IsraelLawWhat fiduciary duties do directors of an Israeli company owe to the company and its shareholders?
The Companies Law 5759-1999 codifies director obligations in a framework influenced by Anglo-American company law. The duty of loyalty under Section 252 prohibits a director from placing personal interests above those of the company, from using company information for personal benefit, or from taking a business opportunity that rightfully belongs to the company. A director who breaches the duty of loyalty is personally liable to compensate the company for any loss resulting from the breach. The duty of care under Section 253 requires directors to act with the skill expected of a reasonably competent person in that role, to make decisions on the basis of adequate information, and to monitor the company's operations. Section 254 adds a specific disclosure obligation: a director with a personal interest in any matter before the board must declare that interest before the vote and must abstain from voting, unless the company's articles of association or a shareholder resolution specifically permits participation.
For foreign directors — who commonly serve on Israeli subsidiary boards or startup boards from abroad — these duties apply in full regardless of physical location or nationality. A breach of the duty of loyalty (for example, redirecting a corporate opportunity to a separate personal business) can result in civil liability and, in serious cases, criminal prosecution under the Penal Law. Israeli courts do not require proof of subjective bad faith for a duty-of-care claim; the standard is objective, based on what a reasonably skilled director would have done. Foreign directors should ensure they receive accurate and timely management accounts, that board meetings produce proper written minutes, and that any potential conflict of interest is disclosed in writing to the board before a decision is made. Directors' and Officers' (D&O) insurance is not mandatory under Israeli law but is strongly advisable for any international board operating in Israel.
- Governing law: Sections 252–254, Companies Law (Chok HaChavarot) 5759-1999
- Duty of loyalty: act in the company's interest at all times; no self-dealing, no misuse of company information or opportunities
- Duty of care: act with the skill and informed judgment a reasonably competent director in the role would apply; keep up with material company information
- Conflict of interest: declare in writing at the board meeting before discussion; abstain from the vote unless articles or shareholders specifically authorize participation
- Personal liability: breach of loyalty can result in civil liability to compensate the company; the company may recover any unlawful gain the director made
From the full guide: Directors and Corporate Governance in Israel: Duties, Liabilities and Best Practices
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