Q: What forms of partnership does Halachah recognize?

A: Halachah recognizes three basic forms of partnership:

• Classic partnership, in which each party has personal ownership of his share in the joint property.

• Group partnership, in which each partner does not have personal ownership. Examples of this are inheritors who have not yet divided the estate; tithes that are awarded to Kohanim, Leviim, or the poor. In this kind of partnership, the right of the partners is to receive their share in the group property as their exclusive property. Some apply this also to tzedakah money in a gabbai’s hands (B.B. 141b).

• Public partnership, in which the right of the individual is to use the public property, but not to receive a private share in it (unless the community leaders decide to grant it to him). There are also communal responsibilities in which each individual must take part, such as the municipal infrastructure (C.M. 170:1).

Q: How does Halachah view corporations and limited liability companies (LLC)?

A: A corporation or LLC is viewed in secular law as an independent entity. The corporation or LLC remains distinct from the personal assets of its shareholders, and the liabilities do not extend to them. In this regard, it is like a partnership without personal ownership.

There is a significant dispute among the Poskim as to how Halachah views a corporation or LLC. Some maintain that Halachah also views it as a partnership without personal ownership. However, the consensus of most Poskim is that corporations and LLC are similar, in principle, to classic partnerships in which each owner has personal ownership of his share. Nonetheless, the liability of the corporation’s or LLC’s business ventures is limited to its assets based on dina d’malchusa, since everyone who deals with it does so with this understanding (see Chiddushei Seridei Esh, p. 554, in the name of Rav Shaul Weingart; Minchas Yitzchak 3:1).

Q: Can there exist a partnership to work jointly without joint assets?

A: In a monetary partnership, each partner owns his share of the assets, but subjects them to the other party for the needs of the partnership. Similarly, in a work partnership, each person subjects himself to the other party to perform the necessary work, in accordance with the terms of the partnership (C.M. 176:1-3).

Some authorities write that people can also form a partnership not to work when there is a public need, such as employees who form a union. They commit one to another to refrain from work when striking, in order to protect their joint interests against the employer.

Halachic basis for the concept of a union is that workers of a trade can jointly enact terms and penalties binding on all trade members in the city. There are many details in this regard (Igros Moshe, C.M. 1:59, based on B.B. 9a and C.M. 231:28; Mishpat Shalom, ibid).

Q: I entered an agreement to form a partnership, but have not yet begun the work. Am I allowed to renege?

A: The binding power of an agreement depends on the customary commercial practice. Thus, if, for example, you signed a contract and such a contract is considered binding in commercial practice, you are not permitted to renege without the customary penalties associated with this (see Responsa Rashba 3:397).

If the agreement was verbal, or in the absence of a clear commercial practice, there are numerous opinions as to what makes the agreement binding. The Rambam and Mechaber require a binding kinyan, whereas other Rishonim and the Rema maintain that even a verbal agreement can have legal significance. B’ezras Hashem, we will discuss these opinions in the coming weeks.

Regardless, one who reneges even from a verbal commitment is considered mechusar amanah, lacking trustworthiness. If there was a significant change of circumstances or change regarding agreements of davar shelo ba l’olam this may not apply (C.M. 204:7-8; Mishmeres Shalom 209:3; Yad Avraham, Y.D. 264:1)

Q: What forms a binding partnership?

A: The Rambam maintains that forming a binding partnership requires an appropriate act of kinyan (act of acquisition) for each of the joint assets. This includes a common commercial practice (situmta), such as a valid contract. An agreement between two people to share their earnings does not form a binding partnership, even if they made a kinyan sudar, since their earnings are davar shelo ba la’olam and not subject to a kinyan (C.M. 176:1-3; see Pischei Teshuvah 201:2).

The Raavad disagrees, since making a kinyan sudar to share their earnings is like committing themselves to work on behalf of each other; the kinyan applies to their bodies (Shach 176:9).

The Mordechai maintains that mutual reliance, even with a verbal agreement alone, forms a binding partnership for the stipulated time. Others maintain that verbal reliance requires them only to share what they earned meanwhile, but they can retract from sharing future earnings (Rema, C.M. 176:3).

Q: Can I make business decisions affecting the partnership without consulting my partner?

A: If your partner is readily available, you should consult him on any new decision (Aruch Hashulchan, C.M. 176:29).

If the partner is not available, you should act and make decisions according to the terms of the partnership agreement. In the absence of a specific agreement, you should conform to the common practice of that trade and not make decisions against the common practice without consulting the other party. If you did, and the decision resulted in a loss, you are solely liable (C.M. 176:10).

If a particular issue arose a number of times, and your partner agreed to deviate from the common practice without specifying that it was on a one-time basis, you may continue doing so without consulting (Mishmeres Shalom 176:1).

Verbal agreements at the beginning of the partnership are binding; afterwards, verbal agreements against the common practice without a kinyan are questionable (Rema 176:3; Mishpat Shalom 176:1).

Q:  Two out of three partners would like to employ an additional worker. Can they force their majority opinion on the third partner?

A: If the initial partnership agreement specified following the majority, the terms are binding. This also applies if there is a clear common practice to follow the majority.

In the absence of specific terms or a clear common practice to follow the majority, the minority can prevent making decisions against the standard practice of the trade (Pischei Choshen, Shutfim 2:[12]). On issues where there is no standard practice, such as adding additional workers, the majority rules, since it is impossible to come to unanimous agreement on every issue and they became partners with this intention (Igros Moshe, C.M. 2:23).

Nonetheless, the majority should give the third partner an opportunity to voice his opinion and reasoning. Furthermore, the majority cannot make decisions that benefit them at the expense of the minority, since the latter has a vested interest (nog’im badavar) — (Pischei Teshuvah, C.M. 163:1).

Q:  Can I sell on credit to a friend, whom I know and trust, without my partner’s consent?

A: You are not allowed to take risks that are not the common practice or have not been agreed upon initially without your partner’s consent. Selling merchandise on credit, or sending merchandise by regular mail, is a form of potential risk (C.M. 176:10).

Even if some people sell on credit, it is not considered common practice unless this merchandise is regularly sold on credit. Some indicate that it suffices that most sell on credit; others require that almost everyone does (see Sma 176:33; Nesivos 176:21; Aruch Hashuchan 176:30; Ohr Same’ach, Hil. Shutfin 5:2).

Nonetheless, you can sell on credit to someone who is granted credit by those who know him, even if those who do not know him do not grant him credit (Mishmeret Shalom 176:18). However, if others who know him do not grant credit, you would not be allowed to.

Q: I am a partner in a firm. Can I do private work, outside of the practice?

A: Partners are required to act in accordance with their partnership agreement. Therefore if the initial understanding was that the partners would work only on behalf of the partnership, you may not take on private work. Even if the agreement does not restrict private work, you may not use the partnership’s assets for private business or work privately in a manner that impinges upon your responsibilities to the partnership (C.M. 176:10).

Nonetheless, if one partner did private work, even if he shouldn’t have, the earnings are his. However, if he used the partnership’s assets for additional business, he must share the profits (C.M. 176:11; Shach 176:22).

Additionally, one partner may not sell his share to a third party without the other partners’ consent, unless the decision-making control will remain with the initial partners, but if he did do so, the sale is valid (C.M. and Kessef Hakodashim 176:10; Aruch Hashulchan 176:50; Pischei Choshen, Shutfim 1:32).

Q: My business partner made certain decisions that incurred significant expenses or resulted in loss. Does he bear liability?

A: Partners are authorized to act on behalf of each other, provided that the decisions are made in accordance with the initial agreement or common practice. Thus, even if the decision incurred expenses or resulted in loss, the liability is shared, just as profits are shared. However, if the partner’s decision deviated from the initial agreement or common practice, he alone bears liability for the loss (C.M. 176:10; 178:3).

Nonetheless, since partners are considered shomer sachar on the joint assets, if the partners began working for each other at the same time, some irresponsible losses are still included in the exemption of balav imo (the owner was in his service). However, depending on circumstances, such loss may be ruled as active damage (mazik b’yadayim), which is not covered by this exemption (C.M. 176:8; Pischei Teshuvah 176:13; Mishpat Shalom 176:48[60]; Aruch Hashulchan 176:35).

Q: I provided 2/3 of the capital for our business partnership. How should we divide the profits or losses?

A: As with other aspects of partnership, the profits or losses should be divided according to the initial agreement or the local business custom. A clause in the partnership contract that business will be conducted according to the local civil law would likely be understood as applying also to the rules of dividing profits (see Maharshach in Hagahos Rav Akiva Eiger C.M. 3:1).

In the absence of these, the Gemara (Kesubos 93a-b) teaches that business profits and losses should generally be shared equally, despite unequal percentages of capital. [Be”H, we will address the rationale for this next week.]

However, if the profit results directly from an increase in value of the initial assets, such as partners who provided unequal amounts of foreign currency or commodities that increased in value, the profit is divided proportionally (C.M. 176:5; Pischei Choshen, Shutfim 3:14-18).

Q: What is the rationale for sharing profits equally, despite unequal shares of invested capital?

A: Some apply this ruling only to business ventures that require the entire joint capital invested, such as buying a house or a single ox, so that each partner is dependent on the other’s investment. However, if quantities of merchandise were acquired, and each party could have done business individually on a lesser scale, the profits are shared proportional to the investment (Sma 176:15).

Others explain that since the major partner did not stipulate receiving a proportional share of the profits, this indicates his willingness to share the profits equally. Perhaps he recognized the other partner as a savvy, worthwhile partner despite his lesser capital. Or, conversely, the minor partner was willing to risk an equal share in the losses, in order to gain an equal share in the profits (Levush 176:5).

Others explain that the two partners are required to work equally, so that the profits — which are a result of their efforts — should be shared equally (Nesivos 176:8).

Q: At what point can I disband a partnership?

A: In the absence of explicit terms or a common commercial practice, the answer depends on whether a defined time was set for the partnership.

If the partnership was set for a defined time, neither party can pull out until the specified time, the partnership runs bankrupt or one partner dies. If dividing the assets at the set time would cause a loss, they should be sold first (C.M. 176:15, 19; Pischei Teshuvah 176:23).

If there was no set time, each partner can pull out at any time. The assets should be divided or sold, or one partner should buy out the other (C.M. 176:16; Shach 176:29).

If the nature of the business is such that there is a set time for selling, such as Pesach products, it is as if they stipulated that time. Each party can restrain the other from disbanding the partnership until the expected time arrives and the merchandise is sold (C.M. 176:17).

Q: I formed a partnership with a classmate to sell snacks during the school year. I would like to divide the profits now, while my friend wants to reinvest them and expand the “business” until the end of the school year. Who is right?

A: In a business partnership with a defined time frame, just as each partner cannot unilaterally disband the partnership prematurely, so, too, he cannot unilaterally demand to divide the profits prematurely. This is because the partners committed financially to each other, and the profits may be needed to offset future losses. Furthermore, greater assets can allow greater business profits (C.M. 176:15; Sma 176:45; Pischei Choshen, Shutfim 3:3).

If the partnership had no time frame, each partner can disband the partnership at any point. Nonetheless, as long as the partnership remains intact, the profits should remain reinvested, unless the clear understanding was that profits would be distributed on a regular basis.

This, of course, is in the absence of an agreed-upon arrangement beforehand or a clear commercial practice.

Q: How do we handle outstanding debt when disbanding a partnership?

A: Uncollected debt owed to you is not cause to prevent disbanding the partnership. You should divide the current assets now and the outstanding debt when you collect it. Alternatively, if there are numerous debts, the uncollected debts can be assessed at their current value, and divided; each partner will collect those in his share at their appropriate time. Some say that one party can also offer to sell his share, or buy the other party’s share, of the uncollected debt at a set price (gud o agud); (C.M. 176:20; Sma 176:53).

If the partners owe a debt, if each party is liable only for his half, the partnership can be disbanded and each party pays his half at the proper time. However, if both parties are liable for the entire amount, each can refuse to divide that amount and continue investing it until the loan becomes due (see Taz 176:20; Pischei Choshen, Shutfim 3:23-25).

Q: I took out a loan in my own name for a small, joint business venture. If the venture falters and the loan has to be repaid from personal assets, does my partner have to repay half the loan?

A: If one partner borrows for the purpose of a joint business, the other partner is also obligated, even though he did not participate in procuring the loan, because the first partner is viewed as an agent of the second partner. This is true provided that the loan was explicitly taken on behalf of the partnership, or the first partner borrowed the money at the instruction (or with the consent) of the second partner, or if the money was invested directly in the partnership (C.M. 77:2; Shach 77:9; Nesivos 77:4).

If the second partner questions whether the loan was taken for the purpose of the joint business or for personal use of the first partner, the burden of proof is on the first partner.

Q: My partner holds certain professional equipment, which he claims is his, whereas I claim that it belongs to the business. What is the halachah?

A: Neither partner can claim something known to have belonged to the partnership without proof that he subsequently acquired sole ownership of it, even if he holds it for a long time. This is because partners are not particular about allowing each other to hold joint property. According to some authorities, if he held the equipment for an excessively long time, more than typically tolerated, he is believed when he claims that it is his; others do not differentiate (C.M., Sma and Taz 179:1; Shach and Gra 179:2).

However, if the disputed property is not known to be in a partner’s hands, so that he could deny holding it, he is believed to say that he holds it, but that it is his (migo). Similarly, if it is unclear that this equipment initially belonged to the partnership, one partner can claim that it is his private property (Pischei Choshen, Shutfim 7:30[75], citing Mabit 2:73).

Q: What are the halachos of a partnership with gentiles regarding mitzvos such as ribbis, bechor, challah, mezuzah, etc.?

A: Partnership with a gentile does not allow collecting ribbis from another Jew or paying ribbis without a heter iska, unless the gentile partner takes personal responsibility for the entire loan or in a corporation owned mostly by gentiles (see discussion in The Laws of Ribbis 16:15-23).

Animals belonging jointly to a Jew and gentile are exempt from the sanctity of bechorah (firstborn). Nowadays it is recommended that a person with kosher animals make a partial partnership with a gentile to prevent the firstborn from becoming sacred (Y.D. 320:3).

Regarding dough jointly owned by a Jew and gentile: If the Jew’s share has the requisite amount, he is obligated to separate challah. (Y.D. 330:3).

The Rema (Y.D. 286:1) rules that a house owned (or rented) jointly by a Jew and a gentile is exempt from mezuzah (unless the Jew has a private room). Others disagree, but even one who follows the stringent opinion should not affix a mezuzah with a brachah (Aruch Hashulchan, Y.D. 286:2)

Q: Can I testify on behalf of my partner or former partner?

A: A person with a vested interest — nogei’a badavar — cannot testify; however, once he is divested of interest, he can testify (C.M. 33:15).

Thus, while you are a partner, you cannot testify if you will gain from the testimony. However, you may testify if the testimony will not impact you, or is detrimental. Similarly, you may testify on issues unrelated to the partnership, where you have no vested interest (C.M. 37:6).

After you leave the partnership and are divested of interest, you can testify. According to most authorities, you can testify even about events that occurred while you were a partner. (This differs from inherently disqualified witnesses, such as relatives and thieves, who cannot testify on past events even after becoming qualified.) Some disagree with this, so that if the other party is in possession, he can claim kim li and refuse your testimony about events during the partnership (C.M. 37:6; Shach 37:32; Pischei Teshuvah 33:8).

Q: I purchased something for the partnership, but it was stolen from my car. Am I solely liable for the theft?

A: Partners are generally considered shomrei sachar (paid guardians) on the joint property, and are therefore liable for theft. However, if the partnership agreement did not include guarding the joint property, some maintain that they are considered only shomrei chinam (unpaid guardians), and they are not liable for theft (see Rema 176:8; Shach 176:16; Machaneh Ephraim, Hil. Shomrim #36).

Furthermore, if the partners operate the business and work on behalf of each other, the exemption of be’alav imo (the owner was in his service) would usually apply. On the other hand, if they are investment partners and others operate the business, be’alav imo would not apply (C.M. 176:8; Pischei Choshen, Shutfim 1:29-31).

If partners worked on a client’s item, and one took it to return to the owner and lost it, he alone is responsible. The exemption of be’alav imo does not apply, since the item is not theirs (Mishpat Shalom 176:8[15], citing Pe’er Hador).

Q: I share an apartment with a roommate and we generally split rent, utilities and telephone. If I was away for most of the month, do I need to share in the expenses equally?

A: This depends on the initial agreement and the common practice. It is typical that one roommate might use the apartment more than the other. For example, one may go away for Shabbos frequently; one roommate might take vacation this time of year and the other at a different time.

Thus, if the initial agreement was to split the expenses without any exclusion, you would be liable to pay your half even while you are away. This applies not only to fixed expenses such as rent, but also to expenses dependent on use such as utilities, unless there is a clear common practice to the contrary, or the roommate willingly agrees to pay a larger share this month.

Furthermore, you are not allowed to have someone replace you while you are away without your roommate’s consent to that person, unless your initial agreement states otherwise (C.M. 316:2).

Q:  I share a hallway with my neighbor in a two-family house. He likes to leave his bike in the hallway, and now wants to install a bike stand. Can I prevent him?

A: Partners are required to use the joint property according to the common custom. Thus they are allowed to leave in the hallway items that partners typically do. Other items cannot be left there unless the other partner gives permission or it is something that he is not particular about (C.M. 161:5; Shach, Y.D. 226:8).

If both partners want to use the area simultaneously and there is not sufficient room for both, such as a one-car driveway, they should take turns. Even if one partner used the area exclusively in the past, the other partner cannot demand to use it now for an equivalent time, but they should divide evenly from now on. If they cannot agree who should use it first, they should draw a lottery (C.M. and Rema 171:8).

Permanent fixtures may not be installed without permission of the other partner (Sma 140:22).

Q: A visitor left a package of cookies in our dorm room and declared them hekfer (ownerless). My roommate took them for himself, while I claim that we already acquired them jointly. Whose are they?

A:  The Gemara (B.B. 84b) teaches that partners can acquire through kinyan chatzer in a joint courtyard. Based on this, the Rosh and Rema rule that joint property acquires hefker on behalf of both partners (C.M. 260:4).

The Ketzos Hashulchan disagrees with this ruling, and maintains that joint property does not acquire hefker for both unless they are partners in all financial matters, so that whoever subsequently takes the hefker acquires it. However, later Acharonim uphold the Rema’s ruling, so that the cookies should be shared (Ketzos 260:1; Aruch Hashulchan 260:9; Tabaas Hachoshen 260).

Nonetheless, if the roommate intended from the beginning to take the cookies for himself and did not want the property to acquire jointly, the Nesivos concurs that he alone acquires them (Nesivos 260:9).

Q: I have heavy equipment in our partnership’s office. Can I sell it to my partner or to the business through kinyan chatzer in our office?

A: The Gemara (B.B. 84b) teaches that partners can acquire through kinyan chatzer in a joint courtyard. However, it indicates that they cannot sell to each other in this manner (C.M. 260:4).

Nonetheless, the Ketzos writes that while it is not possible to sell to the other partner in this manner, it is possible to sell to joint ownership of the partnership (Ketzos 260:1, 207:6, 176:1).

The Nesivos (176:2) maintains that it is possible to sell to a partner through kinyan chatzer in an area meant exclusively for joint use, such as an office, but not in a shared area intended also for private use, such as an apartment.

Machaneh Ephraim (Hil. Kinyan Chatzer #6) maintains that if the item was initially placed in the shared area for the purpose of transferring ownership, it can be sold to the partner through kinyan chatzer there (Pischei Choshen, Shutfim 8:26).

Q: In a partnership with a non-religious Jew or gentile, is chametz merchandise permissible after Pesach?

A: There are a number of cases of partnership (see Pischei Choshen, Shutfim 10:14[35]):

A Jew who sold his chametz whose partner with a gentile — the merchandise is certainly permissible, since all the chametz was owned by gentiles on Pesach.

A Jew who did not sell his chametz whose partner is a gentile — Shaagas Aryeh (#89-91) addresses this question at length. He concludes that there is a dispute about the application here of breirah (retroactive clarification), so regarding the Rabbinic prohibition of chametz after Pesach, we can be lenient and allow even the share of the Jew. Others disagree. Some allow only if the majority belongs to the gentile.

A Jew who sold his chametz whose Jewish partner did not sell it — Shaagas Aryeh permits the share of the Jew who sold the chametz (if they subsequently divide).

If a gentile partner bought chametz on Pesach it does not become prohibited, since the Jewish partner does not want him to purchase chametz on his behalf.

Q: I own a bike jointly with my roommate. The bike was lying on the sidewalk and someone tripped over it and was injured. Who is responsible?

A: A stationary hazard, such as this bike, is included in the damage category of bor (pit). Clearly, if one roommate used the bike and left it lying on the sidewalk, he created the hazard and is solely liable, even if the other roommate saw it lying there afterward  (C.M. 410:25).

However, if the bike was left standing steadily in its place and fell over, or was knocked over by a passerby, whichever partner knew about it and neglected to take care of the hazard is liable.

Thus, if neither roommate knew about it, neither is liable until the hazard comes to his attention (C.M. 410:22, 26). If one roommate knew about it, he alone is liable. If both knew about the hazard and ignored it, both are liable (Pischei Choshen, Nezikin 7:19-20[53]).

Q: I own a semi-attached house. Work needs to be done on the roof, but the other owner does not want to invest in the repair. It is not technically feasible to do only half the roof. Must he share in the repair?

A: Partners have a responsibility toward one another for necessary expenditures that can only be done together. Thus, if the repair is necessary, the other partner has to participate. However if it is only for enhancement, he can refuse, in accordance with the common practice (Rama, C.M. 178:3).

Even if the two owners are not actual partners, the joint need that can only be solved together forms a mutual obligation, similar to townspeople regarding taxes, or members of a building for joint needs of the building (Nesivos 164:1; 178:3).

Similarly, if there is a problem with the plumbing or electricity that affects all, each owner can force the other to share in the cost (C.M. 163:6; 170:1; Pischei Choshen, Shutfim 2:23).