- Formation The earliest form of commercial partnership in Jewish law was partnership in property, or joint ownership. Craftsmen or tradesmen who wished to form a partnership were required to place money in a common bag and lift it or execute some other recognized form of kinyan for movables (Ket. 10:4; Yad, Sheluhin 4:1). The need for executing a kinyan precluded an agreement concerning a future matter (Maim., ibid. 4:2), since there can be no acquisition of a thing that is not yet in existence. In later times this difficulty was overcome when the halakhot concerning the need for acquisition formalities were interpreted as having reference only to the formation of the partnership and not to matters in continuation thereof (Maharik Resp. no. 20). From the tenth century onward, new developments became acknowledged with regard to the manner of forming a partnership. Thus the German and French scholars recognized formation of a partnership by mere agreement between the contracting parties (Ha-Ittur, vol. 1, S.V. Shittuf; Mordekhai BK 176; Resp.Rosh no. 89:13). A second development was recognition of each partner as the agent of his other partners (Haggahot Maimuniyyot, Gezelah 17:3 n. 4), which offered the possibility of partnership formed solely by verbal agreement (see agency , Law of). A further development, that of recognizing each partner as the hireling of his other partners (Hassagot Rabad, Sheluḥin, 4:2), facilitated partnership agreement with reference also to further activities. The drawback of partnership by way of agency or hire is that each partner has the power to dissolve the partnership at any time. Another method was formation of a partnership by personal undertaking, each partner taking a solemn oath to perform certain acts on behalf of the partnership (Ribash Resp. no. 71). Partnership formation by agreement alone was most prevalent from the 16th to the 19th centuries, particularly in the communities of the Spanish exiles, in reliance on the principle of accepted trade customs (e.g., kinyan sitomta: see BM 74a and codes). It was on the basis of a trade custom that formation of a partnership through verbal agreement alone was recognized, even by the mere recital of the single word "beinenu" (Rosh Mashbir, ḤM no. 31; Kerem Shelomo, Ribbit, 8) or by implication (Shemesh Ẓedakah, ḤM 35). Texts of the standard partnership deeds developed over the years indicate that, in general, formation of the partnership agreement rested on a number of elements, mainly kinyan sudar (acquisition by the kerchief), personal undertaking, and hire (see, e.g., Darkhei No'am, ḤM, 54). In this way it was possible to form a partnership with a minimum of formalities, valid also in respect of future activities, and not retractable from prior to expiry of the specified period (see contract ). It may be noted that the fraternal heirs are deemed to be partners until the inheritance is divided among them (see succession ). -Distribution of Profits and Losses In the earliest discussions of partnership in Jewish law, the question of distribution of profits was treated in cases of an unequal capital investment by the individual partners (Ket. 10:4). In the first halakhot two conflicting opinions were expressed: in the Mishnah, distribution in proportion to the amount invested; in the Tosefta, equal distribution of the partnership profits. In the Talmud, application of the mishnaic halakhah was limited to cases of capital gain or those in which it was impossible to make a physical division (TJ, BK 4:1, and Ket. 10:4; Ket. 93). Talmudic sources reflect no hard and fast rule concerning the distribution of profit deriving from commercial activity. For a long period of time, from the geonic period until the 19th century, these halakhot were applied by the scholars in both fashions discussed above. In centers of Jewish life where there was a great deal of activity in commerce and the crafts, the tendency was to decide in favor of an equal distribution of profits in all cases; in centers where there were many loan transactions the tendency was to decide in favor of a distribution pro rata to investment. Thus in the 12th and 13th centuries the principle of an equal distribution was followed in Spain, whereas the German and French scholars took the view that, in general, the gain, whenever divisible, should be shared in proportion to the investment of each partner. In general, profit earned by a partner in an unlawful manner, for example, through theft, has not been considered as belonging to the partnership (Ha-Ittur, vol. 1, S.V. Shittuf; Siftei Kohen, ḤM, 176 n. 27). A contrary ruling with regard to partnership gains from theft was laid down in Germany and France in the 14th century, as an outcome of the persecution of the Jews (Haggahot Maimuniyyot, Sheluḥin 5:9 no. 4; see also contract , on the attitude of Jewish law to illegal contracts). From the 17th century onward the application of this halakhah came to be confined to cases of necessity on account of danger (Siftei Kohen, loc. cit.), or those in which an act, although illegal, falls within the scope of the partnership business (Arukhha-Shulḥan, ḤM 176:60). A tax waiver in favor of one partner benefits the whole partnership, except when a waiver is granted at the taxing authority's own initiative (ḤM 178:1). A condition that all profits shall belong to the partnership has been interpreted in accordance with the ejusdem generis rule, so as to exclude there-from all unusual or unforeseeable profits (Rosh, Resp. no. 89:15). A partner who salvages part of the partnership assets from a robbery does so for the benefit of the partnership in the absence of his prior stipulation to the contrary (BK 116b and codes). The partners may not deal in goods whose use is prohibited, for example, for reasons of ritual impurity (Maim. Yad, Sheluḥin 5:10). Until the end of the 12th century, any loss attributable to a partner's personal fault had to be borne by the partner himself, on the principle that an agent is liable for the consequences of a departure from his mandate (Yad, Sheluḥin 5:2; see also agency ). From the 13th century onward, the general trend has been toward collective partnership responsibility for a loss occasioned by one of its members. At first it was laid down that the partnership bear such a loss as if the member's liability were that of bailee for reward; later it was ruled that a partner be regarded as a gratuitous bailee for this purpose; and later still that the partnership bear the loss occasioned by a member even if it was the result of his own negligence (Mordecai BB 538). The partner himself must bear any loss occasioned through his own acquiescence or active participation (Mabit, Resp. vol. 2, pt. 2, no. 158). Each partner is responsible as a surety for the undertakings made by his other partners in respect of a partnership matter (Yad, Malveh 25:9). This liability is secondary, however, as is usual in simple suretyship in Jewish law, and effective only upon default of the principal debtor (Sefer ha-Terumot, 44). According to another opinion, one partner is a surety for the other only when he has expressly subjected his person and assets as a surety for the undertaking, in which event he becomes the principal debtor (Rosh, Resp. no. 89:3). -Powers and Duties of the Partners The rule is that a partner may not deviate from the regular course of activities of the partnership, and his powers, if not defined by agreement, are governed by trade custom (Ha-Ittur, vol. 1, S.V. Shittuf; Yad, Sheluhin 5:1; Rosh. Resp. no. 89:14). When the intention of the partners cannot be ascertained, a number of activities have been recorded as constituting deviation from the partnership. In the course of time the early partnership halakhot came to be interpreted in favor of wider powers for the individual partner. Thus, with regard to the rule that a partner might not transact partnership business away from the place of the partnership (Yad, loc. cit.), it was decided that the restriction did not apply to a market place situated in the same area (Netivot ha-Mishpat, Mishpat ha-Kohanim 176 n. 35) nor to the case in which one partner provided the other partners with suitable indemnities against possible loss (Arukh ha-Shulḥan ḤM 176:46–47). The question of whether a partnership member has power to execute credit transactions was already disputed in geonic times. One approach tended to recognize the power of a partner to sell on credit in all cases, because it was considered that he was bound to be careful about securing the repayment of money in which he had a personal stake (Sha'arei Ẓedek, 4:8, 4). A second approach denied a partner the power to sell on credit unless this accorded with a custom followed by all local traders (Rif., Resp. no. 191) and, by way of compromise, it was laid down that it sufficed if the custom was followed by a majority of local traders (Rosh. Resp. no. 89:14). It was also laid down that a partner is exempted from liability if an overall profit results from all his transactions (Ḥokhmat Shelomo ḤM 176:10). A partner may not introduce outsiders into the partnership activities as partners (Yad, Sheluḥin 5:2), but may employ them on his own behalf and at his own responsibility (Rashdam, ḤM, 190). It was ruled that a member of a partnership might not engage in private transactions (ibid.), but this was later permitted when the same kind of merchandise as the partnership dealt in was involved (Matteh Yosef vol. 1 ḤM no. 9) or in association with an outsider (Sma, ḤM 176 n. 32). Partnership merchandise may not be sold before the appointed season for its sale (Git. 31b and codes). In general, a partnership member is not entitled to remuneration for his services (Reshakh, Resp. pt. 1 no. 139), but some of the posekim allowed this in the case of unusually onerous services (She'ilat Yaveẓ no. 6; Simḥat Yom Tov no. 23). Similarly, a partner is not entitled to a refund of the amount expended on his subsistence while on partnership business (ḤM 176:45), except for extraordinary expenses (Taz, ad loc.). A partner who is unable to participate in the partnership activities on account of illness, or for some other personal reason, is not entitled to share in the profits earned by the partnership during his absence and must also defray his medical expenses, etc., out of his own pocket, unless local custom decrees otherwise (BB 144b and codes). If partnership property is later found in the possession of one of the partners, his possession will not avail against any of the other partners (Alfasi, BB 1; see Ḥazakah ). Each partner may compel the other to engage in the partnership activities and also to invest additional amounts therein (Netivot ha-Mishpat, Mishpat ha-Urim, ḤM 176:32). The act of a partner may be validated by subsequent ratification, which may also be implied from the silence of the remaining partners (Maharik, Resp. no. 24). Far-reaching powers are afforded a partnership member through application of the principle that an act may be "for the benefit of the partnership." In the opinion of a number of scholars, a partner may deviate from the customary framework of the partnership activities when he considers this to be necessary in the interests of the partnership, provided that the terms of the partnership agreement expressly permit him to trade in all kinds of merchandise, and that there is no radical departure from the customary partnership practices (Resp. Maharashdam, ḤM 166; Ne'eman Shemu'el no. 100). One partner may oblige another who is suspected of an irregularity with regard to a partnership matter to deliver an oath in accordance with a rabbinical enactment (Shevu. 7:8). For this reason it was originally forbidden for a Jew to take a gentile as a partner, as the latter was likely to make an idolatrous reference in swearing his oath, but this is permissible now because of "their belief in the Maker of heaven and earth" (Ran on Rif, Git. 5). -Representation of the Partnership by One of its Members In talmudic law the principle was established that only when all the partners are in the same town can they be represented by the partner who is plaintiff in an action, this even without their express power of attorney (Ket. 94a and codes). From the 13th century onward, the following guiding rules came to be laid down: one partner represents the others when there is an equal division of profits between them; partners who have not been joined as plaintiffs may not thereafter renew the action in their own names unless they plead new issues; one partner represents the others only when he makes a claim against the defendant and not a waiver in his favor (Shitah Mekubbeẓet, Ket. 94). Other scholars expressed opinions in favor of the reverse situation, i.e., that one partner represents the others only if there is no denial of liability on the defendant's part and there is no dispute between them (Maharit, Resp., vol. 2 ḤM no. 16); the plaintiff partner represents the remaining partners once the latter have knowledge of the suit, even if they are not all present in the same town (Resp. Solomon b. Isaac ha-Levi, ḤM no. 41); the partner who is on the scene may sue in all cases, but may not recover the shares of his absent partners (Piskei ha-Rosh, Ket. 10:12); the absent partners have the right to sue in their own names if they do so immediately after their return to the town in question, but lose this right after a certain period of delay (Mikhtam le-David, ḤM no. 31; Edut bi-Yhosef vol. 2 no. 38). The partners may each plead in turn, or empower one of them to represent all (Maharam of Rothenburg, Resp., ed. Prague, nos. 332, 333). A partner has authority to collect debts owing to the partnership in terms of a bond of indebtedness of which he is the holder (Rashba, Resp. vol. 1, no. 1137). One partner generally does not represent the remaining partners as defendant in an action unless empowered by them to do so (Mordekhai, Ket. 239). The defendant does, however, represent his absent partners if he is in possession of the subject matter of the claim (Tur, ḤM 176:31). See also agency ; practice and procedure . -Dissolution of Partnership The activities of a partnership formed for an unspecified period of duration may be terminated at any time at the instance of any of its members, except if this is sought when it is not the season for the sale of its merchandise, and provided there are no outstanding partnership debts for which all partners are liable. A partnership formed for a specified period may not – according to the majority of the posekim – be dissolved before the stipulated date (Yad, Sheluhin 4:4). The existence of a partnership is also terminated when its capital has been exhausted, its defined tasks completed, and on the death of any of its members. Improper conduct on the part of a member – such as theft – does not, in the opinion of the majority of the posekim, serve to terminate the partnership. On dissolution of a partnership, division of its monies – if in the same currency – may be made by the partner in possession thereof, and this need not necessarily be done before the court. Division of the partnership assets must be made before three persons, who need only be knowledgeable in the matter (Yad, Sheluḥin 5:9). -Iska ("In Commendam" Transactions) Freedom to contract a partnership is limited to some extent in the case where one party provides the capital and the other the work. In order to avoid a situation in which the party furnishing the capital ultimately receives an increment on his investment which is in the nature of interest, there was evolved a form of transaction known as iska, i.e., "business," in which half of the furnished capital constitutes a loan to the "businessman," or active partner, and the other half is held by him in the form of a deposit (BM 104b and codes). The parties to an iska are free to stipulate as they please, provided that they observe the principle that the "businessman" must enjoy some greater benefit than the "capitalist," by way of remuneration for his services (BM 5:4). It would seem that the profits from the loan part of the capital belong to the businessman, and the profit from the deposit part, after deduction of the former's remuneration, belong to the capitalist. Unless otherwise agreed upon, the businessman is to receive wages as a regular worker if he devotes himself entirely to the affairs of the business, and if not, he may be paid a token amount. Another possibility, if nothing is stipulated, is that the businessman receives two-thirds of the profits, and bears one-third of the losses (Yad, Sheluḥin 6:3) or, according to another opinion, one-half of the losses (Hassagot Rabad thereto). The businessman's liability in respect of the loan half of the capital is absolute, whereas his liability in respect of the deposit half is that of a gratuitous bailee (Yad, Sheluḥin 6:2), or, according to another opinion, that of a bailee for reward (Hassagot Rabad, ibid.). According to one school, an iska is constituted whenever the partnership arrangement involves an active as well as an inactive partner, and it makes no difference whether the inactive partner alone or both of them contribute the capital (Yad, Sheluḥin, 6:1); according to another school, there is no iska unless the distinction between an investing but inactive and an active but noninvesting partner is clearly maintained in the partnership arrangement (Beit Yosef, YD 177). The capital-investing partner takes no share in the profits of a prohibited iska (Piskei ha-Rosh, BM 8:7). That an iska is essentially a legal device designed to avoid the prohibition against usury may be seen from the fact that a nominal remuneration may be agreed upon for the active partner, and from the rule that the latter may not distinguish between the loan and the deposit parts but must put to work the whole amount of the capital invested (Yad, Sheluḥin 7:4). In most respects the law of iska follows the law of partnership, but the following basic differences may be noted: the "businessman," unlike a partner in a regular partnership, may retract from the contract at any time, as in the case of a worker (Tur ḤM 176:28), and he must receive remuneration for his services (Mishpat Ẓedek, vol. 2, no. 16, et al.). -Joint Ownership As already indicated, the halakhot of partnership developed mainly from the law of joint ownership. Characteristic of this is the power of each part-owner to compel the others to carry out the usual and required activities with regard to the common property – such as the construction of a gate to the premises – or to refrain from any unusual use of the property, such as keeping an animal on the premises; similarly, each part-owner may bring about a dissolution of the partnership by compelling a partition of the common property, provided that thereupon each share still fits the original description of the property and, in the case of immovable property, that it is possible to erect a partition against exposure to the sight of neighbors. If the common property does not allow for proper subdivision, the interested partner may offer to sell his share to the remaining partners or to purchase their shares from them; if the matter cannot be settled in this manner, the property must be sold, or let to a third party, or an arrangement must be made for its joint use by the partners, simultaneously or successively, all in terms of detailed rules on the subject (BB 1–3, and codes). -A Legal Persona A cooperative body in modern legal systems is an entity with rights and obligations quite apart from those of its component members (see G. Procaccia, Ha-Ta'agid Mahuto… vi-Yẓirato (1965), p. 39). According to the law of the State of Israel, a registered partnership is a legal persona, capable of suing and being sued (The Partnerships Ordinance, 1930, sec. 61 (1). However, this approach is foreign to Jewish law, the halakhah recognizing man alone – whether individually or in cooperation with others – as the subject-matter of the law, so that it does not accord an association a separate personality (see Gulak, Yesodei (1922), 50). It is for this reason that the word "partners" rather than "partnership" is the more commonly employed halakhic term. Thus a suit brought by the partners against one of their number, e.g., arising out of fraud (see Ona'ah ), is not the suit of the partnership but of its individual members (Yad, Sheluḥin, 5:6; Sh. Ar. ḤM 176:4). Nevertheless, even though the partnership as such does not have the status of an independent legal persona, the moment a person is recognized as a partnership member his rights and obligations change and no longer correspond to those attaching to the individual or to an agent. Thus one partner represents his fellow partners vis-à-vis third parties, and unlike an agent, renders them bound by the consequences of his acts in certain circumstances, even without having been appointed as their representative (Yad, Sheluḥin, 3:3). Similarly, if jointly owned property is later found in the possession of one of the co-owners, the latter's possession will not be recognized, despite the rule that the onus of proof is on the person seeking to recover from the neighbor (BB 4a and codes); subsequent ratification of a fellow partner's acts amounting to deviation from the customary partnership activities suffices to absolve the latter from liability for such deviation – according to some of the posekim even if they are only passed over in silence without protest (Shenei ha-Me'orot ha-Gedolim no. 26). Thus the special standing which the law affords a partner to some extent lends a partnership the coloring of a legal persona. -In the State of Israel The laws of partnership are governed by the above-mentioned mandatory partnership ordinance, which is based on the British Partnership Act, 1890, but differs from it mainly in that it necessitates registration of a partnership to which it lends the character of a legal persona (sec. 61 (1). Still unclear is the position as regards the standing of an unregistered partnership (PD 15:1246; Pesakim Meḥoziyyim, 56:362). Case law shows that the halakhah is sometimes quoted with regards to problems left unresolved within the framework of the Partnership Ordinance (e.g., on the questions of dissolution of partnership (PD 21:576) and the share of each of the spouses in the profits and losses deriving from their common enterprise (Pesakim Meḥoziyyim, 23:418). In cases where the parties agree to submit their dispute to a rabbinical court, the issue will be decided in accordance with Jewish law (see PDR 2:376, 5:310). (Shmuel Dov Revital) -Partnership of Members of a Professional Association The laws of partnership in Jewish Law have also been used by members of a professional association. The Tosefta states that "the wool workers and the dyers are allowed to say: 'We will all be partners in any business that comes to the city'" (Tosef., BM 11, 24). In such a case, unlike the normal manner of creating partnership detailed above, the partnership is created pursuant to an internal regulation of a particular professional association. This method of forming a partnership is similar to other internal regulations mentioned in the Tosefta regarding an arrangement for mutual insurance among members of the association of donkey drivers and sailors. In Jewish Law, the laws of partnership also influence various aspects of the public law, especially in tax law; see taxation . -Further Developments in the State of Israel Another case in which the civil court had recourse to the rules of partnership in Jewish law concerned the division of a partnership's assets equally among three brothers. The court considered the question of whether the parts should be distributed to the parties by way of lottery, or whether one of two partners should be given the priority in choosing a particular part of the partnership property for sentimental reasons. The court cited the Jewish Law principle, "when brothers or partners divide the field, and all of the shares are equal, and there is no good or bad location, the division is made exclusively by measurement. However, if one of the partners says: 'Give me my share on this side so that it will be close to my field and become like one big field,' his request is accepted and the others are compelled to oblige, for to refuse such a request is conduct suitable for Sodom" (Yad, Shekhenim 12, 1; Sh. Ar, ḤM 174:1; see law and morality ). Accordingly, the Court ruled that when one of the partners has a preference for a particular part because he cultivated and cared it for years, that preference should be taken into consideration – at least to the same extent that the financial interest of one of the partners should to be taken into consideration, such as the fact that the field under consideration is adjoining to his field (ḤM (Tel Aviv) 309/59 Re The Partnership of the Litvinsky Brothers, 18 PDM 65 per Judge Lamm). Since 1975, matters of partnership are regulated in the Partnership Ordinance (New Version), 5735 – 1975. Regarding partnership of spouses in spousal assets see matrimonial property . (Menachem Elon (2nd ed.) -BIBLIOGRAPHY: J.S. Zuri, Mishpat ha-Talmud, 4 (1921), 55–59; 5 (1921), 154–6; idem, Arikhat ha-Mishpat ha-Ivri… Ḥok Ḥevrat ha-Shutafut (1940); Gulak, Yesodei, 1 (1922), 135–7; 2 (1922), 192–8; Gulak, Oẓar, 147f., 217–23; E.E. Hildesheimer, Das juedische Gesellschaftsrecht… (1930); Herzog, Instit, 1 (1936), 213–23; 2 (1939), 155–66; Elon, Mafte'aḥ, 321–41. ADD. BIBLIOGRAPHY: M. Elon, Ha-Mishpat ha-Ivri (1988), 1:373, 559ff., 562, 586, 599, 603, 605, 626, 653, 663, 703, 745ff., 747, 755, 764, 765ff.; 2:1102, 1110ff., 1233; 3:1345, 1364.; idem, Jewish Law (1994), 1:451; 2:680 ff., 683, 722, 741, 746, 749, 774, 808, 819, 867, 919 ff., 921, 931, 941, 942 ff.; 3:1325, 1335 ff., 1477, 1606, 1627 ff.; M. Elon and B. Lifshitz, Mafte'aḥ ha-She'elot ve-ha-Teshuvot shel Ḥakhmei Sefarad u-Ẓefon Afrikah (legal digest) (1986), 486–501; B. Lifshitz and E. Shochetman, Mafte'aḥ ha-She'elot ve-ha-Teshuvot shel Ḥakhmei Ashkenaz, Ẓarefat ve-Italyah (legal digest) (1997), 326–39; Enẓiklopedyah Talmudit, S.V. "Gud o Iggud," 5:233 ff.; S.V. "Ḥalukat Shutafut," 15:409 ff.; S. Revital, "Pesikat Batei-Din Rabaniyyim be-Inyanei Shutafim," 13–14, in: Dinei Yisrael (1986), 91.
Encyclopedia Judaica. 1971.
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