse ction (a), the
provisions of section 280 shall apply to transactio ns that were not
approved according to the provisions of this sectio n.
(d) In this section, ” control” – as defined in section 345J(a).

Liability of officers and Audit Committee members
345M. (a) Notwithstanding the provisions of section 258(b), a public benefit
company must not exempt an officer or Audit Committ ee member
from liability for any violation of the obligation of caution toward it,
or undertake to indemnify in consequence of any vio lation of the
obligation of caution, and an undertaking to indemn ify as
aforesaid shall be of no effect.
(b) If a public benefit company was not registered in the Register,
then its officers shall be deemed to have violated their obligation
toward the company, unless the officer proved one o f the
following:
(1) that he took all reasonable steps to register t he company;
(2) the he depended, in good faith, on information from an
authorized officer of the company that an obligatio n to
register does not apply or that the company was reg istered
as required;
(3) that, because of the special circumstances of t he case he
did not have to know about the violation of the obl igation of
registration in the Register;
(4) that the company acted in accordance with the o ther
provisions of this Chapter, even though it was not registered
in the Register.

110

Derivative actions and derivative defenses
345N. (a) In addition to the provisions of section 194(a), the Registrar of
Endowments may also – with approval by the Attorney General –
bring a derivative action in the matter of a public benefit company.
(b) In addition to the provisions of section 203(a ), the Registrar of
Endowments or the Attorney General may also defend in the
name of a public benefit company.
(c) Provisions under Article One in Chapter Three of Part Five shall
apply to a derivative action or a derivative defens e said in this
section, as the case may be, mutatis mutandis.

Share transfer
345O. (a) A shareholder in a public benefit company shall not transfer any
of his shares for consideration, unless advance app roval thereof
was given by the Court, after it gave the Registrar of Endowments
an opportunity to present his stand; however, a sha re transfer for
a minimal amount shall not require the approval sai d in this
section, on condition that the shareholder reported the said share
transfer to the Registrar of Endowments in advance.
(b) Without derogating from the provisions of subs ection (a), a share
in a public benefit company cannot be inherited, at tached or
charged and it shall not constitute part of the sha reholder’s assets
for distribution upon its liquidation or his bankru ptcy, as the case
may be, and it shall not be vested in a liquidator or trustee, as the
case may be; upon the shareholder’s death or liquid ation, the
share shall be treated like a dormant share, as def ined in section
308.

Merger
345P. (a) A public benefit company may merge under the provisions of this
Law only with another public benefit company, on co ndition that
the merger was approved by the Court, in addition t o all the other
approvals a merger requires under the provisions of this Law.
(b) The Court shall approve a merger said in this section only after it
is satisfied that under the circumstances of the ca se it is just and
proper to do so, having taken the merging companies ‘ purposes
and activities before the merger into consideration , and that on
the conditions and with the arrangements that it sh all prescribe.
(c) The Court shall decide an application for appr oval of a merger
said in this section after it has given the Registr ar of Endowments
an opportunity to present his stand.

Compromise or arrangement
345Q. (a) The Registrar of Endowments shall be noti fied of every
proceeding under section 350 in respect of a public benefit
company and he shall be given an opportunity to pre sent his
stand.
(b) In a proceeding under section 350 the sharehol ders of a public

111
benefit company shall not be entitled to part of the company’s
assets merely because they are shareholders.
(c) The Court shall approve any compromise or arra ngement under
section 350 in respect of a public benefit company only after it is
satisfied that under the circumstances of the case it is just and
proper to do so, having taken the company’s purpose s and activity
into consideration, on condition that the compromis e or
arrangement accords with the provisions that apply to a public
benefit company under this Chapter, including the p rovisions on
changing the company’s purposes or its liquidation, according to
the substance of the proposed compromise or arrange ment.

Appointing an investigator
345R. (a) If there are reasonable grounds for the s uspicion that a public
benefit company does not comply with the provisions under this
Law or that it does not comply with the provisions of its by-laws,
then – at the request of one or more shareholders w ith at least
25% of the issued capital or at least 25% of the vo ting rights in the
company, at the request of the Audit Committee, at the request of
the Attorney General or at his own initiative – the Registrar of
Endowments may investigate the affairs of that comp any and for
that purpose he shall have the powers under section s 9 to 11 and
27(b) of the Commissions of Inquiry Law 5729-1968.
(b) The Registrar of Endowments may appoint an inv estigator to carry
out the investigation said in subsection (a); when a said
investigator has been appointed, then he shall have the
investigating powers said in subsection (a), subjec t to the
conditions of the appointment; the investigator sha ll give a report
to the Registrar of Endowments.
(c) When in investigator has been appointed as sai d in subsection
(b), the Registrar of Endowments may charge all or part of the
expenses of the investigation to the public benefit company, to its
officers or to the person who applied to the Regist rar of
Endowments that he open an investigation, and he ma y require
surety for the expenses of the investigation from t he person who
applied for it.

Liquidation by the Court
345S. (a) A public benefit company shall be liquida ted by the Court under
the provisions of the Companies Ordinance, subject to the
provisions of this Chapter.
(b) In addition to the grounds for liquidation pre scribed in the
Companies Ordinance and in this Law, the Court may liquidate a
public benefit company when one of the following ap plies:
(1) the company’s activities are in violation of La w, of its
purposes or of its by-laws;
(2) the person appointed to investigate under secti on 345R
recommended that the company be liquidated.
(c) An application to liquidate a public benefit c ompany because of

112
one of the grounds enumerated in subsection (b) shall be
submitted by the Attorney General or by the Registr ar of
Endowments; an application for the liquidation of a public benefit
company because of one of the grounds enumerated in section
257 of the Companies Ordinance may also be submitte d by the
Registrar of Endowments.
(d) An application for the liquidation of a public benefit company by
the Attorney General of the Registrar of Endowments because of
grounds enumerated in paragraph (1) of subsection ( b), or by the
Registrar of Endowments because of grounds enumerat ed in
section 257(5) of the Companies Ordinance shall onl y be
submitted after the Registrar of Endowments warned the
company in writing that it must correct the shortco ming and the
company did not do so within the period of time tha t he set
therefor, and if he did not set a period – within a reasonable time
after receipt of the warning.

Voluntary liquidation
345T. (a) Notwithstanding the provisions of section 345S, a public benefit
company may wind up by voluntary liquidation under the
provisions of the Companies Ordinance, on condition that – in
addition to the conditions required under the Compa nies
ordinance – the following conditions are met:
(1) before invitations were sent for the General Meeting at
which voluntary liquidation was proposed, a majorit y of the
Directors and a majority of the Audit Committee mem bers
made an affidavit that they had examined the state of the
company’s business and concluded that it will be ab le to pay
its obligations in full within one year after liqui dation begins,
and this affidavit was submitted to the Registrar a nd to the
Registrar of Endowments at least 21 days before the
invitations were sent; the affidavit shall be drawn up, inter
alia, based on financial reports within their meani ng in
Chapter Six of Part Four, as of December 31 of the year
before the date of the affidavit’s submission (in t his section:
the determining date), and if more than two months have
passed since the determining date, also based on a financial
report surveyed according to accepted accounting ru les,
which reflects the company’s condition as close as possible
to the date on which the affidavit is submitted, an d which
surveys – inter alia – the substantive changes sinc e the
determining date; the said reports shall be attache d to the
affidavit and submitted with it as aforesaid to the Registrar of
Endowments.
(2) the company gave notice to the Registrar and to the
Registrar of Endowments that it proposes to liquida te itself
voluntarily.
(b) In addition to the provisions of section 321 o f the Companies
Ordinance, a decision for voluntary liquidation sha ll be published

113
within seven days after its adoption in a daily newspaper that is
published in the Hebrew language, and in respect of a company
the business of which is mainly conducted in the Ar ab sector –
also in a daily newspaper that is published in the Arabic language;
the Registrar of Endowments may order the company t o publicize
the decision in other ways, if he found that necess ary under the
circumstances.
(c) In addition to the provisions of sections 262 and 341 of the
Companies Ordinance, when a public benefit company winds up
voluntarily the Court may order – at any stage – at the request of
the Registrar of Endowments that liquidation be by the Court, if it
concluded that there is a public interest in the Co urt’s supervision
of the company’s liquidation proceedings.
(d) Reports that the liquidator must submit in a v oluntary liquidation
under the Companies Ordinance shall be approved by the Audit
Committee.

General provisions about liquidation
345U. (a) Holders of shares of a public benefit com pany shall not be entitled
to part of its assets upon its liquidation, only be cause they own
aforesaid shares.
(b) When a public benefit company has been liquida ted and assets
remain after all its obligations were satisfied in full, then they shall
be dealt with according to the provisions of the by -laws, on
condition that – if the company was liquidated by t he Court – the
Court is satisfied that the said provisions will no t result in causing
the company’s assets after its liquidation to be di rectly or indirectly
distributed to its shareholders or to the company’s entrepreneur,
or that after the liquidation the assets will be di rectly or indirectly
transferred to public purposes that are not public purposes
proximate to the company’s purposes shortly before its liquidation,
and if the company was liquidated voluntarily – tha t the Registrar
of Endowments be satisfied as aforesaid; if there a re no said
provisions or if it is impossible to comply with th em, then those
assets shall be transferred according to instructio ns from the
Court to a public purpose that the Court finds to b e proximate to
the company’s purposes.
(c) The provisions of subsection (b) shall not app ly to an asset, in
respect of which it was determined when it was tran sferred to the
company, by agreement or in the company’s by-laws, that after
liquidation it is to be transferred to the person w ho transferred it to
the company (in this subsection: the transferor) or to another
person designated by the transferor.

Status of the Registrar of Endowments in liquidatio n proceedings
345V. (a) A copy of every application submitted as part of voluntary
liquidation proceedings a public benefit company or of its
liquidation by the Court, and of every decision han ded down in the
course of said proceedings shall be delivered to th e Registrar of

114
Endowments, and every notice or report about a said liquidation
that must be delivered to the Registrar under the C ompanies
Ordinance shall also be delivered to the Registrar of
Endowments.
(b) The Court shall decide on an application submi tted as said in
subsection (a) after it has given the Registrar of Endowments an
opportunity to present his stand.
(c) The Registrar of Endowments may apply to the C ourt that it
decide on any question that stems from the liquidat ion.

Applicability of provisions of the Companies Ordina nce
345W. Provisions under the Companies Ordinance on l iquidation by the
Court or on voluntary liquidation, as the case may be, shall apply to the
liquidation of a public benefit company, mutatis mu tandis, unless a
different provision is made under this Chapter; how ever, if in any
contradiction between the said provisions and provi sions under this
Chapter, the provisions under this Chapter shall pr evail.

Obligation to report and submit documents
345X. (a) A public benefit company, which must subm it annual reports and
other reports under the provisions of sections 140 and 141, shall
also submit them to the Registrar of Endowments; in notices on
share transfers, appointments to the Board of Direc tors or
changes in its composition under section 140, it sh all be stated
that the transferee shareholder or the appointed Di rector, as the
case may be, knows that the company is a public ben efit
company.
(b) The obligations to report and to submit docume nts, which apply to
an Amuta under sections 36, 36A, 38, 38A and Schedu le Two of
the Amutot Law, shall apply to a public benefit com pany, but the
said reports and documents shall be submitted to th e Registrar of
Endowments, and the powers of the Registrar of Amut ot under
those sections shall, for purposes of this section, be vested in the
Registrar of Endowments.
(c) The financial report and the narrative report, within their meaning
in the Amutot Law, shall be approved by the General Meeting and
shall be submitted no later than June 30 of the yea r after the end
of the report period, and the Registrar of Endowmen ts may extend
the time for their submission.
(d) The Minister may – in general or for categorie s of public benefit
companies – prescribe obligations to report and to submit
documents to the Registrar or to the Registrar of E ndowments,
which shall apply to said companies in addition to the obligations
that apply to them under the provisions of this Law .
(e) The documents submitted to the Registrar of En dowments under
this section shall be open for inspection in his of fice by any
interested person.
(f) The power of the Registrar of Amutot to grant exemptions for the
purposes of this section shall be vested in the Reg istrar of

115
Endowments.

Appeal
345Y. (a) If a person deems himself injured by a de cision of the Registrar of
Endowments under this Chapter, then he may appeal a gainst it
before the Court; this subsection shall not apply t o applications
submitted by the Registrar of Endowments under this Law to the
Court that it decide a matter, and which shall be h eard by the
Court, including matters of liquidation, not to dec isions on the
approval of transactions under section 345L and als o not to the
matter of warnings of liquidation under section 345 S.
(b) The Minister may prescribe provisions on law p rocedure in
appeals said in subsection (a).

Application to the Court
345Z. In connection with any matter under this Law that concerns a public
benefit company, any person injured by an act of th e company, whether
by action or omission, may apply to the Court that it order the company
to act according to its purposes or according to th e provisions of this
Law; the Attorney General also may open any proceed ing under this
Law, which relates to a public benefit company, and to appear and
argue in a said proceeding, if he holds that the ma tter is of interest for
the public.

Fees and payments
345AA. The Minister may prescribe a fee for registr ation in the Register, and
also other fees and payments that are to be paid fo r activities and
services by the Registrar of Endowments under this Chapter.

Return to the company
345BB. (a) If assets, including money, of a public benefit company were
directly or indirectly transferred to another perso n (in this section:
asset transfer) in one of the following instances:
(1) in a digression from its purposes that was not approved by
the Court under section 345F;
(2) in a transaction in violation of the provisions of section 345L;
(3) by way of a profit distribution to shareholders or to the
company’s entrepreneur in violation of the provisio ns of this
Chapter;
(4) in the course of voluntary liquidation in viola tion of the
provisions of this Chapter;
then the Court may, subject to the provisions of su bsection (b), at
the request of a contributor to the company, of a s hareholder in
the company or of the Registrar of Endowments, orde r that the
officer of the company, who knew or should have kno wn of the
asset transfer, return to the company all or part o f the said
transferred assets or of their value.
(b) The Court shall not obligate an officer to retu rn as said in
subsection (a), if the officer proved one of the fo llowing:

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(1) that he took all reasonable steps to prevent the transfer of
the assets;
(2) that he depended in good faith on information f rom a
competent official of the company that the asset tr ansfer is
not as said in paragraphs (1) to (4) of subsection (a);
(3) that he acted in good faith and that because of the special
circumstances of the case he was did not have to kn ow that
the asset transfer was in violation of provisions o f this
Chapter.
(c) The Court may refrain from obligating any of th ose enumerated in
subsection (a) from returning all or part of the tr ansferred assets
or of their value, if the assets or their value wer e returned to the
company.

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Special provisions on raising the curtain in a public benefit company
345CC. For the purposes of section 6 of this Law – (1) if a public benefit company was not registered in the Register,
then it is assumed that it used a separate legal pe rsonality with
the intention of deceiving some person, but it shal l be a good
defense for the defendant , if he proves that the c ompany acted in
accordance with this Law’s main provisions on publi c benefit
companies, even though it was not registered, or th at that person
knew that it was not registered;
(2) if the Court finds that the conditions exist fo r charging a debt as
said in section 6(a), mutatis mutandis, then it may charge the debt
of the public benefit company to its officer, inste ad of or in
addition to its shareholders, all as it shall presc ribe.

Saving of statutes
345DD. (a) The provisions of this Chapter shall add to the other provisions of
this Law and the provisions of all other statutes, but in the case of
a contradiction the provisions of this Chapter shal l prevail, unless
explicit provision in respect of public benefit com panies are
prescribed under another statute; in this subsectio n: “other
statute” – including rules, directions or approvals by a factor that,
by virtue of the other statute, is competent to pre scribe them for
the company.
(b) The provisions of this Law shall not derogate from additional
obligations that apply to shareholders and officers of a public
benefit company, which acts as trustee by virtue of the Trust Law,
to the extent that aforesaid obligations apply.

Stipulations prohibited
345EE. There shall be no stipulation on provisions under this Chapter.

Applicability to Government companies
345FF. The Minister and the Minister of Finance may prescribe that all or
part of the provisions of this Chapter not apply to a public benefit
company that is a Government company or a Governmen t subsidiary,
as defined in the Government Companies Law 5735-197 5 (in this
section: ” Governmental public benefit company “) or that they apply
to a Governmental public benefit company with chang es that they shall
prescribe.

Applicability to foreign companies
345GG. (a) If the by-laws of a foreign company, whi ch has a place of
business in Israel, prescribe only public purposes and if its by-
laws forbid the distribution of profits (in this La w: “foreign public
benefit company “), then the provisions of this Law on a public
benefit company shall apply, mutatis mutandis and w ith changes
that the Minister may prescribe in regulations.
(b) The Minister may prescribe by Order, after con sultation with the

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Registrar of Endowments, that all or some of the provisions of this
Law not apply to a certain foreign public benefit c ompany, or that
they shall apply with changes that he shall prescri be, and that if
he is satisfied that there are circumstances that j ustify this, having
taken into consideration, inter alia, the Laws of t he place where
the company was incorporated or the provisions of t he foreign
Law that apply to its activity in Israel as a forei gn public benefit
company, the applicability in its respect of anothe r statute in
Israel, and to the source of the company’s assets; the Minister
may, in regulations, prescribe provisions as afores aid for
categories of foreign public benefit companies.

CHAPTER TWO: FOREIGN COMPANIES

Foreign companies must be registered
346. (a) A foreign company shall maintain a place o f business in Israel –
including a share transfer office or a share regist ration office –
only if it was registered as a foreign company unde r the provisions
of this section and paid the registration and publi cation fees
prescribed by the Minister under this section.
(b) The application for registration shall be submi tted to the Registrar
within one month after the place of business was se t up, and the
following documents shall be attached to it:
(1) a copy and a Hebrew translation, certified as p rescribed by
the Minister, of the documents according to which t he
company was incorporated and under which it operate s, as
required by the Laws of the state in which it was
incorporated, including its by-laws, if any;
(2) a list of the company’s Directors;
(3) the name and address of a person resident in Is rael, who is
authorized to accept in the company’s name court
documents and notifications that are to be served o n the
company;
(4) a copy, certified as prescribed by the Minister , of the written
authorization, which empowers a person ordinarily r esident
in Israel to act in the company’s name.
(c) If any change occurs in a document, in the dire ctors, or in the
name or address of one of the persons enumerated in paragraphs
(3) and (4) of subsection (b), then the company sha ll inform the
Registrar within 14 days after the change.
(d) The Minister may prescribe additional documents , which a foreign
company must attach to the application for registra tion, and
changes in which it must report to the Registrar.

Service on foreign company
347. A court document or notification that must be served on a foreign

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company registered in Israel shall be deemed duly served, if they were
served at the address of the authorized person, of which notice was
given as said in section 346, if they were left at the address announced
as aforesaid or were sent there by mail.
Annual report
348. Once a year a foreign company shall submit an annual report, as the
Minister shall prescribe.

Penalties
349. If a foreign company violated the provision of section 346(a), then it and
every officer or agent of it who participated in th e offense shall be liable
to a fine as said in section 61(a)(2) of the Penal Law 5737-1977, and –
in the case of an ongoing violation – to an additio nal fine as said in
section 61(c) of the said Law for every day on whic h the offense
continues, beginning with the day on which the comp any received
notification from the Companies Registrar.
CHAPTER THREE: COMPROMISE OR ARRANGEMENT

Authority to make compromise or arrangement
350. (a) If a compromise or arrangement was propose d between a
company and its creditors or shareholders, or betwe en it and a
certain category of them, then the Court may – on t he application
by the company, a creditor or a shareholder, or by the liquidator, if
the company is in liquidation – order that a Genera l Meeting be
called of those creditors or those shareholders, as the case may
be, in the manner which the Court shall prescribe.
(b) The Court, to which the application for the com promise or
arrangement said in subsection (a) (in this Chapter – the plan)
was submitted may – if it is satisfied that it will help to concretize
or approve a plan for the rehabilitation of the com pany – make an
order, according to which – during a period of not more than nine
months – it will be possible to continue or to init iate any
proceeding against the company only with the Court’ s permission
and on conditions which it shall prescribe (in this Chapter: freeze
on proceedings order).
(c) A freeze on proceedings order may be handed dow n in the
presence of the applicant alone, if the Court is sa tisfied that the
circumstances of the case make that necessary, on c ondition that
notification of the issue of the freeze on proceedi ngs order shall
be made public and shall be served on every person who is liable
to be harmed by it, all as the Court shall order.
(d) If a person was harmed by an ex parte freeze on proceedings
order, then he may turn to the Court that issued th e order and
apply that it be cancelled; the Court shall hear ap plications for

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cancellation, if such were submitted, at one time that it shall set,
on condition that the hearing is held within 30 day s after the said
order was issued.
(e) The Court may – for special reasons that shall be recorded – hear
a creditor’s application that a freeze on proceedin gs order be
cancelled, even if the time set in subsection (d) h as passed, if it is
satisfied that there had been a substantive change of
circumstances since the day on which the freeze on proceedings
order was handed down, such as can cause substantiv e harm to
the creditor’s rights..
(f) When a freeze on proceedings order has been han ded down,
then the Court shall permit –
(1) on application by a secured creditor – to reali ze an asset
charged in his favor;
(2) on application by a creditor with a floating ch arge – to
concretize it;
(3) on application by a creditor with a floating ch arge that has
been concretized – to realize one or more assets as
aforesaid;
all if it is satisfied that suitable defense of the creditor’s rights in
the asset has not been assured, or that the realiza tion of the
charge or the concretization of the floating charge is not likely to
have an adverse effect on the possibility to concre tize and to
approve the plan.
(g) The period during which proceedings were frozen under this
section shall not be taken into account for the per iods prescribed
by the Companies Ordinance as far as the freezing o f
proceedings relates to them, or for the periods pre scribed by the
Prescription Law 5718-1958, unless the Court ordere d otherwise.
(h) In subsections (b) to (g), ” proceeding” includes a proceeding
under the Execution Law 5727-1967, but exclusive of
proceedings, the implementation of which was comple ted
immediately before the order was handed down, even if the
money received therefor had not yet been transferre d.
(i) If most of those participating in the vote, oth er than abstentions, at
a meeting said in subsection (a), who jointly have three fourths of
the value represented at the vote, agreed to a comp romise or
arrangement, and if the Court approved the compromi se or
arrangement, then that obligates the company and al l creditors or
shareholders or the category thereof, as the case m ay be, and in
the case of a liquidation – the liquidator and each contributory.
(j) An order handed down under subsection (i) shall be of no effect
before a certified copy of it is submitted to the R egistrar; a copy of
the order shall be attached to every copy of the co mpany’s by-
laws issued after the order was handed down, and if the company
does not have any by-laws – to every copy of a docu ment,
according to which the company incorporated and ope rates,
which is issued as aforesaid.
(k) For purposes of this section –

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“company ” – any company that may be wound up under the
Companies Ordinance; ” arrangement ” – including a reorganization of the share capital ,
by way of the unification of shares of different ca tegories, or by
way of dividing shares into different categories, o r in both ways at
the same time.
(l) The Minister may make regulations on the implem entation of this
section, inter alia on claims of debt and the conve ning of meeting,
and also in respect of law procedure, the appointme nt of an
officer, provisions on the insurance and indemnific ation of the
officer and the determination of his powers by the Court.

Structural change and merger
351. (a) If an application was submitted to the Cou rt for approval of a
compromise or arrangement as said in section 350, a nd if it was
proved to the Court that the compromise or arrangem ent was
proposed for purposes of a plan for the company’s s tructural
change or the merger of companies, and that under t he plan the
enterprise or assets of one company (in this Chapte r: transferor
company) are to be transferred to another company ( in this
Chapter: transferee company), then – in an order th at approves
the application or in an order handed down thereaft er – the Court
may order –
(1) the transfer of some are all of the enterprise, assets or
obligations of the transferor company to the transf eree
company;
(2) the allocation of shares, debentures, policies or other similar
benefits in the transferee company, which it must a llocate to
a person in accordance with the compromise or
arrangement;
(3) the continued conduct by the transferee company of a legal
proceeding pending on behalf or against the transfe ror
company;
(4) liquidation of the transferor company without w inding up;
(5) relief for persons who object to the compromise or
arrangement within a time and in a manner to be pre scribed
by the Court;
(6) any routine matter necessary to assure that the structural
change or the merger be carried out completely and
efficiently.
(b) If an aforesaid order for the transfer of asset s or obligations was
handed down, then the assets shall be transferred b y virtue of the
order and vested in the transferee company, and the y shall be
free – if the order so provided – of any charge tha t lapsed by
virtue of the compromise or arrangement, and the ob ligations
shall be transferred to the transferee company and shall become
its obligations.
(c) When an order under this section has been hande d down, then
every company to which the order applies shall tran smit a certified

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copy thereof to the Registrar within seven days after the day on
which it was handed down; if a company violated thi s provision,
then it and every officer in it who approved or per mitted the
violation shall be liable to a fine as said in sect ion 61(c) of the
Penal Law 5737-1977 for every day on which the viol ation
continues.

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CHAPTER FOUR: REMEDIES AND MONETARY SANCTIONS
Article One: Remedies

Remedies
352. (a) The Laws that apply to breach of contracts shall apply, mutatis
mutandis, to the violation of any right vested unde r this Law in a
shareholder against the company or against another shareholder,
or in the company against a shareholder.
(b) The provisions of this section shall not deroga te from an
shareholder’s rights under any enactment.

Violation of obligations to keep registers and repo rts
353. Without derogating from the provisions of any enactment, a violation of
provisions on the keeping of Registers in the compa ny or of giving
notifications or reports to the Companies Registrar , such as a company
is obligated to do under this Law or under the Comp anies Ordinance,
constitutes the violation of a legal obligation tow ard any person who
depended on the Registers in the company or at the Companies
Registrar.

Surety for costs of the trial
353A. When an action is brought before a Court by a company or a foreign
company, in which the shareholders = liability is limited, then the Court
may – at the defendant =s request – order that the company given
adequate surety for payment of the defendant =s costs, if he wins the
case, and it may stay proceedings until the surety is provided, unless it
concluded that the circumstances of the case do not justify obligating
the company or the foreign company to provide suret y, or if the
company proved that it is capable of paying the def endant=s costs, if
he wins the case.

Article Two: Monetary Sanctions

Monetary sanctions
354. (a) If the Registrar had reasonable grounds to assume that a private
company or a foreign company did one of the followi ng, then he
may impose on it a monetary sanction in the amount of NS 6,000:
(1) it violated an order by the Registrar under sec tion 37(b) or
(c);
(1a) it did not pay fees or other payments that it must pay under
section 44(6);
(2) it violated an obligation to submit reports, un der the
provisions of section 140;
(3) it violated the obligation to submit an annual report under the
provisions of sections 141 or 348;

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(4) it violated an obligation imposed on it under the provisions of
sections 173(a) or 175;
(5) it violated an obligation imposed on it under t he provisions of
section 343.
(b) If the Registrar had reasonable grounds to assu me that a public
company violated an obligation imposed on it under the provisions
of section 343, then he may impose on it a monetary sanction as
said in subsection (a).
(b1) (1) If the Registrar had reasonable grounds to assume that a
public benefit company did one of the following, th en he may
impose on it a monetary sanction said in subsection (a):
(a) it violated the obligation to inform the Regist rar that a
decision was adopted for a change of its by-laws, t he
meaning of which is that the company will be a publ ic
benefit company under section 345B(c);
(b) it violated the obligation to state next to its name
“public benefit company” or “(P.B.C.)” under the
provisions of section 345D(a);
(c) it violated the obligation to submit reports an d
documents according to provisions under sections
345B, 345C and 345X;
(d) it did not pay fees or other payments that it i s obligated
to pay under section 345AA.
(2) If the Registrar had reasonable grounds to assu me that a
public benefit company did one of the following, th en it may
impose on it double the monetary composition said i n
subsection (a):
(a) it violated the obligation to declare before th e Registrar
with the submission of the application for registra tion
that it is a public benefit company under section
345B(a);
(b) it violated an obligation to submit to the Regi strar of
Endowments an application to register it in the
Register, under the provisions of section 345B(g), but
no monetary composition shall be imposed on the
same company both for not making a declaration at t he
time of registration and for failure to register it in the
Register; however, monetary composition under this
subsection may be imposed in respect of the same
company, if six months passed since imposition of t he
monetary composition for failure to declare before the
Registrar and the company is not yet registered in the
Register;
(c) it stated next to its name the addition said in paragraph
(1)(b) or presented itself in some other manner as a
public benefit company, even though it is not
registered in the Register within its meaning in se ction
345C, in violation of the provisions of section 345 D(b);
(d) it did not appoint an Audit Committee in violat ion of the

125
provisions of section 345H or did not appoint an
internal auditor in violation of the provisions of section
345I;
(e) it violated the obligation to inform the Regist rar of
Endowments of the approval of a transaction that is not
an exceptional transaction, as said in section
345L(a)(3);
(3) if the Registrar has reasonable grounds to assu me that a
company that is not a public benefit company stated next to
its name the addition said in paragraph (1)(b) or p resented
itself in some other manner as a public benefit com pany in
violation of the provisions of section 345D(b), the n he may
impose on it double the monetary composition said i n
subsection (a);
(4) if the Registrar has reasonable grounds to assu me that a
foreign public benefit company violated its obligat ion to be
registered under section 346, then he may impose on it
double the monetary composition said in subsection (a), but
monetary composition shall not be imposed on the sa me
company both for failure to register as a public be nefit
company and for failure to register under section 3 45B(a) or
345B(g); however, monetary composition may be impos ed
on the same company for failure to register under s ection
345B(a) or (g), if six months passed since impositi on of the
monetary composition for failure register as a fore ign
company and the company is not yet registered as a foreign
public benefit company;
(5) a Magistrates Court may, on application by the holder of a
share in the company, of a contributor to the compa ny or of
the Registrar of Endowments, which was submitted af ter
written warning thereof was sent to the defendant, order that
the officer of a public benefit company refund to t he
company the amount of monetary composition that was
imposed on it under this subsection, if it conclude d that that
officer of the company knew or should have known of the
said violation said in paragraphs (1)(a), (2)(a) or (b), or (3),
unless he proves one of the following:
(a) that he opposed the violation and took all reas onable
steps to prevent it;
(b) that he depended in good faith on information g iven
him by an authorized official of the company that t he
provisions of Law, because of which the composition
said in those paragraphs was imposed, were not
violated;
(c) that because of other special circumstances he did not
have to know of the violation of the Law provisions ;
(d) in respect of paragraphs (1)(a) or (2)(a) or (b ) – that
the company acted in accordance with the other
provisions of the Law on Public Benefit Companies,

126
even though it was not registered.
(c) If the Registrar had reasonable grounds to assu me that a
company on which a monetary sanction had been impos ed
violated the same provision, for the violation of w hich the
monetary sanction had been imposed, within two year s after it
was imposed, then he may impose on it double the mo netary
sanction said in subsection (a), or double the mone tary sanction
said in subsection (b1)(2) to (4); he may do so als o if during the
said period the company committed three or more vio lations, even
if the sanctions were imposed for different violati ons.

Updating of monetary sanction
355. (a) A monetary sanction shall be in its update d amount, as of the day
on which its payment was demanded, and if it was ap pealed and
the Court that heard the appeal did not order that it be paid –
according to its updated amount on the day the appe al is decided.
(b) The Registrar may update the amount of the mone tary sanction
on January 1 of each year, at the rate of change in the index, of
the index last published before the updating as com pared to the
last index published immediately before this Law we nt into effect;
the Registrar may also round off the amount of the monetary
sanction to the nearest multiple of NS10.
(c) The Registrar shall publish the amount of the u pdated sanction by
a notice in Reshumot.

Demand for and payment of monetary sanction
356. (a) A monetary sanction shall be imposed on a company by a
demand addressed to the company by the Registrar (i n this
Chapter: demand); in the demand the Registrar shall state the
violation as said in section 354, and he shall info rm the company
that – if the violation is not corrected within 45 days after the
demand – it must pay the monetary sanction on the d ate stated in
the demand.
(b) If the company corrected the violation by the d ate stated in the
demand, then it shall so inform the Registrar.
(b1) If the Registrar has reasonable grounds to ass ume that a
company on which a monetary sanction had been impos ed did
not correct the violation by the date stated in the demand, then he
may – if he warned thereof in advance in the demand under
subsection (a) – impose on the company an additiona l monetary
sanction in the amount of one sixtieth of the monet ary sanction for
each day on which the violation continued; however, the amount
shall not exceed NS 250,000; the provision of this subsection
shall not apply to any failure to pay fees or other payments
specified in section 354, in subsections (a)(1a) or (b) or (b1).
(b2) Notwithstanding the provisions of subsections (a) to (b1), in the
case of violations under paragraphs (1)(a), (2), (3 ) and (4) of
section 354(b1) it is not required to give the comp any an
opportunity to correct the violation before monetar y composition is

127
imposed, and the Registrar may impose the said monetary
composition that it shall have to pay within the ti me stated in the
demand, which shall not be less than thirty days fr om the day on
which it was sent, on condition that the demand inc lude a notice
to the company that it may present its arguments wi thin 14 days
after the said demand and notice were sent to it as aforesaid.
(c) If the Registrar decision was appealed as said in section 359,
then the monetary sanction shall not be paid, unles s the Court
ordered otherwise.

Linkage differentials and interest
357. If the monetary sanction was not paid on time, then linkage differentials
and interest for the time in arrears shall be added to it under the
Interest and Linkage Adjudication Law 5721-1961 (he reafter: linkage
differentials and interest), until its payment.

Collection
358. The Taxes (Collection) Ordinance applies to th e collection of monetary
sanctions.

Appeal
359. (a) A decision by the Registrar may be appeal ed before the
Magistrates Court, within 30 days after the demand was received.
(b) If the monetary sanction was paid and the appea l was accepted,
then the amount of the monetary sanction shall be r efunded with
the addition of linkage differentials and interest.
(c) The Appeal Court’s decision may be appealed by permission.

Collection from Director
360. (a) If a monetary sanction imposed under secti on 354 was not paid
on time, then the Registrar may demand – subject to the
provisions of subsection (e) – its payment from any person
registered in the Registrar’s Registers as a Direct or of that
company, or who was so registered when the offense was
committed.
(b) The provision of sections 355 to 359 shall appl y to a demand
under this section.
(c) If one of the persons enumerated in subsection (a) paid the
monetary sanction, then the company shall not have to pay it, and
the person who paid it is entitled to a refund from the company.
(d) The Court shall not force a person, from whom p ayment of a
monetary sanction was demanded under this section, to pay it if
he proved one of the following:
(1) that he took all appropriate steps to prevent t he violation;
(2) that he did not know of the violation and was n ot supposed
to know about it.
(e) A company may state in its annual report that i ts General
Manager or a certain Director is responsible for co mpliance with
the provisions and obligations said in section 354; when the

128
company has stated as aforesaid, then the Registrar shall not
demand payment of the monetary sanction from any ot her
Director of the company, unless payment of the mone tary
sanction was first demanded of the General Manager or the
Director indicated by the company and was not paid by them.

Saving of criminal liability
361. (a) The provisions of this Article do not dero gate from the authority of
a prosecutor to bring – for reasons that shall be r ecorded – an
indictment for an offense under this Law for which monetary
sanction may be imposed under this Article; for thi s purpose,
” prosecutor ” – within the meaning of the term in section 12 of the
Criminal Law Procedure Law (Consolidated Version) 5 742-1982.
(b) If an indictment was brought against an offende r as said in
subsection (a), then he shall not be charged with t he payment of
the monetary sanction under this Article, and if it was paid, then
the Registrar shall order its refund to the offende r with the addition
of linkage differentials and interest.

Winding up at the Registrar’s request
362. The Registrar may apply that a company be woun d up under Chapter
Twelve of the Companies Ordinance, if a monetary sa nction that he
imposed on the company under section 354 was not pa id by it, and if
within three years after the monetary sanction was imposed the
Registrar again imposed a monetary sanction which a lso was not paid
on time, on condition that they were not paid until the application for
winding up was submitted.

Regulations
363. The Minister may make regulations for the impl ementation of this
Chapter.

CHAPTER FIVE: PUBLIC COMPANY, THE SHARES OF WHICH ARE TRADED ABROAD

Restriction of applicability
364. (a) The Minister may prescribe – after consult ation with the Securities
Authority – that some or all of the provisions of t his Law that apply
to public companies shall not apply to public compa nies the
shares of which were offered only to the public abr oad or which
are listed for trading only on stock exchanges abro ad, either
generally or by categories, all as he shall prescri be.
(b) The Minister may prescribe – after consultation with the Securities
Authority – that some or all of the provisions of t his Law that apply
to public companies shall not apply to public compa nies the

129
shares of which are listed for trading on a stock exchange in Israel
and on stock exchanges abroad, also in order to pre vent conflict
between the Law abroad and the rules prescribed on the stock
exchanges abroad, and the provisions of this Law.

Obligation to report
365. (a) If a public company’s shares were offered only to the public
abroad or if its shares are only traded on stock ex changes
abroad, then it shall submit reports to the Compani es Registrar as
if it were a private company, with changes as the M inister shall
prescribe.
(b) After consultation with the Securities Authorit y the Minister may
prescribe that subsection (a) not apply to all or t o categories of
public companies said in it, as he shall prescribe; if the Minister so
prescribed, then the provisions of sections 142 to 145 shall apply
to those companies.
(c) The provisions of Chapter Four shall apply to a public company to
which the provisions of subsection (a) apply, as if it were a private
company.

CHAPTER SIX: REGULATIONS

Implementation and regulations
366. (a) The Minister may make regulations for the implementation of this
Law.
(b) Regulations under this Law require approval by the Knesset
Constitution, Law and Justice Committee.

PART TEN: REPEAL, TRANSITIONAL PROVISIONS,
APPLICABILITY AND EFFECT

Repeal of Companies Ordinance
367. (a) The Companies Ordinance is repealed, excep t for –
(1) Sections 164 to 201, 244 to 367, 370 to 382, an d also
sections 1 and 394, as far as they relate to secure d
debentures, charges and winding up, and that both f or
companies incorporated before this Law went into ef fect and
for companies incorporated under this Law;
(2) section 33, which shall remain in effect for co mpanies that
were granted exemption under section 32 before this Law
went into effect;
(3) section 369, which shall remain in effect for c ompanies that

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were struck off according to section 368 before this Law
went into effect;
(4) the provisions and conditions for changing the Memorandum, in respect of a company to which sectio n 24
of this Law applies;
(1) section 115A, which shall apply to decisions of the General
Meeting, which are required under the Companies
Ordinance.
(b) The provisions specified in subsection (a) shal l be interpreted, as
far as possible, in the light of the provisions of this Law.
Transitional provisions on the applicability of the Common Articles
368. (a) The provisions of sections 23 to 29, 51, 5 8 and 91 in Schedule
Two of the Companies Ordinance shall be deemed to b e included
in the by-laws of a company that incorporated befor e this Law
went into effect, if those provisions applied to it immediately
before this Law went into effect by virtue of secti ons 10 or 11 of
the Companies Ordinance, as it stood immediately be fore this
Law went into effect, and that as long as the by-la ws were not
changed in accordance with section 20.
(b) By-laws of a company that incorporated before t his Law went into
effect shall be deemed to include a provision, acco rding to which
the Chairman of the Board of Directors does not hav e an
additional vote as said in section 107, unless prov ided otherwise
in the by-laws, and that as long as the by-laws hav e not been
changed under section 20.

Transitional provision on shares of a parent compan y owned by
a subsidiary
369. (a) The provisions of section 309(b) shall not change voting rights by
virtue of shares in a parent company which a subsid iary acquired
or which some other body corporate under the contro l of the
parent company acquired before this Law went into e ffect, to the
extent that those voting rights were vested in them lawfully.
(b) If shares said in subsection (a) were acquired, and if the
subsidiary or the other company under the control o f the parent
company acquired additional shares of the same cate gory after
this Law went into effect, and if thereafter some o f the shares
were sold, then – for purposes of voting rights of the remaining
shares – it shall be deemed that the shares acquire d after this
Law went into effect were the first to be sold.

Applicability to company limited by guaranty
370. If immediately before this Law went into effec t a company was a
company limited by guaranty, as defined in the Comp anies Ordinance
as it stood immediately before this Law went into e ffect, and if it did not
have any share capital, then the provisions of this Law shall apply to it
and its members shall be deemed shareholders in the company who
hold shares without nominal value.

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Transitional provision on the Internal Auditor
371. Whoever served as Internal Auditor of a public company immediately
before this Law went into effect under an approval under section 3(b) of
the Internal Audit Law 5742-1992 may continue to se rve as Internal
Auditor of the same company.

Public director
372. A public director appointed under the provisio n of section 96B of the
Companies Ordinance, as it stood immediately before this Law went
into effect, shall – for purposes of Chapter One in Part Six – be deemed
an Outside Director, but on the matter of the lengt h of his term of office
and on the matter of the renewal of his term in off ice the provisions of
the Companies Ordinance shall apply, as it stood im mediately before
this Law went into effect.

Amendment of the Securities Law – No. 18
373. (We incorporated the changes of the Securities Law, legislated in this
section, into our translation of that Law – Tr.)

Amendment of Securities Law (Amendment No. 11) – No . 5
374. (We incorporated the changes of the Amendment Elev en of the
Securities Law, legislated in this section, into ou r translation of that Law
– Tr.)

Amendment of the Joint Investment Trusts Law
375. (We incorporated the changes of the Joint Investmen t Trusts Law,
legislated in this section, into our translation of that Law – Tr.)

Amendment of National Insurance Law
376. (We incorporated the changes of the National Insura nce Law, legislated
in this section, into our translation of that Law – Tr.)

Effect
377. This Law, except for the sections specified be low, shall go into effect on
February 1, 2000:
(1) sections 87 to 89 shall go into effect after re gulations for their
implementation are published, and on the date that will be
specified in those regulations;
(2) sections 143 and 145 shall go into effect three years after the
publication of this Law, or at an earlier date that the Minister and
the Minister of Finance will set, on condition that provisions on
electronic reporting were made under the Securities Law; the date
on which sections 143 and 145 go into effect shall be published in
advance in Reshumot;
(3) section 36(a1) of the Securities Law, as formul ated in section 373
of this Law, shall go into effect on the day on whi ch sections 143
and 145 of this Law go into effect, as said in para graph (2).

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Publication
378. This Law shall be published in Reshumot within 45 days after its
adoption by the Knesset.

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SCHEDULE
(Section 345a)
Public Purposes
A purpose, the subject of which is one of the follo wing:
1. quality of the environment, protection of the en vironment or knowledge
of nature and of the environment;
2. health or life saving;
3. religion, tradition or commemoration;
4. protection of animals and concern for their welf are;
5. human rights;
6. education, vocational training, culture and art;
7. science, research or higher education;
8. sport;
9. immigration, immigrant absorption or settlement;
10. charity or welfare;
11. community welfare or community, social or natio nal activity
12. the rule of Law, government or public administr ation;
13. the establishment of funds or organizations for the encouragement or
support of bodies active for one or more of the pur poses enumerated in
this Schedule.