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Does an Israeli company have to appoint external directors?

Only public companies must. Sections 239 to 249 of the Companies Law 5759-1999 require every Israeli public company, and every private company that has issued bonds to the public, to appoint at least two external directors. An ordinary private company, including a wholly foreign-owned subsidiary or a venture-backed startup, carries no such obligation. External directors serve fixed three-year terms, must be independent of the controlling shareholder, and must sit on the audit and compensation committees. Where every serving director is of the same gender, the next external director appointed must be of the other.

The external director, known in Hebrew as a dahatz, is Israel’s structural answer to a controlling shareholder dominating the board. Appointment requires shareholder approval by a reinforced majority: either a majority of the votes cast by shareholders who are neither controlling shareholders nor personally interested, or opposition from holders of no more than two percent of the voting rights. The term is three years and may be renewed twice, with longer service permitted for companies also listed on a foreign exchange. Compensation is fixed within ranges set by regulations rather than negotiated, which removes the controller’s ability to reward loyalty. Removal is similarly constrained and requires the same reinforced majority, so an external director who resists management cannot simply be voted out.

Foreign investors backing a private Israeli company should not expect these protections to apply automatically. A shareholders agreement is the usual place to build in board balance, veto rights and an independent seat, since the statutory regime only bites once the company lists on the Tel Aviv Stock Exchange or issues public debt. A company dual-listed on a United States exchange may rely on the regulations granting relief to companies traded abroad, which allow it to follow home-market independence rules in place of some Israeli governance requirements. Nationality is no obstacle: a foreign national may serve as an external director, and Israeli residence is not required, though the practical demands of committee work make an Israel-based candidate easier. See the guide to directors and corporate governance in Israel for the wider duty framework.

⚖ In Practice
  • Governing law: Sections 239 to 249, Companies Law 5759-1999
  • Who is caught: public companies and private companies that have issued bonds to the public; ordinary private companies are exempt
  • Competent authority: Israel Securities Authority (Rashut Niyarot Erech) for listed companies; Companies Registrar (Rasham HaChavarot) for statutory filings
  • Term and fees: three years, renewable for two further terms; compensation set within statutory ranges, and the annual Companies Registrar fee is approximately NIS 1,500 when paid early in the year (2026)
  • Gender rule: where all serving directors are of the same gender, the external director appointed must be of the other gender under Section 239(d)

From the full guide: Directors & Corporate Governance in Israel: Duties, Liabilities & Best Practices

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Get a Free Consultation with Adv. Eli ShimonyPrepared under the direction of Adv. Eli Shimony, Eli Shimony Law Office · Editorial policy

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