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Is one allowed to own shares in companies which trade on Shabbat, sell Hametz or lend with interest?
By Dayan Shlomo Cohen
The Legal status of a Corporation
In law, a corporation is a separate identity from its stockholders. A “veil” separates the stockholder from the assets of the corporation, which are not considered as his property, but those of the corporation. The corporation is a type of “golem” with its own identity, and the ability to own and trade in assets.
The Halachic status of a Corporation
The Halacha, however, does not recognize a corporation as such, but lifts the “corporate veil” and looks at the true situation, which is the same as any other partnership, but with limited liability.
This raises a Halachic question for shareholders where Hametz products are owned by the corporation and traded in during Pessah.
In the case of a privately-owned corporation, where all stockholders are voting on company decisions, it is agreed by all poskim that the ‘corporate veil’ be lifted and that Halachically, all stockholders are partners and just as they themselves cannot own Hametz on Pessah, so too the company must either sell its Hametz or the stockholder must sell his stocks before Pessah.
However, in the case of a small stockholder in a large corporation who stocks are traded on the stock exchange, there are two major opinions.
The Opinion of the Igrot Moshe
The opinion of Rav Moshe Feinstein (see Igrot Moshe Even Ha’Ezer 1:7) is that the owner of a small insignificant number of stocks, in a publically traded corporation, is not considered as a partner and owner of the corporation’s property, but as someone who has purchased the right to benefit from the corporation’s profits.
Even though the stockholder may have voting rights at the corporation’s mandatory annual meeting, since he is not interested in participating in the decision-making process and even if he was, cannot, because of the insignificant size of his holding, he is not considered as the Halachic owner of the corporation’s property, and therefore would not be required to sell his stocks for Pessah.
The Opinion of the Minhat Yitzhak
HaRav Weiss (Minhat Yitzhak, Vol. 3 1:11) disagrees, arguing that where the stockholder has voting rights, regardless of the size of his holding and the amount of influence he has, he is the halachic owner of all the corporation’s property, and must therefore sell his stocks for Pessah where the corporation remains the owner of Hametz during Pessah. Even though the legal sale of stocks is only possible through the stock exchange, nevertheless he permits the inclusion of stocks in the sale of Hametz products that each Jew does on Erev Pessah and does not require a formal sale.
The Dilemma
The consequences of this disagreement are far reaching.
According to the opinion of Rav Weiss, a Jewish investor may not buy stocks in any corporation that trades on Shabbat, lends or borrows with interest, or trades in non-kosher food products. This would include holding stocks in any corporation that holds stocks in any such corporation and makes investing on the stock market virtually impossible.
Pension Funds
The Badatz in Jerusalem adopted the opinion of Rav Weiss and recently introduced a Hechsher for financial investments. They have also listed pension funds which only invest in financial instruments which have no voting rights, as kosher.
This is debatable, however, as a pension fund purchases stocks in its own name on behalf of investors, but not in the name of the investor. While it could be argued that the pension fund manager is the agent of the investor, and therefore the stocks purchased, the property of the investor, which would of course be Assur according to this opinion. It could also be argued that the investor just benefits from the portfolio purchased by the pension fund, but is not the owner. This could be proved by the fact that the fund does not sell a portion of its investments every time an investor withdraws his money.
The approach of Rav Moshe Feinstein permits investing freely on the stock market, as long as the investment remains insignificant.
A Significant Holding
The boundary between a significant and insignificant investment is unclear and was not defined by Rav Moshe.
In my opinion, it would be around the 3% mark. In many countries, there are rules governing investors on the stock market requiring them to identify themselves and declare their intentions when they become owners of 2-3% of a corporation, as this is considered as significant.
The Sale of Stocks for Pessah
Many contracts for the sale of Hametz, include the sale of stocks. Where this is being done as a Humra – a stringency – why not?! But if the investor is doing so because he wishes to follow the ruling of Rav Weiss, one should bear in mind that his opinion is that the holding of stocks in a publicly-traded company is problematic all the year round, because of them doing business on Shabbat, charging and paying interest and trading in non-kosher products.
An interesting question would arise where the corporation paid a dividend or issued more stock to existing investors during Pessah, as these would belong to the gentile who purchased the Hametz and not to the Jewish seller.