Company should be Governed by Majority Rules
In Kochavi v. Visualiyt Ltd. the Haifa District Court interpreted Visaualiyt’s Articles of Association. Two of the founders decided to fire a third founder (the plaintiff) from the board of directors. The plaintiff filed suit for a declaratory ruling that his removal from the board was void.
The company’s articles of association provided the mechanism for appointing and dismissing directors. The relevant section read as follows: “The company’s board of directors shall consist … 4 (four) of which shall be elected by the founders…. The appointment of a director as aforesaid, and the dismissal or replacement of any director so appointed, shall be by written notice given to the company by the appointing shareholder(s).
In dismissing the lawsuit Honorable Judge Dar reasoned that the right to appoint directors, and therefore also the right to dismiss the directors, was given to the founders as a group. Thus, the majority of the founders were entitled to fire the plaintiff.
The court added that the interpretation suggested by the plaintiff (that a consensus decision is required) should be rejected, as the court cannot adopt an interpretation according to which the shareholders of a company lack the power to remove the managers of the company. The court indicated that consensus rules might cause companies to reach a dead-lock and cease operations, and the court will therefore prefer an interpretation providing for a majority-rule.
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