Right to inspect company documents: what a shareholder may demand, and what a director may

Service page: Commercial contracts lawyer: drafting, review and enforcement.

A letter sent to a company that begins with the words “I hereby demand to inspect all the company’s documents” will almost always be rejected, and rightly so. The Companies Law does not recognize a general right to inspect. It recognizes two separate rights, for two different roles, whose scope is completely different: the right of a shareholder and the right of a director.

The distinction is not technical. A demand drafted under the wrong right is rejected outright, and whoever rejects it does not even have to deal with its substance.

What a shareholder is entitled to see in any case

Section 184 sets a closed list. It has no requirement to state a purpose, it gives the company no discretion, and it includes five items: minutes of the general meetings; the register of shareholders and the register of substantial shareholders; a document in the company’s possession as set out in section 185; the articles of association and financial statements as set out in section 187; and any document that the company must file by law with the Registrar of Companies or the Israel Securities Authority, which is open to public inspection there.

The fifth item is the one that gets forgotten: a document that is already open to public inspection at the Registrar of Companies is not a secret. Refusing to show it is, in most cases, a pointless refusal, and a good measure of the quality of relations in the company.

Any other document: only two gateways

For any document that is not on the list, section 185(a) opens two gateways, and both depend on the demand stating its purpose:

Companies Law, section 185(a)

A shareholder is entitled to demand from the company, while stating the purpose of the demand, to inspect any document in the company’s possession in any of the following: (1) the document relates to an action or transaction that requires the approval of the general meeting under the provisions of sections 255 and 268 to 275; (2) in a private company, if this is required in order to make a decision on a matter on the agenda of the company’s general meeting.

The first gateway is linked to interested party transactions, the transactions that the Law requires to be brought for the approval of the general meeting. The second gateway exists only in a private company, and it is narrower than it seems: it requires that the document be needed for a decision on a matter that is already on the agenda. Not a matter that the shareholder would like to raise.

The practical conclusion for a minority shareholder: if you want to see a document that is not on the list in section 184, you usually need first to make sure that the matter comes onto the agenda of the meeting. This order of steps is what decides whether the demand gets through the gateway at all.

When the company may refuse

Section 185(b) lists three grounds for refusal: that the request was not made in good faith; that the documents demanded contain a trade secret or a patent; or that disclosing the documents may harm the company’s interests in another way. A shareholder who wants more than the statutory right to inspect should set it out in advance in the shareholders’ agreement, and this is part of drafting and reviewing commercial contracts.

Note the wording: the second ground speaks of a trade secret in the documents, not of the whole document. A practical answer to such a demand is usually inspection of a version from which the trade secrets have been blacked out, not a blanket refusal. Whoever rejects a demand on the third ground must point to harm to the company’s interests, not to inconvenience for the management.

Directors’ pay: a separate right, and a ten percent threshold

Section 186 creates an independent right, and not every shareholder is entitled to it. It is given to one or more shareholders who hold at least ten percent of the voting power in the company, and it applies to the board of directors of a company that is not a reporting corporation and that must appoint an auditor.

What you get is not a summary but a notice certified by the company’s auditor, with full details of all the payments the company made to each of the directors and of the payment obligations it took on, including retirement terms, in each of the last three years for which financial statements were prepared. The amount also includes payments a director received as an officer of a subsidiary.

Three points that change the outcome: the demand covers three years and not one year; it includes future obligations and not only payments actually made; and it extends to the subsidiary. Section 186(b) allows the board of directors to refuse if it found that the demand is not made in good faith: one ground, not three.

Articles of association and financial statements

Section 187(a) gives every shareholder the right to receive from the company, on request, a copy of the articles of association, and in a company that is not a reporting corporation, also a copy of the financial statements. In a reporting corporation, section 187(b) gives the right to receive the statements if they were not published under Chapter G1 of the Securities Law, 5728-1968 (חוק ניירות ערך, התשכ״ח-1968).

A director’s right is completely broad, and for good reason

When you move from a shareholder to a director, the logic is reversed. A director is not an observer of the company but bears personal liability for its management, so the Law gives them different tools:

Companies Law, section 265(a)

Every director has the right to examine the company’s documents and records and to receive copies of them, and to examine the company’s assets, as far as this is needed to perform their duties as a director.

Three material differences from a shareholder’s right: there is no closed list; the right also extends to assets and not only to documents; and it includes receiving copies and not only inspection. The only filter is “as far as this is needed to perform their duties”, and it is measured by the duties of care and fiduciary duties that sections 252–254 place on them.

Section 265(b) allows the company to prevent an examination if the board of directors believed that the director is acting without good faith, or that the examination may harm the company’s interests. Section 265(c) widens the right for an external director: the court may decide that it also applies to documents and records of any related company, if it is persuaded that the information is important for carrying out their role.

Professional advice at the company’s expense

Section 266 completes the picture: a director is entitled, in special cases, to receive professional advice at the company’s expense, if covering the expense was approved by the board of directors or by the court. In its decision, the court considers, among other things, whether the company’s experts fail to provide the assistance needed, and how reasonable the amount requested is, given the grounds for the request and the company’s financial position.

This section is meant exactly for a situation in which a director suspects that the advice the company receives is not neutral toward them. A director who does not use it, and later has to explain why they relied on an opinion ordered by someone with an interest, is in a very difficult position.

How to draft a demand to inspect that meets the conditions of the Law

• Separate them: first what you are entitled to under section 184 without conditions, and only then what you demand under section 185. A demand that mixes the two invites a blanket refusal.
• State an express purpose for each document requested under section 185. “The purpose of the demand” is a condition in the wording of the section, not a custom.
• In a private company, first make sure the matter is on the agenda of the meeting. The second gateway in section 185(a)(2) opens only then.
• Do you hold at least ten percent? Demand expressly under section 186, and state that you are asking for a notice certified by the auditor for the three years, including obligations and retirement terms, and including a subsidiary.
• As a director, anchor the demand in the duty you are performing. Section 265 depends on “as far as this is needed to perform their duties”, and a demand that does not explain which duty is involved invites section 265(b).
• Received a refusal on the ground of a trade secret? Offer inspection of a blacked-out version. Section 185(b) speaks of a trade secret in the documents, not of the whole document.

Frequently asked questions

Which documents is a shareholder always entitled to see?

Section 184 of the Companies Law sets a closed list: minutes of the general meetings, the register of shareholders and the register of substantial shareholders, a document in the company’s possession under section 185, the articles of association and financial statements under section 187, and any document that the company must file by law with the Registrar of Companies or the Israel Securities Authority and that is open to public inspection.

Can a shareholder demand any company document?

No. Beyond the list in section 184, section 185(a) allows inspection only in two situations, and while stating the purpose of the demand: when the document relates to an action or transaction that requires the approval of the general meeting under sections 255 and 268 to 275, or, in a private company only, when this is required in order to make a decision on a matter on the agenda of the general meeting.

When may a company refuse a shareholder’s demand to inspect documents?

Section 185(b) lists three grounds: that the request was not made in good faith, that the documents demanded contain a trade secret or a patent, or that disclosing the documents may harm the company’s interests in another way.

How do you get information about directors’ pay in a private company?

Under section 186, one or more shareholders who hold at least ten percent of the voting power may demand a notice certified by the company’s auditor, with full details of all the payments to each of the directors and of the payment obligations, including retirement terms, in each of the last three years for which financial statements were prepared, including payments in a subsidiary.

What is the difference between a director’s right to inspect and that of a shareholder?

A director’s right under section 265(a) is much broader: it applies to all the company’s documents and records, includes receiving copies, and also extends to examining the company’s assets, as far as this is needed to perform their duties as a director. The company may prevent an examination only if the board of directors believed that the director is acting without good faith or that the examination may harm the company’s interests.

Who may inspect the register of shareholders?

Any person, not only a shareholder: under section 129 of the Companies Law, the register of shareholders and the register of substantial shareholders are open to inspection by any person, and the section does not make this conditional on stating a purpose. The minutes of the general meetings, by contrast, are open to inspection by the company’s shareholders, and the company must keep them at its registered office for seven years from the date of the meeting (section 90).