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Reuven offers Shimon 1 million dollars and in return REuven gets a 15% royalty and 10% ownership in the company.

Situation a: Reuven receives the royalty until he has earned 2 million dollars then the royalty goes away.

Situation b: Reuven gets the royalty until Shimon has repaid the 1 million then the royalty goes away.

Are either of these situations considered ribis and are they permissible?

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  • כללא דריביתא אגר נטר – kouty Oct 11 '17 at 2:34
  • What about the 10% ownership in the company? Situation a: seems to be a partnership agreement. Situation b: seems to be the same as situation a but the amount at which the royalty goes away is the original amount of the investment. – sabbahillel Oct 11 '17 at 18:12
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This is how I see the cases. Feel free to correct me if I’m wrong.

One thing to make clear before we start is that interest doesn’t apply to a sale; it only applies to a loan (throughout BM 5). To buy something on credit is equivalent to a loan (5:2); to buy something overpriced or underpriced significantly falls under the laws of ona’ah, for which if all parties are aware of the fact that one is getting cheated and they proceed with the sale anyway, the sale is binding (BM 4:3-6).

Situation a: Investor purchases an entity that makes him money plus interest. He is making a purchase of stock that will ultimately make him much more than what he paid. That’s not a loan; that’s a proper sale. Since those were the terms from the outset, the sale is binding with no prohibitions.

Situation b: The investor lends money and makes interest off of his money until the loan is paid off. This is literally how banks make their money. This is an issue of paying interest and would require a heter iska to be allowed.

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  • Either way the investor is buying part of the company, no? – Double AA♦ Oct 11 '17 at 18:30
  • @DoubleAA Yes. The issue is in respect to the royalties, however; in situation a, it’s just a profit. In situation b, since he gets royalties until he gets his money back, it’s more comparable to a loan. – DonielF Oct 11 '17 at 18:39
  • @DonielF In situation A If it was simply a purchase, why would he receive 15% royalty on only a 10% ownership? I must point out to you that there are many complicated Halachos of RIBBIS concerning INVESTMENTS even when not presented as a loan. These are called RIBBIS BISKAH. They are discussed in Shulchan Aruch YD Siman 177 and are quite complicated. So I would advise you and anyone else not to assume that only situations which have the look-like of a loan have laws of Ribbis. This is a serious mistake. – RibbisRabbiAndMore May 30 '18 at 18:19
  • @RibbisRabbiAndMore If you’re the Ribbis expert around here then you should know that Ribbis doesn’t apply to a sale. – DonielF May 30 '18 at 18:24
  • @DonielF I also know that there a many situations which a sale includes certain factors which are considered Ribbis. Besides, one needs serious Ribbis knowledge to decide when something is halachically considered only a sale, when it is an investment, and when it is a loan. – RibbisRabbiAndMore May 30 '18 at 18:31

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