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Naso-Ma’aseir on Corporate Profits



Mr. A is the sole shareholder and sole director of a Limited Company (a corporation). The company makes profits in the company financial year of e. g. £1 Million. Mr. A takes out of the company a total of £300K for his personal income in various ways including a director’s salary, benefits-in-kind (e. g. a company car, health insurance etc.) and shareholder dividends. Mr. A decided to retain in the company a material amount of profits (in this case £700K) for genuine corporate reasons such as future investments, projects, reserves, and/or future liabilities. Is it correct that Mr. A needs to pay Maaser Kesofim on the entire £1Million of profit and not just on the £300K that he took out?


The first issue that needs clarification is whether a privately owned corporation is considered by Torah law as an independent entity as it is in secular law, or not. The relevance of this issue to your question is because if there is no such concept then the income of your corporation is really your income and there would be no reason not to pay ma’aseir on your corporation’s entire income.

The reason that secular law established the legal structure of a corporation is in order to limit liability in the conduct of the business to the assets of the corporation. Thus, if a corporation borrows money the lender agrees that the loan only needs to be repaid if the corporation itself has assets with which to pay the lender. If the corporation lacks the assets, even if the owners and directors have assets, they have no obligation to pay.

In order to accomplish this, secular law established a new entity called a corporation, which is viewed as an independent legal entity. The owners of the corporation are not personally liable for the corporation’s debts in the same manner that they are not liable for anyone else’s debts.

The consensus of poskim (see e. g. Minchas Yitzchok (10, 143), Shevet Halevy (8, 306)) is that since, when a corporation borrows money, both parties explicitly agree to limit liability to the corporation’s assets, in the context of Torah law too the only obligation is to pay from corporate assets and the owners do not have any personal obligation beyond these assets. The reason is that one is never obligated to more than what he agrees to be obligated.

However, whereas secular law limits liability by creating a new independent entity called a corporation, Torah law accomplishes this by means of a concept known as an apotekey mefurash. The Gemoro (Gittin 41A) writes that if one borrows money and the lender and borrower agree that the only asset that will serve to repay the loan is a specific field, then that field is designated an apotekey mefurash. If the field subsequently suffers permanent damage, the lender has no recourse from other assets and will not be able to collect the full value of his loan. Thus we see that by designating an asset as an apotekey mefurash the borrower limits his liability to that asset which is designated as the apotekey mefurash.

These poskim maintain that since the Torah apparatus for creating limited liability is by designating certain assets as an apotekey mefurash, when a corporation borrows money effectively the borrower and lender agree to designate the assets of the corporation as an apotekey mefurash. Even though they do not use the words “apotekey mefurash,” since this is the way they wish to use the assets, those assets assume this status. Thus the result is the same is in secular law: if the corporation has assets the lender can collect his loan. However, if does not have sufficient assets, the lender will lose at least part of his loan.

Since these poskim view the assets of a person that are entered as assets belonging to his corporation as having the legal status of an apotekey, we have to determine if an asset that is an apotekey still belongs to its original owner.

One can prove that it still belongs to him from a ruling of the SA (CM 117, 6) that if a borrower designated his gentile slave as an apotekey and then freed him, the slave is free and the lender cannot collect his loan. The borrower is liable to his lender as a mazik since he damaged him by freeing the slave which was set aside as payment for his loan. However, what is important for us is that the slave is actually set free. If the borrower does not retain ownership of the slave he would not have the ability to free the slave.

Thus, we see that even an asset which has been designated as an apotekey to serve as payment for a loan still belongs to its original owner. Therefore, if we view assets that have been written as corporate assets as being assets that may be designated as an apotekey then these assets really belong fully to their owner in any case, even if they were designated as an apotekey. (They only become an apotekey if the corporation borrowed money.)

We should note that Rav Moshe Feinstein also did not view a corporation as an independent entity as many people mistakenly think. In a responsum (EH 1, 7) Rav Moshe was asked if there is a problem owning a part of a corporation that does not keep Shabbos. Rav Moshe said that to be a shareholder is not a problem since a shareholder does not have a real say in the day-to-day operation of the company. However, he says that if one is a major shareholder and can influence decisions of the corporation he cannot allow Shabbos violations since he is a partner in the company. Thus we see that Rav Moshe also did not view a corporation as an independent entity.

This is also the proper understanding of Rav Moshe Feinstein’s (YD (2: 62, 63)) ruling that if a Jewish-owned corporation borrows money with interest, the parties do not violate the prohibition of interest. His reason is not because the corporate borrower is not a Jew but because he maintains that if a Jew does not have a personal obligation to repay a debt, the lender and borrower do not violate the prohibition of ribis even if the borrower is Jewish. It must be stressed that this ruling is due to the nature of the prohibition to charge interest and is not because of the nature of the corporation.

We should note that even though many poskim including Rav S. Z. Auerbach disagree (See Nesivos Sholom) with Rav Moshe and rule that such people do violate the prohibition of ribis, they do not disagree with Rav Moshe’s understanding that the borrower does not have any personal liability. They just disagree with Rav Moshe’s ruling that when a Jewish person does not have personal liability, he does not violate a prohibition of ribis.

We note further that several leading poskim (See Bris Yehuda (7, end footnote 66) and Mishne Halachos (10, 14)) conjecture that the leniency of Rav Moshe Feinstein applies only to publicly owned corporations and not to private or personal corporations because essentially, the latter are personal property. Furthermore, the Shevet Halevy (8, 306) only agrees to consider a private corporation as having the status of a corporation if the owners do not use the corporation’s assets as if they were their own private property. He specifically refers to people who borrow through their private corporation and when the company goes bankrupt, refuse to pay the company’s debts. The Shevet Halevy rules that if the owners of the company used the company’s assets as if they were their own private assets, they are personally liable even if the corporation goes bankrupt.

It is also important to note that Rav Eliashev (Kovetz Teshuvos (3, 124)) cites and agrees with the ruling of Rav Moshe (EH 7) concerning ownership of corporations.

Since we have established that Torah law views any corporation, and certainly a private corporation, as being a personal asset, there is no reason to free one who leaves his earnings in the corporation from giving ma’aseir on this money. It is the same as one who earns money from selling stocks and leaves his money in his brokerage account. Even though he intends to use the money to make future investments, he must set aside ma’aseir from his earnings when they are earned and cannot defer payment of ma’aseir until he finishes investing (if ever).

If you were only be a partial owner of a corporation and due to your commitments to your partners who are not Torah-abiding Jews, you cannot presently take more money out of the partnership, you are not required to set aside ma’aseir on the corporation’s earnings that you cannot currently access, according to most poskim. The reason is because these assets have the status of property and not cash and these poskim maintain that one does not need to set aside ma’aseir on non-monetary goods until he monetizes them.

This applies to a private corporation as well if there are funds that due to regulations cannot be withdrawn from the corporation at present. However, money that you can withdraw but choose not to withdraw because you wish to make future investments or are afraid that you will have future losses is considered to be a profit for which you are required to set aside ma’aseir immediately.

The above explains the ruling of Rav S. Z. Auerbach (Kol Torah 39 page 91) who wrote, “If all the directors of a limited company (ltd. or inc. or corp.) are religious Jews they must give ma’aseir from corporate profits as well even if the funds are earmarked for future development of the corporation. I don’t see any difference between an individual and a partnership.” Note that Rav S. Z. viewed a corporation as a partnership like the other gedolim we cited before. Note also our previous explanation for his confining his ruling to corporations where all the directors are religious Jews. Rav S. Z. reiterated his opinion later in the same article (responsum 3 section 1).

We should note that what we have written concerns genuine corporate earnings and not stock value which is subject to other factors (market trends, economic and political factors etc.). One only needs to give ma’aseir on stocks when he sells them. Therefore, if one is just a stockholder all the above does not apply even if the value of his stock goes up.

In conclusion: If one person or several religious Jews jointly own a corporation they must set aside ma’aseir on the net monetary profits of the corporation just like one must set aside ma’aseir from his personal income.







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