Company May Waive Rights Under its Incorporation Documents
In Goldstien v. Pisgat Bartenura Ltd. et al the Israeli Supreme Court ruled that a company may obligate itself contractually not to exercise powers granted to it in the company’s incorporation documents (articles of association and memorandum of incorporation). A company entering such a contract may not breach its obligations based on the claim that such obligations contradict in incorporation documents.
The court added that that since the incorporation documents are regarded as a nexus of contracts between the company and its shareholders, the company’s officers must exercise the company’s powers towards the shareholders in good faith, even when the incorporation documents grant the company “full discretion”. Under the specific circumstances in Goldstien the court ruled that the company’s refusal to effect a transfer of shares was in bad faith.
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