One of the most important facets of the modern world of commerce is the concept of a corporation. The idea of a corporation, first developed in English law and later by a number of groundbreaking legal decisions, designates a company as a “separate legal entity.” This idea was later implemented in the form of a limited liability company (LLC), and in associations of various forms.
The independence of a corporation means that it can function, in a legal sense, separately from its owners. It can own properties, buy and sell assets, and file a court suit (or be filed) independently of any human party. Legal theorists have invested significant effort into establishing legal theories that will efficiently define the corporation and its properties. The task was far from easy.
Over time, even the concept of a “separate legal entity” began to show signs of wear, and the possibility of some personal liability was introduced. This is known as “lifting” or “piercing” the “corporate veil” separating between the corporation and its human operators or owners, and is done in exceptional cases of fraud or where corporate gain is placed above public good. A possibility of personal liability is today part and parcel of modern corporation law (see, for instance, clause 6 of the Israeli Corporation Law).
The concept of a corporation raises many questions in the field of Torah law. When the idea was first introduced, many authorities claimed that Torah law does not (and cannot) recognize a non-human body as a separate legal entity for purposes of ownership and transaction. These authorities see a corporation as a regular “partnership,” which affords no protection to speak of to its human partners.
This line of thought effectively rejects the idea of the corporation as being foreign and incompatible with Torah law (see Shut Maharshag, Yoreh De’ah 3; Shut Divrei Chaim, Orach Chaim Vol. 2, no. 34; Shut Minchas Yitzchak, Vol. 3, no. 1; Shut Iggros Moshe, Orach Chaim 1, no. 90; Shut Minchas Shlomo Vol. 1, no. 28).
Other authorities, however, have suggested a number of precedents that might be of use in giving the concept of corporations or limited liability credence in Torah law. Naturally, these precedents are borrowed from areas of halachah that are quite far removed from the modern idea of a separate legal entity, and the question is how far they can serve as grounds for introducing the concept into halachah (see Shut Maharia Halevi, Vol. 2, no. 124; Shut Tzofnas Pa’aneach no. 184; Shut Chelkas Yaakov, Yoreh De’ah no. 65).
In the present article we will offer a brief analysis of the subject, and to show how halachah deals with the idea of corporations in theory and in practice.
Can Partners Become a Separate Entity?
Among the sacrificial offerings that the Torah mandates, there are a number of offerings whose ownership is vested in the “community” (tzibbur). An example of this are the offerings brought at the inauguration of the Mishkan mentioned in Parashas Shemini. Such offerings are not owned by individuals as partnerships, but rather by the community as a whole – as a separate entity.
At the beginning of Vayikra, Rashi (1:2) cites from the Midrash that aside from the individual, there are two other types of owners for offerings. These are (1) partners (an offering brought in partnership), and (2) the community (a “communal offering”).
The Ramban discusses this idea, and concludes that for a voluntary offering, there is no difference according to Rashi between an offering brought by two partners or one brought by the entire nation: In both cases the offering will be considered an offering of partners, and will not turn into a “communal offering.”
The Ramban disputes this conclusion: “When a joint offering is brought by the majority of the people, it will be designated a communal offerings… however, where only the minority of the people join together to bring the offering, it is considered an offering of individuals.”
A practical difference mentioned by the Ramban is the obligation of semicha (the owner’s resting his hands on the offering): For a person offering all partners must perform the semicha rite; for a communal offering, there is no obligation of semicha.
Thus, according to the Ramban “communal offerings” are not only the obligatory offerings relating to the community, but even voluntary offerings that a group of people wishes to bring. If the majority of the nation joins together, the offering becomes “communal,” whereas other joint offerings as simple partnerships.
It is possible that the dispute between Rashi and the Ramban revolves around the question whether a group of people can give themselves the status of an independent community, which is essentially different to the individual partnership that they form (see also Ramban, Milchamos Hashem, Berachos 13a in pages of Rif, s.v. amar).
Communal Offerings as a Paradigm for a Corporation
Based on the principle that the Ramban establishes, some authorities write that even a corporation or limited liability company can be recognized as a separate legal entity based on Torah law.
One such opinion is that of Rabbi Shlomo Dichovsky, which appears in a decision of the Israel Rabbinate (Decisions of the Israel Rabbinate Vol. 10, pp. 287-288): “It appears that the concept of a legal entity is expressed by Chazal in the difference between partners and a community. The basis for this distinction is found in the Ramban … the concept of a community forms a cornerstone of the modern concept of a limited liability company, or of a separate legal entity.”
However, reliance on the concept of a communal offering does not appear to provide a solid foundation for the idea of a corporation. Even according to the Ramban, an offering can only become “communal” if the majority of the nation of the Israel participates; without the majority of the people, the special status does not apply.
Moreover, it is difficult to make a comparison between the unique field of sacrificial offerings and other fields of halachah. The Gemara notes in a number of places that one cannot make deductions or comparisons between Chullin (mundane matters) and Kodashin (sanctified matter), and this reservation will apparently apply even here. Moreover, no mention is made of the concept of liability, and the idea of “limited liability” is therefore hard to derive.
Communal Ownership of Property
Another possibility that has been raised as a precedent for a separate legal entity is the Kahal – the community (see Rabbi Shaul Weingurt, Yad Sha’ul, p. 47).
Although a person can forbid his property upon somebody else by means of a neder – a vow – the Mishnah (Nedarim 5:4) teaches that such prohibitions do not apply to property of Olei Bavel.
For instance, a person can prohibit, by means of a neder, the derivation of benefit from his shul – it will be forbidden for the person upon whom the neder was made to enter the shul. However, this is not legally feasible for assets that were given over for the general public, and that do not belong to any specific city. Concerning such assets, the halachah is that personal vows prohibiting the derivation of benefit are ineffective. The examples given by the Mishnah are the Temple Mount, as well as water wells close to Jerusalem. These were placed at the disposal of those making the pilgrimage to Jerusalem, and nobody had private rights to them.
The general principle behind this ruling is that “a person cannot prohibit that which is not his.” Something that belongs to a particular city is in the joint ownership of the city’s inhabitants. If a member of a shul makes a neder prohibiting somebody else from entering, this will be a case of a partner who makes a vow to prohibit another from entering, which is a valid vow (see Ran, Nedarim 48a, s.v. ve’osrin).
However, property that belongs to Olei Bavel is excluded from this category. Rather than being the property of individuals – say, all the inhabitants of a given city – these assets belong to the community as a whole. Therefore, no inhabitant can prohibit the property on another. Because they are communally owned, individuals have no personal ownership in the assets, and the neder is thus ineffective.
This suggests that even with regard to ownership and property – and not only concerning offerings – the concept of communal ownership applies.
Although the Mishnah refers to specific properties, we find that the principle can be extended beyond these to other communal assets.
The halachah follows the opinion that partners cannot forbid the benefit of jointly owned assets on others if the asset in question cannot be divided (Rambam, Nedarim 7:4; Shulchan Aruch, Yoreh De’ah 226:1; based on Nedarim 46a). This raises a question concerning the ruling of the Gemara whereby partners to a shul can prohibit its benefit on each other (as ruled by the Shulchan Aruch 224:1) – for the Gemara itself defines a shul as an asset that cannot be divided!
In response to this problem, the Meiri (Nedarim 46a) explains that there are two types of shuls – a shul of kefarim (small towns) and of kerachim (cities). The halachah whereby a shul member can forbid benefit from the shul upon others applies only to the smaller shuls. However, concerning “our shuls, which belong to the public and are built with the entire world in mind,” the prohibition will not apply. These shuls are not the property of a group of individuals, but rather the property of the “general community.” Like the Temple Mount, they cannot be prohibited by means of a vow.
Personal Ownership in Communal Assets
This appears to be a worthy precedent for the concept of a separate legal entity in the field of ownership and transactions – though bring the idea to the concept of liability remains an extension. Yet, it is noteworthy that even for such communal property, the Rambam (commentary to the Mishnah, Nedarim 5:4) notes that there remains some degree of individual ownership; all the people of Israel are to a slight degree partners in the property (Rambam, Nedarim 7:2).
This level of partnership has ramifications for matters of halachah: There is a private obligation on individuals to check for chametz in public institutions (Shulchan Aruch, Orach Chaim 433:10), although this is a personal obligation.
Many maintain that the prohibition against ribbis (usury) applies to a communal institution (see Bris Yehudah 7:22, 24). This is in spite of the fact that ribbis is in principle a personal prohibition, which is contingent on their being a known creditor and borrower (Shut Ha-Rashba Vol. 1, no. 669; see also below, in the name of Rav Moshe Feinstein).
As noted at the outset, authorities are divided as how a corporation of limited liability company should be seen. The question involves many halachic ramifications, including the question of taking interest (ribbis), the issue of trading in non-kosher foods and on Shabbos, and other related fields.
An interesting stance is taken by Shut Tzofnas Paaneach (Vol. 1, sec. 184). In his typically terse style, he writes that a corporation (he writes of banks, but the same applies to all corporations) is defined as “form without matter.” Based on this definition, which to some degree upholds the concept of a separate legal entity, he rules that the prohibition of taking interest (and other issues related to Jewish ownership) is inapplicable.
Other sources, including leading halachic authorities, discuss the concept of shareholding. Is a shareholder considered an “owner” of the corporation (so that it won’t be a separate legal entity for halachic purposes) or not?
An important source in this respect is the ruling quoted from Rav Yitzchak Isaav Ha-Levi Ittinger (Shut Maharia Ha-Levi Vol. 2, nos. 54, 124), whereby shareholding does not constitute halachic ownership, so that no prohibition will apply to taking or paying (see below) interest to a corporation, or to owning shares in a company that trades in non-kosher foods. Notably, Shut Cheishev Ha’ephod (Vol. 1, no. 62) writes that the Rov of Tchebin also cited this ruling, and the authority of the Maharam Shik (sec. 158) also falls in favor of the lenient ruling.
Rav Dovid Hoffmann deals at some length with the issue of shareholdings in companies holding chametz on Pesach. He opens his response on the subject (Shut Melamed Le’hoil 91) with a quotation from a finals examination given by his predecessor at the helm of the Berlin Rabbinical Seminary, Rabbi Azriel Hildesheimer. Rabbi Hildesheimer set his examinees a question on this very topic: Does a shareholder (who has no say in the company’s running) in a corporation owning chametz have to sell his shares before Pesach?
Rabbi Hoffmann reports that all the examinees replied in the negative, each of them suggesting various reasons for which there is no obligation of selling one’s shareholding. Rabbi Hildesheimer himself, who made annotations to several exam papers, was clearly in agreement with this assessment, also quoting a number of possibilities whereby a shareholder does not transgress chametz prohibitions.
By contrast, Rav Menashe Klein has written that shareholding is halachically considered as true ownership, exaggerating the power of shareholders by comparing the corporation in the hands of its shareholders to clay in the hands of a sculptor (Mishnah Halachos Vol. 6, sec. 277; concerning ribbis, see also Shut Minchas Shlomo Vol. 1, No 28; see also Shut Minchas Yitzchak Vol. 3, sec. 1, who is stringent concerning shareholding in chametz on Pesach). Based on this conception, Rabbi Klein rules stringently on virtually all issues.
Rabbi Moshe Feinstein’s Ruling
Rav Moshe Feinstein seems to have maintained that a corporation is an actual partnership of sorts (see Shut Igros Moshe, Choshen Mishpat 2:15; Orach Chaim 1:19, 4:54). However, he ruled that one may own shares of stock in a non-kosher food chain, provided that he does not exert any decision-making control in the company (Even Ha’Ezer Vol. 1, sec. 7).
Only a partner who can exercise decision-making powers is considered an “owner” of the corporation, and therefore subject to the prohibition of partnership in non-kosher trading.
Thus, he writes that even if shareholders are a given a vote on company decisions, they are not considered “partners” with respect to this halachah. Only where a substantial proportion of shares, such as over 50% of the company, is owned, thereby bequeathing the shareholder a dominant say in the company’s operational decisions, would the ownership of stock be considered a violation of the prohibition.
Although as noted some authorities adopt a stricter position, one can certainly rely on the ruling of the Iggros Moshe, together with the numerous opinions mentioned above who rule leniently, for many corporation-related issues.
Concerning interest, Rav Moshe rules that according to the strict halachah there is no need for a heter iska for bank deposits or for a corporation or limited company that borrows money. The reason for this is that the prohibition of ribbis depends on there being a concrete obligation on the borrower to pay the money (a shibud ha-guf), which does not apply to a limited company. However, he is not lenient in the converse case – where an individual borrows money from a bank or a company.
Because of the complexity of the field, all practical questions should certainly be addressed to a competent halachic authority.