Article: Regulating controlling shareholders power in public companies – a comparative analysis of the legal framework in Israel and the State of Delaware Journal: International Journal of Private Law (IJPL) 2011 Vol.4 No.4 pp.502 - 532 Abstract: Controlling shareholders may have undue ability to shape corporate governance structures to suit their personal interests, and may use this influence at the expense of minority shareholders or the corporation itself. Various jurisdictions have introduced legislative mechanisms to regulate such behaviour, and to balance the relationship between controlling and minority shareholders. The present article examines two differing approaches to this issue, that was adopted in Delaware under the DGCL, and that was adopted in Israel under the Companies Law, which, although it has always provided protection for minority shareholders, was recently amended to provide stronger protection, along with amendments to the Courts Law to establish a special Economic Court. We will examine the effects of these legislative mechanisms in terms of the agency problem, particularly as it applies to transactions between corporations and their controlling shareholders. We will also examine some of the shortcomings of the Israeli legislative changes, particularly in regard to the special Economic Court, and suggest modifications that will make its powers consonant with the needs it is supposed to meet. Inderscience Publishers - linking academia, business and industry through research

Title: Regulating controlling shareholders power in public companies – a comparative analysis of the legal framework in Israel and the State of Delaware

Authors: Uri Volovelsky

Addresses: College of Management Academic Studies, Law School, 7 Rabin Boulevard, Rishon LeZion, Israel

Abstract: Controlling shareholders may have undue ability to shape corporate governance structures to suit their personal interests, and may use this influence at the expense of minority shareholders or the corporation itself. Various jurisdictions have introduced legislative mechanisms to regulate such behaviour, and to balance the relationship between controlling and minority shareholders. The present article examines two differing approaches to this issue, that was adopted in Delaware under the DGCL, and that was adopted in Israel under the Companies Law, which, although it has always provided protection for minority shareholders, was recently amended to provide stronger protection, along with amendments to the Courts Law to establish a special Economic Court. We will examine the effects of these legislative mechanisms in terms of the agency problem, particularly as it applies to transactions between corporations and their controlling shareholders. We will also examine some of the shortcomings of the Israeli legislative changes, particularly in regard to the special Economic Court, and suggest modifications that will make its powers consonant with the needs it is supposed to meet.

Keywords: controlling shareholders; minority shareholders; agency problems; Companies Law; Delaware Code; USA; United States; legal codes; General Corporation Law; fiduciary duties; fairness; economic courts; Israel; Zohar Goshen; Goshen Committee; corporate governance; public companies; company directors; director responsibilities; legal frameworks; legal regulation; corporate structures; personal interests; legislative mechanisms; special courts; private law.

DOI: 10.1504/IJPL.2011.042688

International Journal of Private Law, 2011 Vol.4 No.4, pp.502 - 532

Published online: 28 Mar 2015 *

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Title: Regulating controlling shareholders power in public companies – a comparative analysis of the legal framework in Israel and the State of Delaware

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