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Are there any issues involved in investing in stocks or other mediums owned by a Jewish company?

I am referring to ribit (interest).

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The problem with interest is that it's risk-free.

The Gemara makes clear that I can own a share in your company; if the company does well, I get more money; if the company goes kaput, I could lose my funds entirely. That's how stocks work -- you can buy $100 in KaputCo stock; that could become worth $200, that could become worth $0.

  • Interest isn't totally risk-free. The borrower could default on the loan. That's one of the main reasons for having interest in the first place – Daniel Jan 28 '15 at 12:57
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An investment implies that one is subject to both a profit and a loss. See Rabbi Reisman's sefer on hilchos ribbis and the inyon of Heter Iskah. The discussion would be not about investment in the company, but bonds and other lending instruments in which there is interest. In that case, the question would be "Is there a difference between a company and an individual?". For example there are shiurim by Rabbi Reisman and The Laws Of Ribbis (as an example). The Laws of Ribbis, Rabbi Reisman, 22:24-29; 23:1-5.

Business Halacha: The Heter Iska Wednesday March 30, 2011 3:22 AM

Q: How does a “heter iska” operate?

A: A full explanation of the heter iska is beyond the scope of this column; we will suffice with a brief summary of the four essential parts of any heter iska.

  1. As mentioned last week, only interest on a loan is prohibited, but profits on an investment are permitted. Therefore, the loan is redefined as a “(joint) business investment venture.” The lender becomes the “investor;” the borrower becomes the “active partner” or “manager” of the venture; the principal becomes the “invested capital,” half or all of which remains the financier’s; and the interest becomes the “anticipated profit” of the financier.

  2. To protect the principal, conditions are stipulated that make it difficult for the “manager” (i.e., borrower) to claim that the capital of the “investor” (i.e., lender) was lost in a failed business venture. This is usually done by requiring full testimony of halachically valid witnesses to claim a loss.

  3. To facilitate the anticipated return, a stipulation is made that the “manager” (i.e., borrower) will not be believed that the “anticipated profit” of the financier was not realized unless he takes a severe oath. He is given the alternative of paying the amount of “anticipated profit” (i.e., interest) in lieu of his responsibility to take this oath.

  4. If only half of the capital remains the investor’s and half is a loan, a provision is included to provide a nominal salary, often a dollar, to the “active partner” (i.e., borrower) for his efforts in managing the investment venture. Otherwise, his free service in managing the financier’s half would be a form of interest on the half that is a loan.

Ideally, this agreement should be attached to, or incorporated though reference, in the loan document.

(For further elaboration, see my article, “The Usury Suspects,” and The Laws of Ribbis, Rabbi Reisman, 22:24-29; 23:1-5)

Authored by Rabbi Meir Orlian

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