Quick Answer: Under Section 59 of the Companies Law 5759-1999, shareholders can remove any director — even one appointed for a fixed term — at a general meeting called with at least 21 days' written notice. The resolution requires a simple majority of votes cast. However, the removed director has a right to be heard before the meeting, and certain protected categories (external directors in public companies and directors appointed by specific shareholders under the articles) follow different rules. A director who is also an employee remains entitled to severance and notice pay regardless of the removal.

Removing a director from an Israeli company sounds simple enough. In practice it gets messy quickly, especially when the director also works as an executive employee, when a minority investor appointed them under a shareholders' agreement, or when the articles of association contain provisions that make removal procedurally difficult. Foreign investors and companies with foreign-nominated directors run into this regularly.

The Companies Law 5759-1999 (Hok HaChevrot) sets out the default removal framework, but the articles of association and shareholders' agreements can cut across it in ways that are not obvious. Getting the procedure wrong can leave a company stuck with a director it legally cannot remove, or facing a damages claim it never anticipated.

1. Who Has the Power to Remove a Director Under Israeli Law

The default rule under the Companies Law is simple: the body that appoints a director has the power to remove them. For most directors in Israeli private companies that is the general meeting of shareholders (asefa klalit), since it is the same body that made the appointment.

The articles of association can change this in two ways:

  • Board-appointed directors: If the articles give the board the power to appoint directors (common in multi-class share companies where founders or investors hold contractual board-appointment rights), the board, or the specific shareholder class, may also have the power to remove those directors. The general meeting's default statutory removal power still applies in the background alongside any contractual removal rights.
  • Class-specific appointment rights: Shareholders' agreements and articles in Israeli startups and VC-backed companies frequently give specific investors the right to appoint one or more directors for as long as they hold above a threshold percentage of shares. Those investor-appointed directors can typically be removed only by the investor who appointed them, or by the general meeting if the investor's shareholding drops below the threshold. Trying to remove such a director by ordinary shareholder vote, without following the contractual mechanism, exposes the company to a challenge that the removal was invalid.

In public companies listed on the Tel Aviv Stock Exchange (TASE), the rules for external directors (*diretktorim chitzoniyim*) and independent directors are much stricter and follow the Securities Law 5728-1968 and Israel Securities Authority (Reshut HaNiirut) regulations, not just the Companies Law defaults.

2. The General Meeting Removal Process Step by Step

For an ordinary director in a private Israeli company, one whose appointment has no special shareholders' agreement protection, the Section 59 removal process works as follows:

Step 1 — Convene an extraordinary general meeting. The board (or shareholders holding at least 5% of the company's voting rights under Section 63) calls an extraordinary general meeting (asefa klalit meyuchedet) for the purpose of removing the director. The meeting notice must be sent to all shareholders at least 21 days before the meeting date.

Step 2 — Serve written notice on the director. Under Section 59(b) of the Companies Law, the company must give the director written notice of the proposed resolution and a reasonable opportunity to make representations to the shareholders. This is not a court hearing. It is an internal right to be heard. The director can submit a written statement the company must circulate to shareholders, or attend the meeting and address shareholders directly before the vote. Skipping this step does not automatically void the removal, but it hands the removed director a procedural argument to work with.

Step 3 — Pass the resolution. The removal resolution requires a simple ordinary majority of the votes cast at the meeting, provided there is a quorum. The default quorum under the Companies Law is shareholders representing more than 50% of the voting rights; the articles may set a different quorum. The removed director, if they are also a shareholder, can vote their shares against the removal resolution — the right to vote as a shareholder is entirely separate from the right to serve as a director.

Step 4 — File with the Registrar of Companies. Within 14 days of the resolution, the company must notify the Registrar of Companies (Rasham HaChevrot) of the director's removal using Form 36. The Registrar's office can be reached at 02-6464510 (Jerusalem) or through the online Companies Authority portal. Failure to report within 14 days exposes the company to administrative fines; the current fine for late reporting is NIS 1,000 per month of delay, rising to NIS 3,000 per month after 30 days.

Step 5 — Notify the director formally. Send the director a written notice of removal, the effective date, and any outstanding entitlements (notice pay, severance), particularly if they are also an employee.

In Practice: The 21-Day Notice and the Director's Right to Speak

The 21-day notice requirement is strict. A company that convenes an extraordinary general meeting with less notice — even 18 or 20 days — gives the removed director a procedural argument that the removal was invalid, which can be used to negotiate a better exit package or delay the effective date. The right to make representations is equally important: courts have not routinely invalidated removals where the director was not given a formal hearing, but the absence of any notice to the director strengthens a wrongful removal claim. Best practice is to serve the director with a written notice identifying the proposed resolution, inviting written representations within seven days, and attaching those representations (if submitted) to the meeting materials sent to all shareholders. If the director is also an employee, involve employment counsel before serving the notice — the overlap between corporate removal and employment termination creates its own procedural requirements.

3. Protected Director Categories: External, Independent, and Minority-Appointed

Not all directors can be removed by an ordinary majority vote. Three categories have more protection than the Companies Law default.

External directors in public companies (*diretktorim chitzoniyim*). Listed companies on the Tel Aviv Stock Exchange must appoint at least two external directors under Section 239 of the Companies Law. External directors serve for a mandatory three-year term (renewable twice, for a maximum of nine years) and can be removed during their term only in very limited circumstances: a conviction for certain criminal offences, a court finding of a breach of fiduciary duty, or a resolution of the general meeting requiring the same double majority used to appoint them under Section 245. An ordinary majority is not enough. The Israel Securities Authority actively monitors compliance and has fined companies for improperly removing external directors.

Independent directors in private companies that opted into the external director framework. Some private companies, particularly those preparing for an IPO, voluntarily adopt external director requirements. They follow the same heightened removal standard.

Directors appointed by specific shareholders under a shareholders' agreement or the articles. In Israeli VC-backed startups, it is standard for lead investors to receive contractual board seats — the right to appoint one director as long as the investor holds more than, say, 10% of shares on a fully diluted basis. These director appointments and removals are governed by the contractual mechanism, not by the default Companies Law rule. Attempting to remove an investor-appointed director by a majority shareholder vote at a general meeting, without following the contractual mechanism, is a breach of the shareholders' agreement and exposes the controlling shareholder to a damages claim and potentially to an injunction from the Tel Aviv District Court's Economic Department (HaMachala HaKalkalit).

In Practice: The Investor Board Seat Trap

A US venture capital fund holds 18% of an Israeli startup's shares and, under its investment agreement, has the right to appoint one director for as long as it holds above 10%. The founder, now in control of the company, wants to remove the VC's director because the board has become dysfunctional. The founder calls an extraordinary general meeting and, using the founders' majority, passes a removal resolution under Section 59 of the Companies Law. The VC immediately files an emergency application at the Tel Aviv District Court's Economic Department for an injunction reinstating its director, arguing that the contractual board seat is protected and the statutory removal mechanism does not override the shareholders' agreement. Unless the shareholders' agreement expressly allows the general meeting to override the board-seat provision, the court is likely to grant the injunction. The practical lesson: founders who want to remove an investor-appointed director must first check whether the shareholders' agreement sets out the only valid removal mechanism — and if so, whether the investor's shareholding has fallen below the threshold that makes the seat contractually guaranteed.

4. The Removed Director's Rights and Compensation

Removal from the board does not eliminate all of a departing director's rights. Two things survive: employment entitlements (if the director was also an employee or executive) and indemnification and insurance rights.

Employment rights. Many Israeli directors are simultaneously employees or officers of the company. Think founders who serve as CEO and board chair, or investor-appointed directors who draw a consulting fee. Removal from the board does not automatically terminate the employment or consulting relationship. If the director's removal effectively forces out their employment as well, the company must comply with the Notice Period Law 5761-2001 (advance notice of up to one month per year of service) and the Severance Pay Law 5723-1963 (one month's salary per year of service for dismissal). Treating a removal-driven departure as a voluntary resignation, to sidestep severance, is a mistake Israeli labor courts reject consistently. If the removal is effectively a dismissal, severance is owed regardless of what the termination letter says.

Indemnification and D&O insurance. Under Section 260 of the Companies Law, a company can indemnify a director for liability arising from their service. That indemnification right survives removal — a director who faces a lawsuit for actions taken while on the board can still claim indemnification from the company's indemnification undertaking and its D&O insurance policy, as long as the action falls within the scope of the policy and the indemnification decision was validly given. Companies that try to cut off a removed director's D&O coverage face potential liability for any damage the director suffers as a result.

Compensation for the remaining term. A director appointed to a fixed term who is removed before the term expires may be entitled to compensation for the unexpired period if the articles or an appointment letter guarantee the term. The Companies Law itself does not prohibit removal mid-term, but the removed director's remedy for breach of an appointment guarantee is a damages claim, not reinstatement. Courts will typically award the economic value of the remaining term's fees, not specific performance.

In Practice: The Director-Employee Severance Calculation

A founder serves simultaneously as CEO (employee, monthly salary NIS 45,000) and board chairman (director, separate directorial fees NIS 8,000/month) at an Israeli company they founded eight years ago. The board removes them from their directorship and terminates their employment simultaneously. The employment-related dismissal entitles them to: one month's notice under the Notice Period Law 5761-2001 (or pay in lieu), and eight months' salary as severance under the Severance Pay Law 5723-1963 (one month per year of service × 8 years) — calculated on the NIS 45,000 employment salary base. The directorial fees are typically not included in the severance base unless they were treated as salary for tax and pension purposes. Total minimum employment payout: approximately NIS 405,000 (NIS 45,000 notice + NIS 360,000 severance), plus any outstanding vacation pay, sick leave balance, and pension contributions. Add potential wrongful termination damages if the removal was done without proper prior hearing under Section 9A of the Advance Notice Law. Removing a founder-employee-director is rarely a clean NIS 0 transaction.

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5. How the Articles of Association Can Complicate Removal

The articles of association, registered with the Registrar of Companies, can modify the default removal rules in several ways:

  • Supermajority requirement: The articles can require more than a simple majority to remove a director, for example a 75% majority of votes cast. In a company where no single shareholder holds 75%, this gives any director with a friendly faction above 25% effective protection against removal.
  • Classified board: Some Israeli companies adopt a staggered board structure where directors serve fixed, non-overlapping terms. The Companies Law still permits removal mid-term, but the articles may provide that early removal triggers a compensation obligation equal to the remaining term's fees.
  • Veto rights: Articles may give a specific class of shares a veto over board changes, requiring unanimous consent of the preferred shares before any director is removed. Foreign investors should check the class rights attached to their shares before assuming they can act unilaterally.
  • Board self-perpetuation: Occasionally, Israeli company articles give the board the power to appoint and remove certain categories of directors by board resolution alone. This is unusual but appears in some older company constitutions.

Before calling a general meeting to remove a director, check the filed articles at the Registrar of Companies, not just whatever version circulates internally, for any of these modifications. A removal carried out without following the articles' procedure is voidable even if it technically satisfied the Companies Law's default process.

6. Court-Ordered Removal for Breach of Duty

Shareholders are not the only ones who can remove a director. Israeli courts have their own power to order removal as a remedy for certain breaches of duty.

Section 228 of the Companies Law. Where a court finds that a director has committed a breach of fiduciary duty (hafarat chovat amanah) under Section 252, covering self-dealing, misappropriation of corporate opportunity, or systematic conflict-of-interest voting, it can order removal as part of the remedy. Courts rarely grant removal as a standalone order; it usually accompanies an injunction against ongoing conduct and a damages award.

Minority shareholder oppression petition under Section 191. A minority shareholder who can show that the majority is running the company in a manner oppressive to them, including through the actions of a majority-controlled board, can petition the Tel Aviv District Court's Economic Department for relief. The court has wide discretion: it can reconstitute the board, remove specific directors, or require the appointment of an independent director. Section 191 actions are among the most common forms of corporate litigation in Israel.

Insolvency trustee or liquidator power. Under the Insolvency and Economic Rehabilitation Law 5778-2018, once a company enters insolvency proceedings, the court-appointed trustee effectively displaces the board's authority. The trustee does not formally "remove" directors but assumes their management powers, rendering the board functionally inactive for operational purposes. Directors remain on the register until formally removed, but their authority is suspended.

In Practice: Section 191 as Leverage in Director Disputes

A minority shareholder holding 30% of an Israeli company files a Section 191 petition at the Tel Aviv District Court's Economic Department (HaMachala HaKalkalit, Beit Mishpat Mehozi Tel Aviv) alleging that the majority-controlled board systematically approved related-party transactions without following the Companies Law approval process, paid the controlling founder an above-market salary without audit committee or shareholder approval, and excluded the minority's nominated director from information flow. The Economic Department moves quickly on Section 191 petitions — initial case management hearings are typically scheduled within two to three months of filing. The threat of a Section 191 petition, with its wide-ranging remedies including board reconstitution and buyout orders, frequently motivates settlement. Filing fees at the Economic Department are approximately NIS 1,500–3,000 for a Section 191 petition; attorney fees for the initial stages typically range from NIS 50,000–150,000 per side. Many minority shareholder disputes in Israeli companies are resolved in mediation before the case reaches a full trial.

7. What Foreign Investors and Nominee Directors Must Know

Nominee directors and the personal liability problem. A foreign parent that appoints a nominee director to an Israeli subsidiary board must understand that the nominee carries full personal liability under the Companies Law, regardless of any indemnity the parent has given. If the Israeli company enters into transactions that breach the Companies Law (unauthorized related-party transactions, for example), the nominee director who participated in the board vote has personal exposure. Foreign investors who routinely appoint representatives to Israeli company boards should ensure those representatives are covered under the company's D&O insurance and have valid indemnification undertakings signed before their appointment takes effect.

Board representation rights in investment agreements. Standard Israeli VC investment agreements — modeled on US NVCA documents but adapted for the Companies Law — grant lead investors board seats tied to their percentage ownership. Before investing, foreign investors should ensure the board-seat provision is incorporated not only in the shareholders' agreement but also in the company's registered articles of association. A board-seat right that lives only in a shareholders' agreement is a contractual right enforceable in damages; a right embedded in the articles is a property right enforceable by court order reinstating the director. The difference is critical when a disagreement arises between the investor and the founders.

Remote attendance at Israeli board meetings. Under Section 101A of the Companies Law, directors can participate in board meetings by conference call, video link, or any other means that allows real-time communication. A foreign director who cannot be physically present in Israel for a board meeting to vote on a removal resolution can participate and vote remotely. The minutes must record that the director participated electronically and reflect the vote.

Deadlock provisions. Many Israeli shareholders' agreements include deadlock-resolution mechanisms (casting vote provisions, buy-sell clauses, or compulsory appointment of a tiebreaking director) that trigger when the board cannot agree on major decisions. Director removal is often the flashpoint that activates them. Foreign investors reviewing Israeli shareholders' agreements should confirm that any deadlock mechanism actually works under Israeli law; some provisions imported from English or US documents do not function as intended under the Israeli corporate framework.