Question

Zevulun would like to buy shares in the Goldberg
Cabinet Co., a furniture manufacturing company wholly owned by Jews. He
expects good returns on his investment, since this firm is considered a
market leader. However, he is concerned that he may merely be lending
money to this company, in which case any returns will be forbidden as ribbis.
Is he a lender or a partner? Do voting rights have any bearing on his
status?

Answer

This subject is discussed at length in Rav Weiss’ work,
Minchas Yitzchok (3:1 – see Paragraph 11). He comes to the
conclusion that if the shareholder has no say in the running of the
company, not even voting rights at the annual general meeting, he is not
considered a partner in the company. However, he is considered to be a
partner in the profits of this firm. If the company does not
conduct its business in accordance with Torah law, he may not be a
partner in the business. Therefore, any shareholder having any say in the
running of the company must sell his shares if the company works on Shabbos,
lends money on interest to other Jews, etc. If the company does not sell
its chometz for Pesach, shares must be sold together with
the rest of one’s chometz. However, a shareholder without any say
in the running of the company need not sell his shares, even though he
does take his share in the profits (see also Ha’eleph lecho Shlomo,
No. 238). Rav Blau disagrees (Bris Yehudah, Chapter 2, Note 59). He
is of the opinion that whoever buys shares in a business is deemed to be a
partner in all its dealings, irrespective of whether he has even a minimal
say in the running of the company. Accordingly, every shareholder in a
company which fails to sell its chometz for Pesach would be
obligated to sell his shares together with the rest of his chometz.
When it comes to accepting profits from shares in the company, all the
above opinions would agree that this is considered a return on an
investment and not interest on a loan. Payments to shareholders are not
predetermined, but rather depend on the performance of the company. If the
company does well, a generous dividend is paid out to shareholders at the
end of the year. Should the company not do well, it is possible that no
dividend will be paid out at all. In addition, the value of the shares
themselves could also decrease. In an extreme case, he could lose all the
money invested if the company fails!

However, there are other ways of investing in
businesses. Someone who buys bonds is guaranteed a fixed return on his
money. In many cases, the company also accepts responsibility for
returning the principal sum invested even if the company is unsuccessful.
Furthermore, payment is made to bondholders without regard to the
performance of the company. Therefore, such investment would be considered
a loan, and any payment made to the bondholder over and above his
investment would constitute forbidden interest. Thus, the only permitted
way to invest in bonds in a Jewish company would be by means of a heter
iska. Even investing in second-hand (traded) bonds would be forbidden,
since one is really investing in the Jewish company (see Dovev
Mayshorim, 1:34, Paragraph 3). Is it permissible to buy Israeli
Government Bonds, since one is actually lending money to Jews and
receiving a payment over and above the sum lent? Since the value of these
bonds can decrease, as well as appreciate, any profit realised as a result
of their appreciation is deemed a partnership in profits. Moreover, even
the predetermined guaranteed return does not present a problem since the
issuer, the Israel Central Bank, is covered by a heter iska (see
Ribbis l’ohr HaHalocho, in the name of Rav Elyashiv and Rav B.Z. Abba
Shaul).