Owning Stock in a Company which Possesses
Owning Stock in a Company which Possesses
Chametz During Pesach
by Rav Asher Meir
[Note: This is the third installment of a six-part series in YHE-Halakha entitled, "Corporate Democracy and the Frum Investor: Halakhot of Investing in the Stock Market."]
In the first installment of this shiur, we discussed the GENERAL question of the ownership status of the shareholder. As we explained, one point of view sees the shareholder as an owner of the company and of its assets - like an ordinary partner. The other point of view sees the shareholder as a kind of creditor - he has made an investment and will receive a return, but the true owner of the company is someone else: a controlling interest, the management, or perhaps even the company itself, recognized as a legal person in Halakha as it is in the secular law.
We also called attention to the many ways in which a shareholder resembles a silent partner (noten iska), whose halakhic status is well-established.
We concluded that while many lenient opinions exist, the most prominent contemporary authorities are not willing to create a blanket exemption from halakhic responsibility for the shareholder, but rather view him as a partner at least to some extent. We also pointed out that the power of the minority shareholder and his SECULAR legal status as owner are rather greater than many people are aware. However, even the stringent opinions acknowledge the high degree of insulation of the shareholder from company operations and conclude that this insulation may lead to various leniencies which, however, need to be discussed on an ad hoc basis.
The second installment focused on problems of forbidden interest between Jews.
This installment will focus on the problem of owning shares in a company which owns chametz on Pesach.
I. DEFINITION OF THE PROBLEM
The halakhic discussion regarding shares in a chametz-owning business during Pesach revolves around three distinct prohibitions:
1. "Bal yera'eh u-val yimatzeh:" the Torah prohibition to own chametz during Pesach - even if we do not derive any benefit from it;
2. Issur hana'a: the Torah prohibition against deriving benefit from chametz on Pesach - even if the chametz does not belong to us;
3. Chametz she-avar alav ha-Pesach: the rabbinic prohibition against deriving benefit from chametz which belonged to a Jew during Pesach and was not properly disposed of.
We will discuss each problem in a separate section.
II. "BAL YERA'EH" - PROHIBITION OF OWNING CHAMETZ
The Torah commands us (Shemot 12:19), "For seven days no leavened matter shall be found in your houses." This commandment has a "twin" (Shemot 13:7): "And no leavened matter shall be seen by you, nor shall any leaven [itself] be seen by you, in all your borders, for seven days." Although according to some opinions there may be cases where chametz is "found" without it being "seen," as a rule these prohibitions overlap and they are generally referred to as a single prohibition, "bal yera'eh u-val yimatzeh" - "[chametz] may not be seen and not be found."
The properties of being "found" and "seen" are qualified by the phrase "by YOU," making this prohibition, for all practical purposes, basically one of OWNING chametz. Chametz not belonging to a Jew is NOT part of the prohibition, and chametz which DOES belong to a Jew is subject to the prohibition even when it is not in the Jew's house. (There were, however, Geonim who ruled that a Jew's chametz in gentile's domain is not forbidden - see Rosh Pesachim I:4. This view is rejected by the Rishonim.)
The definition of ownership as regards chametz differs slightly from the definition of ownership regarding other laws, being both more stringent, and in one aspect (for a related reason) more lenient.
Here are three stringencies regarding the characterization of "ownership" as it relates to chametz:
i. In many cases, an object's status as an "issur hana'a - something forbidden to benefit from - in effect expropriates it, making it no longer the property of the supposed owner. However, the gemara tells us (Pesachim 6b, Bava Kama 29b): "Two things are not in a person's possession yet Scripture rendered them as if they were in his possession: a pit in the public domain, and chametz from noon [on Erev Pesach - when the prohibition of benefit begins] onward."
ii. Mere responsibility for an object is not always considered to be like ownership; regarding chametz, however, a Jew's responsibility IS considered like ownership. (1)
iii. The Jew's partial ownership is considered total ownership, and expropriates the ownership interest of the non-Jewish partner. "Rava said: Hekdesh (dedication), chametz and manumission expropriate liens" (Yevamot 46a).
However, some authorities perceive an associated LENIENCY. The Chatam Sofer writes (OC 63), "Since chametz is not really in a person's possession and Scripture made it as if it were in his possession, [therefore] it is sufficient for him to merely demonstrate [gilui da'at] that he doesn't want it." And the Mishna Berura (448:17) writes, "Since chametz after the time it becomes forbidden is in any case not in his possession, except that Scripture made it as if it were in his possession to transgress the prohibition, even a minimal conveyance (kinyan) is sufficient, since at any rate he has demonstrated that he doesn't want it and has removed it from his domain." (These leniencies are ultimately based on our ability to nullify our chametz. See Ran's commentary on the Rif at the beginning of Pesachim, s.v. U-mahu.)
When we examined the applicability of the prohibition of interest to the modern corporation in the second installment of this series, we found many different approaches to the question. While some lenient views were based on a particular way of looking at corporations, many others were based on novel ways of looking at the interest prohibition in general. On the whole, we find fewer innovative approaches to the prohibition of owning chametz on Pesach. Most of the discussions boil down to the GENERAL question of whether a shareholder is a partner (in which case the company's assets belong to the shareholders) or whether he is a mere creditor.
As was the case with interest, a pioneering - and lenient - responsum was written by Rav Yitzchak Izaak HaLevi Ettinga (Mahari HaLevi II:124). Rav Ettinga begins by discussing the question of chametz that belonged to a Jew during Pesach, but later on he asserts: "It seems that [the shareholders] are guilty of no wrongdoing if they did not sell their shares."
Rav Ettinga then goes on to liken the company's chametz to chametz in the mouth of a snake, which one need not go to lengths to destroy (Pesachim 10b). We can understand this halakha in one of two ways:
1. Chametz in the mouth of the snake still belongs to the owner, but even so he need not destroy it since currently he has no access to it. This is similar to the approach outlined by the Ramban (Shemot 12:19).
2. Chametz in the mouth of the snake is already destroyed, since the owner will not be able to recover it.
According to the first understanding, the Mahari HaLevi would be saying that even if the chametz really does belong to the shareholders, this ownership is of no consequence for the prohibition of "bal yiraeh" since this prohibition requires some degree of access or control.
According to the second understanding, Rav Ettinga would be saying that just as the difficulty of recovering the chametz in the snake's mouth demonstrates that it is no longer in the ownership of the erstwhile owner, likewise the legal impossibility of shareholder getting a hold of "his" chametz in the company's inventory convincingly shows that company assets don't belong to the shareholder at all. (Regarding interest, the Mahari HaLevi explicitly writes that the bank funds do not belong to the shareholders.)
Rav David Zvi Hoffmann (Melamed LeHo'il, OC 91) was asked the same question, again regarding chametz AFTER . He revealed that this question was asked on an exam in the Hildesheimer Seminary, that all of the students ruled leniently, and that Rav Hildesheimer wrote on all the exams that the final ruling was proper. Rav Hoffmann mentions all of the different leniencies which were cited by the students, but unfortunately we do not know which ones Rav Hildesheimer considered decisive. This is a very significant question, since most of the reasons are relevant only for the issue of chametz after Pesach, whereas Rav Hoffmann sought to use this incident as a basis for a lenient ruling concerning even chametz DURING Pesach. In the end, the ruling is that there is no need to sell the shares of a brewery before Pesach if a loss will be involved.
A later seminary student named Rav Shaul Weingort, who went on to become a charismatic Torah leader in Switzerland after the Holocaust until he perished in a tragic accident, wrote a long article on the subject of the limited liability corporation in Halakha, which was later printed in a memorial volume entitled "Yad Shaul." This article, in which Rav Weingort concludes that corporate assets do NOT belong to the shareholders, was a seminal piece of halakhic research cited by many other authorities.
It would be interesting to research corporate law in 19th century Germany to see if the extent of shareholder participation was similar to what it is in contemporary Israel, Europe or the United States. Certainly regarding banks, which are highly regulated and in which the shareholders may only have been depositors, there is a basis for distinguishing. However, it does seem from Rav Hoffmann's responsum in particular that shareholders had a genuine stake in the business.
One attempt to relate our question to a more fundamental study of the nature of the chametz prohibition is found in She'elat David of Rav David Karlin. In his responsum, the author examines the ruling of the Geonim, mentioned above, which exempts chametz which belongs to the Jew but which is not on his property, and wonders if this may not be an additional lenient consideration. But in the end he does not find sufficient grounds to be lenient.
As mentioned in part I of this series, Rav Weiss (Minchat Yitzchak III:1) and Rav Sternbuch (Mo'adim U-zemanim III:269, note 1) both reach the conclusion that a shareholder is a partner and therefore it is forbidden to own shares in a publicly traded company which owns chametz. However, both are lenient to allow selling the shares as part of the customary sale of chametz.
This is a significant leniency because regarding shares, which are extremely liquid and whose price is widely publicized, the evident subterfuge of the sale of chametz is very great. Unlike whiskey, which is certainly worth a lot of money but which may require special knowledge to assess and to market, the gentile who buys the chametz can easily evaluate if it will pay for him to sell the shares of the stock he acquired instead of selling them back to the Jew. Even so, the lenient considerations which led some other authorities to permit owning shares altogether influenced these poskim to allow this evident subterfuge.
Rav Sternbuch expresses worry that such a sale may not be valid according to securities laws. While it is true that these laws require registration of every sale of securities, an expert to whom I spoke confirmed that failure to report does NOT void the sale, so that it seems this worry is unfounded. (2)
A separate problem is in the validity of the sale itself. Superficially, it would seem that my sale to the local Rav, which is done with a proper halakhic conveyance (kinyan), is at least as good as my original acquisition of the securities, which was in all probability made with a telephone call to a non-Jewish broker whom I don't even know. However, the true situation is a bit more complicated. The latter sale is certainly a conveyance universally recognized in commerce - a sitomta. Halakha definitely recognizes such an acquisition (see Bava Metzia 74a and Shulchan Arukh CM 201). The former sale is certainly adequate for ordinary goods, but could be problematic if we consider the stock certificate to be a "shtar" or note. Sale of notes are subject to special restrictions, and picking up the Rav's pen or handkerchief is not sufficient (Shulchan Arukh CM 66).
It seems that this also is not an obstacle. Ultimately, looking at the stock certificate as a note is tantamount to saying that my shares are not an asset but merely a credit. And as we have emphasized, according to this approach the problem of chametz actually does not arise, since a creditor does not own the chametz of the debtor and certainly need not divest himself of it.
It would seem even more logical to sell the company's chametz itself. After all, if I own it I can sell it, and if I DON'T own it I don't have to sell it! The problem with this approach is that the company is likely to acquire or create more chametz during the holiday.
It seems that the most prudent course is to explicitly mention to the Rav at the customary pre-Pesach sale that shares of chametz-owning companies are being sold together with other chametz.
RESPONSIBILITY - "ACHRAYUT"
It could be objected that even if the company's assets do not belong to shareholders, they are at any rate in the shareholders' responsibility. The value of the shares declines dollar for dollar with a decline in the value of company assets, and even if the shares are a loan, loan collateral is also a case of responsibility when the collateral is the only way to collect!
However, this does not add any additional stringency, since responsibility for chametz is forbidden only in the Jew's own domain (as we see in Shulchan Arukh 440 and 441). This is unlike ownership, which is forbidden anywhere, and also unlike chametz which belongs completely to a non-Jew, which we may have even on our own property (Shulchan Arukh OC 440:2). Those who view the chametz as belonging to the company, and not the shareholder, view the company premises as belonging to the company, and so one's responsibility does not create a problem.
This resembles the issue of insurance. Since the insurance company will have to pay the company if the company's chametz is burned or destroyed, the insurance company has a kind of responsibility for the chametz. The solution to this problem is again that the chametz is not in the possession of the insurer.
PROHIBITED BENEFIT - "ISSUR HANA'A"
It may be argued that although the chametz does not belong to the shareholder, the shareholder certainly benefits from it. In the case of a brewery or a bakery, it is a primary source of revenue. (We could be lenient regarding benefit in the case of a company cafeteria and the like - which WOULD be a problem for the ownership prohibition.)
However, it seems that this also does not add any stringency. If the shareholder does not own the chametz, then the change in the value of his shares is not due to the chametz itself but rather to the change in the price of chametz. We could use the parallel of someone who owns an option to buy a stock, or a future on some commodity. The value of the option or the future is directly influenced by the price of the company or commodity, but it is clear that the holder of one of these financial instruments does not own anything beyond a beon their value.
We might object that in this case we still run into the rabbinical prohibition of "rotzeh be-kiyumo" - desiring the existence of chametz. Some Rishonim forbid this, and the Shulchan Arukh seems to rule like them. (See Shulchan Arukh OC 450:7 and Mishna Berura there.) However, this prohibition is violated only when the benefit is from the chametz directly, not when the chametz will help the Jew indirectly by helping him to collect his loan (OC 441:2) or to hire out his draft animal (OC 450:7).
It seems that regarding this prohibition, the benefit from the chametz's existence needs to be quite direct.
CHAMETZ AFTER PESACH
As we mentioned, chametz which belonged to a Jew during Pesach becomes forbidden to benefit from after Pesach. Can this be a problem fshareholders?
Of course, chametz after Pesach is no more problematic than chametz during Pesach, and if one's share in a company is not considered ownership of the chametz then there is no problem. It also seems that according to the point of view which sees shares as a partnership, if the shareholder sold his shares as explained above, then he is benefiting from his own chametz which belonged to a non-Jew during Pesach.
The problem arises according to the approach which sees shareholding as partnership, in the case where the shareholder neglected to sell his shares before Pesach or where he desires to purchase shares AFTER Pesach from a Jew who neglected to sell.
In this case, there are two main avenues to a leniency. One is that various leniencies apply to any rabbinical prohibition. Regarding Rabbinic prohibitions we may apply the principle rule of "bereira" (imputation). If there are many non-Jewish shareholders and many assets which are not chametz, we may attribute the chametz to the non-Jews and other assets to the Jews. Several authorities have written that in such a case we may rely on nullification of the forbidden chametz if it is the minority of the firm's chametz. (See Melamed LeHo'il 91 in the name of Rav Hildesheimer.)
In addition, this particular prohibition is considered a "kenas" or fine. Since we customarily do not apply a fine when the offending party has some authoritative opinion to rely on, it seems that the lenient opinions are sufficient to prevent this problem even for someone who will not rely on them for the much more severe Torah prohibition of owning chametz on Pesach.
Regarding chametz on Pesach, the halakhic authorities more or less follow their fundamental opinions regarding their approach to stock ownership in general. Those who view the shareholder as a mere creditor are lenient, and are not concerned by ancillary prohibitions such as the benefit prohibition or "desiring the existence" of the chametz. Those who view the shareholders as a full partner forbid owning shares of companies which own chametz during Pesach, but it seems that we may be lenient and allow one to include these shares in his customary sale of chametz, and that it is prudent to do so.
(1) Regarding chametz, responsibility is considered like ownership "le-chumra." Thus, both ownership without responsibility and responsibility without ownership are forbidden - see Shulchan Arukh OC 440:1. For cases where responsibility is NOT considered full ownership, see Shulchan Arukh OC 649 (lulav) and EH 28:1 (kiddushin). For a case where it is considered ownership only as a leniency, see YD 320:7 (bekhor). For a case where it is considered ownership in both directions - stringent and lenient - see YD 168:1-169:21 (interest). For a disputed case, see OC 246:4. Chametz is the most stringent of these cases.
(2) This question recalls the famous dispute between the Chatam Sofer and the Barukh Ta'am - Rav Barukh Frenkel - regarding the "stempel" or tax stamp. Rav Frenkel was concerned that the sale of chametz was void since no tax stamp was placed on the liquor. The Chatam Sofer (I:113) replied that this did not mean that the Kaiser failed to recognize the validity of the sale, but merely that he was willing to exempt this particular sale from the stamp.
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