Jewish Law and Modern Business Structures: The Corporate Paradigm

Notes

* Senior Lecturer in Law, Emory University School of Law; Associate Director of the Law and Religion Program, Emory University; Rabbi, Congregation Young Israel of Toco Hills, Atlanta. B.A., 1985, Yeshiva College; J.D., 1988, New York University; Rabbinic Ordination, 1991, Yeshiva University; Former Law Clerk to the Honorable Leonard I. Garth, United States Court of Appeals for the Third Circuit.

** Professor of Law, DePaul University College of Law; Chair, Section on Jewish Law, Association of American Law Schools. B.A., 1974, Princeton University, Beth Medrash Govoha; J.D., 1978, Yale Law School; Rabbinic Degree, 1983, Beth Medrash Govoha. The authors would like to thank Michael S. Berger, J. David Bleich, David R. Blumenthal, William J. Carney, Eli Clark, Eliezar Eisenberg, Stephen Friedell, Moshe Heinemann, Aaron Levine, Aaron Small, Mark Weber, and John Witte, Jr., for their gracious and generous advice and assistance. Inasmuch as we have not changed the names, we note that they are innocent, as the opinions expressed in this Article are those of the authors. An earlier version of this Article was presented at the Eighth Orthodox Forum of Yeshiva University.

1 Jewish law, or halakhah, is used herein to denote the entire subject matter of the Jewish legal system, including public, private, and ritual law. A brief historical review will familiarize the new reader of Jewish law with its history and development. The Pentateuch (the five books of Moses, referred to collectively as the Torah) is the elemental document of Jewish law, and according to Jewish legal theory, was revealed to Moses at Mount Sinai. The Prophets and Writings, the other two parts of the Hebrew Bible, were written over the next 700 years, and the Jewish canon was closed around the year 200 before the common era (B.C.E.). The period from the close of the canon until 250 of the common era (C.E.) is referred to as the era of the Tannaim, the redactors of Jewish law. The Tannaim period closed seventy-five years after the editing of the Mishnah by Rabbi Judah the Patriarch. The next five centuries constitute the epoch in which the two Talmuds (Babylonian and Jerusalem) were written and edited by scholars called Amoraim ("those who recount" Jewish law) and Savoraim ("those who ponder" Jewish law). The Savoraim's activity was primarily, but not exclusively, literary and editorial. The Babylonian Talmud is of greater legal significance than the Jerusalem Talmud and is a more complete work. The post-Talmudic era is conventionally divided into three periods: (1) the era of the Geonim, scholars who lived in Babylonia until the mid-eleventh century; (2) the era of the Rishonim (the early authorities), who lived in North Africa, Spain, Franco-Germany, and Egypt until the end of the fourteenth century; and (3) the period of the Aharonim (the latter authorities), which encompasses all scholars of Jewish law from the fifteenth century up to the present era. From the period of the mid- fourteenth century until the early seventeenth century, Jewish law underwent a period of codification, which led to the acceptance of the law code format of Rabbi Joseph Karo, called the Shulhan Arukh, which serves as the basis for modern Jewish law. The Shulhan Arukh (and the Arba'ah Turim of Rabbi Jacob ben Asher which preceded it) divided Jewish law into four separate areas: (1) Orah Hayyim is devoted to daily, Sabbath, and holiday laws; (2) Even Ha-Ezer addresses family law, including financial aspects; (3) Hoshen Mishpat codifies financial law; and (4) Yoreh Deah contains dietary laws as well as other miscellaneous legal matters. Many significant scholars, who were themselves as important as Rabbi Karo in both status and authority, wrote annotations to his code which made the work and its surrounding comments the most central treatise on Jewish law. The most recent complete edition of the Shulhan Arukh (Vilna 1896) contains no less than 113 separate commentaries on the text of Rabbi Karo. In addition, hundreds of other volumes of commentary have been published as self-standing works, a process that continues to this very day. Besides the law codes and commentaries, for the last 1200 years, Jewish law authorities have addressed specific questions of Jewish law in written responsa (in question and answer form). Collections of such responsa have been published, providing guidance not only to later authorities but also to the entire community. Finally, since the establishment of the State of Israel in 1948, the rabbinical courts of Israel have published their written opinions deciding cases on a variety of matters.

2 The need to understand each system on its own terms is especially important when one system attempts to affect the other. For example, in 1992, the state of New York changed its domestic relations law in an effort to assist Jewish women involved in civil divorce proceedings. Nevertheless, because of the legislature's apparent unfamiliarity with applicable Jewish law, this effort was not only unhelpful, but, according to some religious authorities, may in fact have been devastatingly counterproductive. Under Jewish law, a married woman cannot effectively remarry unless she receives a religious divorce. She can only receive a religious divorce if her husband gives her a religious divorce decree, a get; a civil divorce is not enough. A woman who, relying solely on a civil divorce, has intercourse with another man is religiously guilty of adultery and any resulting offspring are thus considered to be illegitimate. Some Jewish men attempted to divorce their wives under civil law but refused to grant them the religious divorce that would free them to remarry. The New York legislature enacted laws that imposed certain penalties on such men if they would not give their wives Jewish divorce decrees. See N.Y. Dom. Rel. Law 236B:5 (McKinney 1986 & Supp. 1997). However meritorious its motives, the New York legislature seems to have been unaware of the way in which Jewish law would respond to these new secular laws. Under Jewish law, if a man gives a divorce decree because of coercive financial penalties, the decree is invalid, and the couple remains married. See Irving Breitowitz, Between Civil and Religious Law: The Plight of the Agunah in American Society 209-38 (1993). Consequently, under Jewish law, where a man grants the divorce decree because of the prospect of the new legislatively enacted penalties, the woman would be no freer to remarry than if her husband had never handed her the Jewish divorce decree. See Chaim Malinowitz, The 1992 New York Get Bill and its Halachic Ramifications, 27 J. Halacha & Contemp. Soc'y 5 (1994). But see Gedalia Dov Schwartz, Comments on the New York State "Get Law," 27 J. Halacha & Contemp. Soc'y 26 (1994) (arguing that the New York law does not invalidate Jewish divorce decrees). Some Jewish authorities go even further and argue that the existence of the New York law, and its implicit threat of financial penalties, may even undermine the Jewish law validity of divorce decrees in New York that seem to be voluntarily given. See J. David Bleich, The Divorce Problem Following the Civil Legislation (the Get Law) in New York State, 42 Ohr HaMizrach 230 (1994) (arguing implicitly that many Jewish law divorce decrees in New York would be invalid subsequent to the said New York legislation). See generally Chaim Povarsky, Intervention by Non-Jewish Courts in Jewish Divorces, The Jewish Law Rep., Aug. 1994, at 1. By contrast, an understanding of the substantive reality of Jewish law arguably enabled a New York court to appropriately treat a Jewish law hetter iske arrangement as a loan for the purpose of secular law. Although the Jewish law document purported to create a joint venture, the New York court found that the substance of the transaction under Jewish law was that of a loan and determined that this was the appropriate way for the matter to be treated under secular law. See Bollag v. Dresdner, 495 N.Y.S.2d 560 (N.Y. Civ. Ct. 1985). See generally Steven H. Resnicoff, A Commercial Conundrum: Does Prudence Permit the Jewish "Permissible Venture"?, 20 Seton Hall L. Rev. 77 (1989). A number of provocative questions arise from this New York court's approach. If the Jewish law substance of a transaction is significant for purposes of secular law, query what secular courts should do if there is a split of authority within Jewish law as to such substance. Would a secular court be constitutionally permitted to adjudicate the matter? Would it matter if the parties to a particular secular lawsuit agree as to the proper Jewish law perspective? The present Article examines how Jewish law would view and treat a secular corporation. According to some perspectives, Jewish shareholders are regarded as lenders. See infra Part V.B. If a secular court found, as a matter of fact, that the Jewish shareholders regarded themselves as lenders, would that enable it to deny such shareholders the rights to the corporation's residual equity and to restrict them to a non-usurious return on their investment?

3 See generally J. David Bleich, 4 Contemporary Halakhic Problems 3-16 (1995) (providing a description of rabbinical courts); Harvey J. Kirsch, Conflict Resolution and the Legal Culture: A Study of the Rabbinical Court, 9 Osgoode Hall L.J. 335 (1971); Note, Rabbinical Courts: Modern Day Solomons, 6 Colum. J.L. & Soc. Probs. 49 (1970).

4 While some of these formats are of ancient origin, others have only recently been created by statute. The first state statute concerning limited liability companies, for example, was not passed until 1977. See infra note 63 and accompanying text. See, e.g., Larry E. Ribstein, The Emergence of the Limited Liability Company, 51 Bus. Law. 1 (1995) (observing that although three years before writing his article only eight states had enacted a limited liability company statute, at the time of the article, all United States jurisdictions except Hawaii and Vermont had approved such laws). Limited liability company statutes offer the possibility of partnership tax treatment and corporate limited liability. See, e.g., Wayne M. Gazur & Neil M. Goff, Assessing the Limited Liability Company, 41 Case W. Res. L. Rev. 387 (1991) (offering a general discussion of limited liability statutes); Robert Keatinge et al., The Limited Liability Company: A Study of the Emerging Entity, 47 Bus. Law. 375 (1992); Eric Fox, Note, Piercing the Veil of Limited Liability Companies, 62 Geo. Wash. L. Rev. 1143 (1994).

5 It seems likely that the Jewish law analysis employed in this Article would apply to corporations in many countries, at least those with Western-style economies. Nevertheless, because this analysis involves the interaction between Jewish law, secular legal theory, and reality, it is appropriate to limit the scope of this seminal English piece to the secular system with which the authors are most familiar.

6 Of course, some of the issues identified in the text, at least in certain cases, can arguably be resolved on alternative grounds that do not involve how a corporation is characterized.

7 See Steven H. Resnicoff, Bankruptcy A Viable Halachic Option?, 24 J. Halacha & Contemp. Soc'y 5, 5-6 (1992).

8 See Shulhan Arukh, Yoreh Deah 247:1-2.

9 See id.

10 See Shulhan Arukh, Orah Hayyim 447:1.

11 See Shulhan Arukh, Orah Hayyim 448:1.

12 See Shulhan Arukh, Yoreh Deah 119:1-3.

13 See Shulhan Arukh, Yoreh Deah 87:1-3. A note on the titles of books in the Jewish legal tradition is needed, if for no other reason than to explain why the single most significant work of Jewish law written in the last 500 years, the Shulhan Arukh, should have a name which translates into English as "The Set Table." Unlike the tradition of most Western law, in which the titles of scholarly publications reflect the topics of the works, the tradition in Jewish legal literature is that a title rarely names the relevant subject. Instead, the title usually consists either of a pun based on the title of an earlier work on which the current writing comments, or of a literary phrase into which the authors' names have been worked (sometimes in reliance on literary license). A few examples demonstrate each phenomenon. Rabbi Jacob ben Asher's classical treatise on Jewish law was entitled "The Four Pillars" (Arba Turim) because it classified all of Jewish law into one of four areas. See supra note 1. A major commentary on this work that, to a great extent, supersedes the work itself is called "The House of Joseph" (Beit Yosef), as it was written by Rabbi Joseph Karo. Once Karo's commentary (i.e., the house) was completed, one could hardly see "The Four Pillars" it was built on. A reply commentary by Rabbi Joel Sirkes, designed to defend "The Four Pillars" from Karo's criticisms, is called "The New House" (Bayit Hadash). Sirkes proposed his work (i.e., his new house) as a replacement for Karo's prior house. When Rabbi Karo wrote his own treatise on Jewish law, he called it "The Set Table" (Shulhan Arukh), which was based on (i.e., located in) "The House of Joseph." Rabbi Isserles' glosses on "The Set Table," which were really intended vastly to expand "The Set Table," are called "The Tablecloth" because no matter how nice the table is, once the tablecloth is on it, one hardly notices the table. Rabbi David Halevi's commentary on the Shulhan Arukh was named the "Golden Pillars" (Turai Zahav) denoting an embellishment on the "legs" of "The Set Table." This type of humorous interaction continues to this day in terms of titles of commentaries on the classical Jewish law work, the Shulhan Arukh. Additionally, there are book titles that are mixed literary puns and biblical verses. For example, Rabbi Shabtai ben Meir HaKohen wrote a very sharp critique on the above mentioned Turai Zahav ("Golden Pillars"), which he entitled Nekudat Hakesef, "Spots of Silver," which is a veiled misquote of the verse in Song of Songs 1:11 which states "we will add bands of gold to your spots of silver" (turai zahav al nekudat hakesef, with the word turia "misspelled"). Thus, HaKohen's work is really "The Silver Spots on the Golden Pillars," with the understanding that it is the silver that appears majestic when placed against an all gold background. Other works follow the model of incorporating the name of the scholar into the work. For example, the above mentioned Rabbi Shabtai ben Meir HaKohen's commentary on the Shulhan Arukh itself is entitled Seftai Kohen, "The Words of the Kohen" (a literary embellishment of "Shabtai HaKohen," the author's name). Rabbi Moses Feinstein's collection of responsa are called Iggerot Moshe, "Letters from Moses." Of course, a few leading works of Jewish law are entitled in a manner thatezikin), and the modern Jewish law scholar Eliav Schochatman's classical work on civil procedure in Jewish law is called "Arranging the Case" (Seder Hadin), a modern Hebrew synonym for civil procedure.

14 See Shulhan Arukh, Orah Hayyim 306:1-4, 323:1-4.

15 See Shulhan Arukh, Hoshen Mishpat 227:1.

16 See Shulhan Arukh, Hoshen Mishpat 26; see also Michael Broyde, The Pursuit of Justice and Jewish Law 41-48 (1996).

17 See Piskei Din Rabanayim 10:273, at 7 (as reported in Bar Ilan University's CD ROM Judaica Library, version 4.0); Eliav Schochatman, Seder Hadin 39 (1988).

18 Several other approaches have been mentioned in the literature. For example, one commentator rejects the suggestion, apparently made to him, that in light of existing governmental regulation, corporations should be regarded as if they were owned by the government and not by the shareholders. See Menashe Klein, Mishnah Halakhot 6:277 (exaggerating the power of shareholders by comparing the corporation in the hands of its shareholders to clay in the hands of a sculptor). This rejection seems generally appropriate in democratic countries where government restriction is relatively mild. Prior to the implementation of economic reforms, however, government regulation in communist block countries was so pervasive as to provide some support for the notion of a corporation as a government-owned entity. See, e.g., Andrei A. Baev, The Transformation of the Role of the State in Monitoring Large Firms in Russia: From the State's Supervision to the State's Fiduciary Duties, 8 Transnat'l Law. 247 (1995).

19 See infra Part V.A.

20 See id.

21 See infra Part V.B.

22 See Moshe Feinstein, Iggerot Moshe, Even Ha-Ezer 1:7; see also infra Part V.C.

23 See infra Part V.D.

24 Consequently, if religious legal authorities misunderstand secular law, they may reach incorrect conclusions about religious law. For example, under Jewish law, certain unsecured debts not paid before the Sabbatical year (according to some authorities, before the beginning of the Sabbatical year and according to others, before the end of the Sabbatical year), cannot thereafter be enforced under Jewish law. Assume A owes B $ 1000 and prior to the Sabbatical year, A gives B a $ 1000 check that is dated prior to the Sabbatical year. For some reason B does not deposit the check until after the Sabbatical year. The question arises as to whether B can now deposit the check. At least one prominent Jewish law authority states that when A gives B the check, A "pays" the underlying debt with the check, and therefore, B is permitted to deposit the check even after the Sabbatical year. This authority explains that the reason the giving of the check is deemed to be payment of the underlying debt is that (1) secular law forbids a person from stopping payment on his check, (2) there is a Jewish law principle (which will be discussed in detail in Part V) that makes this secular law religiously valid, and (3) the check is considered a cash payment. See Moshe Feinstein, Iggerot Moshe, Hoshen Mishpat 2:15. Actually, however, secular law does not necessarily forbid someone from stopping payment on a check. Although it may be unlawful to fraudulently issue a check with the intention of stopping payment, one may stop payment if unanticipated circumstances develop after a check is issued. In addition, even if payment on a check is not stopped, there may be no money in the drawer's account. It could be that the drawer was mistaken about his or her balance when the check was issued. Alternatively, the drawer could have known that there was no balance but mistakenly believed that money would soon be deposited into the account. Another possibility is that the drawer made no mistake, and there was sufficient money in the account at the time the check was issued. Meanwhile, however, other checks (perhaps issued by a co- drawer on the account) were presented and paid, thereby depleting the account. Or maybe another of A's creditors obtained a judgment and garnished the balance of A's account before B could present the check. Indeed, secular law recognizes these scenarios and specifically provides that unless the parties otherwise agree, when B takes an ordinary check from A, the underlying debt from B to A is not discharged. Instead, the taking of the check merely suspends the underlying obligation until and unless the check is in fact paid or dishonored. If the check is paid, the underlying debt is at that time discharged. If the check is dishonored, then the underlying debt is no longer suspended but may be enforced. See U.C.C. 3-310(b) (1996). It is quite possible that this Jewish law authority was not apprised of these details of secular law. Had he been aware of them, he may have reached a different conclusion. Cf. Broyde, supra note 16, at 115-22.

25 Such a mandate may result as a matter of constitutional or statutory law on the federal or state level. By enacting the Religious Freedom Restoration Act (RFRA), 42 U.S.C. 2000bb (1994), for instance, Congress attempted to provide protection from infringements on religion that might otherwise arise from state or federal actions. As applied to state action, the Supreme Court held RFRA unconstitutional. See City of Boerne v. Flores, 117 S. Ct. 2157 (1997). Nevertheless, Connecticut and Rhode Island have passed RFRA-like state laws. See Conn. Gen. Stat. 52-571b (West Supp. 1997); R.I. Gen. Laws 42-80.1-1 to 42-80.1-4 (1993). As of mid-February 1998, bills proposing similar statutes were pending in fourteen more states. See http://nj5.injersey.com/uucec/njrfbill.hmtl. Moreover, the Eighth Circuit Court of Appeals found RFRA constitutional "as applied to federal law." Christians v. Crystal Evangelical Free Church (In re Young), No. 93-2267, 1998 WL 166642, at *1 (8th Cir. April 13, 1998); see also Legislative Update, Grassley: Trustees Should Not Recover Tithes, 31 Bankr. Ct. Dec. (CRR) 7 (Oct. 21, 1997).

26 See Employment Div., Dep't of Human Resources v. Smith, 494 U.S. 872 (1990).

27 See Geraldine Koenke Russel & Donald Wallace, Note, Jehovah's Witnesses and the Refusal of Blood Transfusions: A Balance of Interests, 33 Cath. Law. 361 (1990).

28 Sabbath observance issues often arise in connection with unemployment compensation or workplace accommodations. See, e.g., Brian Bertonneau, Comment, Estate of Thornton v. Caldor, Inc.: Defining Sabbath Rights in the Workplace, 15 Hastings Const. L.Q. 513 (1988); Clare Zerangue, Comment, Sabbath Observance and the Workplace: Religion Clause Analysis and Title VII's Reasonable Accommodation Rule, 46 La. L. Rev. 1265 (1986).

29 See Julie Ann Sippel, Comment, Priest-Penitent Privilege Statutes: Dual Protection in the Confessional, 43 Cath. U. L. Rev. 1127 (1994).

30 For instance, consider how rarely, if at all, the following types of questions are addressed by law and religion literature. Does Indian religious law persist in prescribing the use of peyote even if secular law labels such conduct a crime? Do the various religions that forbid voluntary blood transfusions prescribe punishment or predict other adverse consequences for persons who are involuntarily subjected to such procedures? Does Jewish law permit its worshipers to work on the Sabbath when no secular accommodation is possible? Does canon law permit a priest to reveal confessional information when it is subpoenaed in a jurisdiction that has no priest/penitent privilege?

31 Although there may be some differences between a joint venture and a partnership, they do not affect our analysis. As to the interrelationship between joint ventures and partnerships see Rafiq Al-Shahbaz, Note, Joint Ventures, ASEAN and the Global High Technology Industry, 18 J. Marshall L. Rev. 327 (1993).

32 Many cases and commentators characterize partners as agents for each other as well as for the partnership. See Carlton v. Alabama Dairy Queen, Inc., 529 So. 2d 921, 922-23 (Ala. 1988); Kelly v. Department of Ins., 597 So. 2d 900 (Fla. Dist. Ct. App. 1992); Kansallis Finance Ltd. v. Fern, 659 N.E.2d 731 (Mass. 1996); Baker v. McCue-Moyle Dev. Co., 695 S.W.2d 906, 911 (Mo. Ct. App. 1985); Gramercy Equities Corp. v. Dumont, 531 N.E.2d 629 (N.Y. 1988); Barnes v. Campbell Chain Co., Inc., 267 S.E.2d 388 (N.C. Ct. App. 1980); see also Treas. Reg. 301.7701-2(c)(1) (1996); Deborah A. DeMott, Our Partners' Keepers? Agency Dimensions of Partnership Relations, Law & Contemp. Probs., Spring 1995, at 109, 109 ("[e]ach partner is . . . an agent of her fellow partners"). This is consistent with the view that a partnership is an aggregation of individuals. See 1 Alan R. Bromberg & Larry E. Ribstein, Bromberg and Ribstein on Partnership 4.01(b)(1) (1996). On the other hand, both the Uniform Partnership Act (UPA) and the Revised Uniform Partnership Act (RUPA) provide that each partner in a general partnership is an agent of the partnership for the purpose of carrying on the partnership's business and do not specify that the partners are agents for one another. See Revised Unif. Partnership Act 301(1) (1994); Unif. Partnership Act 9(1) (1914). Some authorities suggest, therefore, that UPA and RUPA reject the aggregate approach. See Shetka v. Kueppers, Kueppers, Von Feldt and Salmen, 454 N.W.2d 916 (Minn. 1990) (concluding that under UPA adopted by Minnesota in 1921, partners are agents of the partnership but not agents of each other); 1 Bromberg & Ribstein, supra, 4.01(b)(1). In light of the large, transcontinental partnerships, particularly professional partnerships of lawyers and accountants where many or most partners have not even met one another, the appropriateness of this theoretical perspective and the doctrine of unlimited liability should be reevaluated. See, e.g., Steven H. Resnicoff, The Unlimited Personal Liability of Partners: Bankruptcy Implications for Professional Partners, in 67th Annual Meeting of the National Conference of Bankruptcy Judges, Orlando, Florida, October 17-20: Educational Program (1993).

33 See cases cited supra note 32. Under UPA, partners were jointly and severally liable as to tort claims against the partnership but only severally liable regarding the contract claims. See Unif. Partnership Act 15. Under RUPA partners are generally jointly and severally liable "for all obligations of the partnership unless otherwise agreed by the claimant or provided by law." Revised Unif. Partnership Act 306(a). In contrast to corporations, partnerships are often regarded as aggregates of the individual partners and not as separate entities. See, e.g., Elisa Feldman, Comment, Your Partner's Keeper: The Duty of Good Faith and Fair Dealing Under the Revised Uniform Partnership Act, 48 SMU L. Rev. 1931, 1936 (1995) (asserting that businessmen generally do not view partnerships as separate entities). Nevertheless, this perspective, particularly under RUPA, is grossly misleading. RUPA, adopted by some states, defines a partnership as an "entity distinct from its partners." Revised Unif. Partnership Act 201. Pursuant to RUPA, for instance, partnerships may hold title to property in their own name, and they may sue and be sued in the partnership name. Similarly, although federal tax law does not impose taxes directly on partnerships, it treats partnerships as entities in several important ways. For example, a partnership may have a tax year that is different from the tax year of all of the partners. See 26 U.S.C.A. 706 (West Supp. 1997) (stating that if it has a valid business purpose, partnership tax year may differ from that of partners; otherwise the partnership must have the same tax year as the partners owning a majority of partnership profits or capital, or, if such partners have different tax years, the partnership must use the calendar year). Moreover, in many states, an attorney representing a partnership is held to owe fiduciary duties to the partnership entity and not to individual partners. See James M. Fischer, Representing Partnerships: Who Is/Are the Client(s)?, 26 Pac. L.J. 961, 963 (1995) (analyzing American Bar Association Model Rule 1.13 and Rule 3-600 of the California Rules of Professional Conduct). See generally 1 Bromberg & Ribstein, supra note 32, 1.03.

34 State law may, however, require creditors to exhaust remedies against the partnership before pursuing individual partners. See Revised Unif. Partnership Act 307; 1 Bromberg & Ribstein, supra note 32, 1.03; cf. J. Dennis Hynes, The Revised Uniform Partnership Act: Some Comments on the Latest Draft of RUPA, 19 Fla. St. U. L. Rev. 727, 731-32 (1992) (pointing out the apparent inconsistency in RUPA which, although characterizing the partners' liability as joint and several, provides that creditors must first exhaust their remedies against the partnership).

35 See 2 Alan R. Brumberg & Larry E. Ribstein, Brumberg and Ribstein on Partnership 5.08 (1997); Roger E. McEowen, Planning for the Tax Effects of Liquidating and Reorganizing the Farm and Ranch Corporation, 68 N.D. L. Rev. 467, 486 (1992) ("Probably the best known and largest disadvantage . . . [of] the partnership form is the unlimited liability of partners for partnership obligations."). A general partnership, however, does offer its own advantages, such as ease of formation. Partnership formation does not require filing documents with a government agency or even signing a written partnership agreement. See Revised Unif. Partnership Act 101(5) & commentary; see also Potter v. Homestead Preservation Ass'n, 412 S.E.2d 1 (N.C. 1992). Moreover, even after a partnership is formed, it faces materially fewer procedural and substantive duties than a corporation. See generally 2 Bromberg & Ribstein, supra, 5.01-5.14.

36 This is the rule under the original UPA, which is still the law in most states. See United States v. Hankins, 581 F.2d 431, 436 (5th Cir. 1978) (noting that under Mississippi law, partner's death dissolves partnership); Unif. Partnership Act 31(4). However, under RUPA a partner's death causes the partner's "dissociation" from the partnership but does not dissolve the partnership. See Revised Unif. Partnership Act 601.

37 Similar transferability problems may arise with respect to close corporations because the shareholders of such corporations often enter into agreements that limit transferability of their respective stock.

38 See Phillip I. Blumberg, The Multinational Challenge to Corporation Law (1993); Gerald Carl Henderson, The Position of Foreign Corporations in American Constitutional Law, in 2 Harv. Studies in Jurisprudence (1918) (describing the historical development of corporations).

39 In 1811, New York became the first state to adopt a flexible, general corporation law, but by the 1850s, such state laws were common. See Organization of the Corporation, Corp. Guide (Aspen Law & Bus.) 1101 (1990).

40 Corporations, such as federal banks, may be created pursuant to federal law. See, e.g., McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 409-12 (1819) (holding that the federal creation of Second Bank of the United States was constitutional). Indeed, certain governmental units may constitute corporations if they exercise "corporate powers," even though no particular statute declares them to be corporations. See generally A. Michael Froomkin, Reinventing the Government Corporation, 1995 U. Ill. L. Rev. 543 (1995). See, e.g., State v. Bates, 296 S.W. 418 (Mo. 1927), overruled on other grounds by State ex. rel. Governo v. Kehm, 850 S.W.2d 100 (1993); William Meade Fletcher Jr. et al., Fletcher Cyclopedia of the Law of Private Corporations 25 n.24 (perm ed. rev. vol. 1990).

41 There has been an enormous increase in the extent of commercial activities conducted by nonprofit corporations. See, e.g., Staff of Senate Sub. Comm. on Foundations, 93d Cong., 1st Sess., The Role of Foundations Today and the Effect of the Tax Reform Act of 1969 Upon Foundations (Comm. Print 1973); Evelyn Alicia Lewis, When Entrepreneurs of Commercial Nonprofits Divorce: Is It Anybody's Business? A Perspective on Individual Property Rights in Nonprofits, 73 N.C. L. Rev. 1761 (1995). Last year "Big Bird" and his Sesame Street neighbors grossed $ 31 million for their creators. "Barney," the purple dinosaur of Barney & Friends, reportedly made as much as $ 50 million. Both programs have a primarily educational purpose, an admirable aim which qualifies, along with a number of other purposes, as charitable endeavor preferences under tax and other laws. Both programs serve the same basic group of patrons and customers. Both are produced by companies that received initial start-up funding in the form of sizeable gifts donated by grantors principally interested in "purpose accountability" rather than "profit accountability." Both generate most of their profit from ancillary, commercial activities-the licensing and sale of commercial products bearing the likeness of the television characters featured in the programs aired on public television stations. Finally, despite their monetary success, both programs continue to attract grant monies to subsidize their high production costs. Despite these similarities, there is a fundamental difference between the two programs. The producer of Sesame Street, the Children's Television Workshop (CTW), is organized as a "not-for-profit" or "nonprofit" corporation, and is thus prohibited from directly or indirectly distributing profits (generally referred to as the "non-distribution constraint"). In contrast, the producer of Barney & Friends, the Lyons o. The contrasting organizational statuses are offered here as an example of a fast-growing but relatively recent phenomenon: the blurring of our nation's economic sectors caused by the substantial increase in business activities by nonprofit entities. This development, in turn, has precipitated reassessment of, and consequent changes in, the laws applicable to nonprofits. See Lewis, supra, at 1764-66.

42 Ironically, nonprofit corporations may engage in commercial activities, such as charging for goods and/or services and earning a profit.

43 Most states have separate statutes for nonprofit corporations. The modern approach, for example as in the Revised Model Nonprofit Corporation Act proposed by the American Bar Association in 1987, distinguishes among three types of nonprofit corporations: (1) religious nonprofits, (2) "public benefit" nonprofits, and (3) "mutual benefit" nonprofits. Neither religious nonprofits nor public benefit nonprofits may distribute their net profits to their members. This prohibition is known as the "distribution constraint." See Henry B. Hansmann, The Role of Nonprofit Enterprise, 89 Yale L.J. 835 (1980); Lewis, supra note 41. Mutual benefit nonprofits differ, inasmuch as they may provide benefits to their members, purchase their members' membership rights, and upon dissolution, may distribute their net assets to their members. Due to the fact that mutual benefit nonprofits embody such characteristics, they do not qualify for federal tax exempt status under 26 U.S.C.A. 501(c)(3), which is only provided to nonprofits that are operated "exclusively for religious, charitable, scientific, literary, or educational purposes." 26 U.S.C.A. 501(c)(3) (West Supp. 1997).

44 Of course, dividends are payable on preferred or common stock only if the board declares such dividends.

45 Not all of the advantages discussed in the text, such as the free alienability of shares, are available to nonprofit corporations. There are, however, other incidental advantages for both profit and nonprofit corporations. For instance, governmental regulation of securities markets and transactions may afford valuable consumer protection. Similarly, extensive statutory and case law regarding corporations may provide reasonable resolutions to problems that individuals, if they had to negotiate partnerships, might not have adequately foreseen.

46 As to general business corporations, see Harry G. Henn & John R. Alexander, Laws of Corporations and Other Business Enterprises 73, at 130 (1983); Organization of the Corporation, supra note 39, 1114. As to nonprofit corporations, see Cal. Corp. Code 5350, 7350 (West 1990); N.J. Stat. Ann. 15A:5-25 (West 1984); Revised Model Nonprofit Corp. Act 6.12 (1987). However, there are certain exceptions. For example, although some state statutes permit professionals, such as attorneys, to operate as professional service corporations, these statutes, and/or rules promulgated by applicable regulatory bodies, often provide that these professionals are nonetheless personally liable for the malpractice of other shareholders. See 805 Ill. Comp. Stat. Ann. 10/8 (West 1993); 805 Ill. Comp. Stat. Ann. 305/10 (West 1993); Resnicoff, supra note 32.

47 Early corporations did not conduct commercial transactions themselves. Instead, their members conducted business as individuals and therefore, were personally liable. Even after corporations first began to conduct business transactions themselves, the corporate veil provided only limited protection to shareholders because corporations often had the explicit, or implicit, power to impose "leviations" on shareholders to raise money to pay corporate debts. Using a process similar to subrogation, corporate creditors could directly assert this right to force shareholders to pay corporate debts. See Salmon v. Hamborough Co., 22 Eng. Rep. 753 (H.L. 1671); Blumberg, supra note 38, at 9; Henn & Alexander, supra note 46, 9, at 19. This decision even influenced some American courts to find that creditors had equitable rights to force the corporation to assess shareholders for satisfaction of corporate debts. See Briggs v. Penniman, 8 Cow. 387, 395-96 (N.Y. Sup. Ct. 1826); Hume v. Winyaw & Wando, reported in 1 Carolina L.J. 217 (1830) (reporting a South Carolina case). Ultimately corporations were deprived of the power to make such levies through explicit charter provisions. See generally Blumberg, supra note 38. Modern American corporate law statutes typically include explicit provisions stating that members or shareholders are not personally liable for corporate debts. See, e.g., Revised Model Business Corp. Act 6.22 (b) (1983) ("Unless otherwise provided in the articles of incorporation, a shareholder of a corporation is not personally liable for the acts or debts of the corporation except that he may become personally liable by reason of his own acts or conduct.").

48 See Michael J. Phillips, Reappraising the Real Entity Theory of the Corporation, 21 Fla. St. U. L. Rev. 1061, 1083 (1994). But see Phillip I. Blumberg, Limited Liability and Corporate Groups, 11 J. Corp. L. 573, 588 (1986). Blumberg asserts that in the early days of corporate law in the United States, the principal purposes of incorporation were "to achieve perpetuity of existence and ready transferability of shares." Id. Of course, this may have been partly due to the difficulty incorporators had at that time in securing a grant of limited shareholder liability.

49 See Frederick G. Kempin, Jr., Historical Introduction to Anglo-American Law in a Nutshell 278-79 (3d ed. 1990); Phillips, supra note 48, at 1083; Demerios G. Kaouris, Note, Is Delaware Still a Haven for Incorporation?, 20 Del. J. Corp. L. 965 (1995). There is considerable debate, however, as to whether, and if so to what extent, corporate shareholders should continue to be entitled to limited liability. See, e.g., Blumberg, supra note 48, at 624-26 (stating that limited liability is inappropriate for corporate shareholders of an affiliated entity); Lawrence E. Mitchell, Close Corporations Reconsidered, 63 Tul. L. Rev. 1143, 1168 (1989) (stating that limited liability is inappropriate for shareholders of close corporations).

50 By contrast, partnerships generally come to an end when one of the partners dies. See Revised Unif. Partnership Act 601(7)(i) (1994) (stating that partner's death causes his "dissociation" from the partnership); Revised Unif. Partnership Act 603 (1994) (stating that upon partner's dissociation, partnership dissolves and winds up its business); Unif. Partnership Act 31(4) (1914) (stating that partner's death dissolves the partnership).

51 The "Kintner Regulations" provide that in order for a business organized prior to January 1, 1997 to be treated as a corporation for tax purposes, it must possess three of the following four characteristics: (1) limited liability, (2) "continuity of life," (3) "free transferability of interests," and (4) centralized management. See Treas. Reg. 301.7701-2(a) (1977). These regulations arose as a result of United States v. Kintner, 216 F.2d 418 (9th Cir. 1954). As to businesses organized on or after January 1, 1997, new, simplified regulations apply. See T.D. 8697, 1997-2 I.R.B. 11; Treas. Reg. 301.7701-1 to 301.7701-3 (1996); Treas. Reg. 301.7701-4(b), 4(c), 4(f) (1996). See generally Sheri E. Nott & Richard J. Razook, Classifications of Entities for Tax Purposes Just "Check the Box," 71 Fla. B.J. 70 (1997).

52 See Adolph A. Berle & Gardiner C. Means, The Modern Corporation and Private Property (1932) (stating that corporations are controlled by their managers and not by the shareholders, their owners).

53 For example, states may have separate statutes for agricultural corporations, banking corporations, insurance corporations, nonprofit corporations, general business corporations, etc.

54 Henry Winthrop Ballantine, Ballantine on Corporations 9, at 46 (1946).

55 See Mitchell, supra note 49, at 1164 n.82.

56 It is often said that there is no single satisfactory definition of the term "close corporation." See 1 F. Hodge O'Neal & Robert B. Thompson, O'Neal's Close Corporations 1.02, at 7 (3d ed. 1992) (recognizing the difficulty of defining "close corporation" and subsequently stating that "[t]hroughout this treatise . . . the term 'close corporation' means a corporation whose shares are not generally traded in the securities markets"); Carlos D. Israels, The Close Corporation and the Law, 33 Cornell L.Q. 488, 491 (1948); Mitchell, supra note 49, at 1151 n.24 (describing various efforts at defining this term).

57 See Larry E. Ribstein, Linking Statutory Forms, 58 Law & Contemp. Probs., Spring 1995, at 187, 219 n.202.

58 Empirical evidence indicates that although about ninety percent of all corporations possess the characteristics of close corporations, a very small percentage incorporate pursuant to close corporation laws. See, e.g., 1 O'Neal & Thompson, supra note 56, 1.19; Mike Harris, Comment, Assessing the Utility of Wisconsin's Close Corporation Statute: An Empirical Study, 1986 Wis. L. Rev. 811, 827-28; Tara J. Wortman, Note, Unlocking Lock-In: Limited Liability Companies and the Key to Underutilization of Close Corporation Statutes, 70 N.Y.U. L. Rev. 1362 (1995).

59 See Sherri J. Conrad, Protecting Personal Assets: Does the Professional Corporation Shield Lawyers From Vicarious Liability?, 5 Legal Malpractice Rep. 3 (1996).

60 See, e.g., 805 Ill. Comp. Stat. Ann. 10/8 (West 1993) (stating that the Illinois Professional Service Corporation Act does not immunize a professional from personal malpractice liability); 805 Ill. Comp. Stat. Ann. 305/10 (West 1993) (stating that lawyers' ability to practice pursuant to the Illinois Professional Association Act is subject to rules promulgated by the Illinois Supreme Court).

61 See, e.g., Ill. Sup. Ct. Rule 721(d) (preventing attorneys from totally limiting their liability through use of a professional association or professional corporation).

62 A limited partnership has at least one "general partner" who manages the business and who bears unlimited personal liability for partnership debts just as any partner would in a general partnership.

63 A limited liability company (LLC) is a hybrid of a corporation and a partnership. The participants in an LLC are called "members" and they own interests in the company. Many LLC statutes permit the LLC to issue certificates that indicate the interests members possess. LLC members, just as corporate shareholders, enjoy limited personal liability. See Ribstein, supra note 4, at 2 n.8 (stating that all LLC statutes expressly provide for such limited liability). Properly planned LLCs can qualify for tax treatment as partnerships because LLCs do not have perpetual existence, and LLC interests are not freely transferable. Interestingly, professional firms, especially accounting firms, lobbied heavily for the enactment of LLC laws, which were perceived as a way for a professional to avoid vicarious liability for the conduct of the colleagues with whom he or she worked. See, e.g., Robert R. Keatinge et al., Limited Liability Partnerships: The Next Step in the Evolution of the Unincorporated Business Organization, 51 Bus. Law. 147, 147-48 (1995); Resnicoff, supra note 32. Nevertheless, the same kinds of factors that restrict the ability of professionals to limit their liability by using professional corporations apply to LLCs as well. This issue has been the subject of substantial literature. See, e.g., Sheldon I. Banoff, Use of LLCs by Multi-State Professional Practices, in 2 J. Limited liability companies 2, 66 (1995); Allan G. Donn, Limited Liability Entities for Law Firms, in The Best Entity for Doing the Deal 237 (1996); Susan Saab Fortney, Am I My Partner's Keeper? Peer Review in Law Firms, 66 U. Colo. L. Rev. 329 (1995); Robert R. Keatinge & George W. Coleman, The Right Entity May Limit Your Liability, Law Prac. Mgmt., July-Aug. 1995, at 22; Robert R. Keatinge & George W. Coleman, Practice of Law by Limited Liability Companies, Prof. Law. 5 (Symposium Issue 1995); Richard C. Reuben, Added Protection, A.B.A. J., Sept. 1994, at 54; Michael J. Lawrence, Note, The Fortified Law Firm: Limited Liability Business and the Propriety of Lawyer Incorporation, 9 Geo. J. Legal Ethics 207 (1995).

64 Of course, the concept of a jurisdiction is inapplicable to academic expressions.

65 An example of an inconsistency between language and effect (reminiscent of the distinction between form and substance) involves federal diversity jurisdiction. Article III of the United States Constitution confers federal jurisdiction upon, among other things, controversies "between Citizens of different States." U.S. Const. art III, 2. In such cases, federal jurisdiction was deemed appropriate to prevent one party (such as a plaintiff) from receiving unfair preference from a home state court, which correspondingly disadvantaged the out-of- state party (such as the defendant). If one party files such a suit in state court, the out-of-state party is allowed to remove the case to federal court. The question arose as to whether this constitutional provision applied to suits in which a person and a corporation were adversaries. The effect of judicial decisions, and ultimately of legislation, is to treat the corporation as an independent entity, even though the language of some of the decisions seems contrary. In addressing this issue, the Supreme Court has taken three different positions. Initially, in Bank of the United States v. Deveaux, 9 U.S. (5 Cranch) 61 (1809), the Court rejected the entity theory and instead reasoned that the corporate shareholders, and not an independent legal entity, had come into court under the corporate name. Consequently, it held that there was diversity jurisdiction where the corporate shareholders were from one state and the individual adversary was from another state. In Louisville, Cincinnati & Charleston R.R. Co. v. Letson, 43 U.S. (2 How.) 497 (1844), however, the Court reversed course and treated the corporation as a separate legal "person." The plaintiff, Letson, a New York citizen, sued a railroad in federal district court in South Carolina. The defendant argued that there was not "absolute diversity," as that term was used in the Court's earlier decision, Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806). In Strawbridge, the Supreme Court held that in order to establish federal jurisdiction when one or more sides in a lawsuit consisted of several persons, none of the persons on one side could be a citizen of the same state as any of the persons on the other side. See id. at 267. In Letson, one of the corporation's shareholders was a banking corporation with two of its shareholders from New York, Letson's own state of citizenship. If the Letson court applied Deveaux's theory, there would be no diversity jurisdiction. Indeed, if the theory were applied to corporations, then in light of Strawbridge,m across the nation. Avoiding this result, the Letson court held, A corporation created by a state . . . though it may have members out of the state, seems to us to be a person, though an artificial one, inhabiting and belonging to that state, and therefore entitled, for the purpose of suing and being sued, to be deemed a citizen of that state. . . . [A] corporation created by and doing business in a particular state, is to be deemed to all intents and purposes as a person, although an artificial person[,] . . . capable of being treated as a citizen of that state, as much as a natural person. Letson, 43 U.S. (2 How.) at 555, 557. But, fewer than ten years later in Marshall v. Baltimore & Ohio R.R. Co., 57 U.S. (16 How.) 314 (1853), the Supreme Court altered its position. In Marshall, a Virginia citizen sued a railroad. The complaint averred that the defendant was a corporation created by an act of the Maryland legislature but was silent as to the citizenship of the corporate shareholders. Under the Letson rationale, it would seem that the shareholders' citizenship would have been irrelevant. But the Marshall court found that it was relevant. Yet, to avoid the same problem answered in Letson by the entity theory, the Court resorted to a new strategy: it created a conclusive presumption that the shareholders of a corporation were citizens of the state which was the "necessary habitat of the corporation." Marshall, 57 U.S. (16 How.) at 328. Of course, this presumption is a fiction because shareholders, especially of large corporations, often reside in various states. Thus, although the Court's words seem to have rejected the entity rule, the effect of its ruling was to treat the corporation as if it were a separate legal entity and to accord it the constitutional rights accorded to citizens. This same result seems to have been memorialized by a statute which provides that "a corporation shall be deemed a citizen of any State by which it has been incorporated and of the State where it has its p

66 For example, while the corporate entity theory protects a corporation from certain civil liability for "conspiring" with its own agents, it is disregarded, either statutorily or judicially, with respect to other types of civil conspiracies as well as criminal conspiracies. See Douglas G. Smith, Comment, The Intracorporate Conspiracy Doctrine and 42 U.S.C.A 1985(3): The Original Intent, 90 Nw. U. L. Rev. 1125, 1126 n.3 (1996). Of course, legislative inconsistency can be caused by a variety of factors, including the formation of varying political coalitions on particularized issues, legislative inertia, or legislative oversight.

67 See David Millon, Theories of the Corporation, 1990 Duke L.J. 201 (1990). Much of the attention given this subject [i.e. "metaphysical questions" about corporations], both by past theorists and recent commentators, focuses on developments in two dimensions. The first dimension is the distinction between the corporation as an entity, with real existence separate from its shareholders and other participants, and the corporation as a mere aggregation of natural individuals without a separate existence. Id. at 201; see also Morton J. Horwitz, Santa Clara Revisited: The Development of Corporate Theory, 88 W. Va. L. Rev. 173 (1985); Phillips, supra note 48; Sanford A. Schane, The Corporation is a Person: The Language of a Legal Fiction, 61 Tul. L. Rev. 563 (1987). This debate is of ancient origin. See, e.g., Blumberg, supra note 48, at 578 n.9 (noting that some people question whether Roman law viewed a corporation as a separate entity); John Dewey, The Historic Background of Corporate Legal Personality, 35 Yale L.J. 655 (1926) (asserting that debate began in the thirteenth century among churchmen). Although England, and subsequently the United States, adopted the entity theory relatively quickly, legal debate within continental Europe was much more lively. See Arthur W. Machen, Jr., Corporate Personality, 24 Harv. L. Rev. 253, 254 n.3 (1911) (listing relevant foreign treatises from the nineteenth century).

68 See generally Blumberg, supra note 38. Secular theoreticians distinguish between two types of entity theories. One perceives the corporation as an artificial or fictional entity created by the state and totally dependent upon the state for its existence. See Mitchell, supra note 49, at 1160-61. According to this perspective, for example, a corporation created under state law would not have any rights in situations in which state law did not govern. See, e.g., Bank of Augusta v. Earle, 38 U.S. (13 Pet.) 519, 587-88 (1839). The other theory, while acknowledging that the corporation is not human, emphasizes that it is natural for people to form groups and for such groups to have unique interpersonal, social, and economic dynamics. This theory characterizes corporations as "real entities" or "persons." See generally Blumberg, supra note 38, at 28 (stating that this theory rests "on German sociological and philosophical roots," citing von Gierke as its "most prominent proponent"); Millon, supra note 67, at 211-21 (describing the rise of the natural entity theory in the early twentieth century). Pursuant to this view, a corporation's rights exceeded the boundaries of the state under which it was incorporated. See, e.g., Southern Ry. Co. v. Greene, 216 U.S. 400, 416-17 (1910). For purposes of this Article, however, the subtle distinctions between these two perspectives appear relatively insignificant.

69 Although a modern subcategory of the aggregate theory has received considerable support among legal academics, the entity theory continues to be espoused by many social philosophers. See Phillips, supra note 48, at 1061 nn.1-2 (stating theory that a corporation is a nexus of individual contracts among the various participants in the corporation). Moreover, courts, lawyers, and legislatures, for the most part, continue to characterize and treat corporations in a manner consistent with the entity theory. It is, however, sometimes difficult to confidently declare that particular legal treatment is necessarily indicative of one theory or the other. Commentators contend that the entity theory and the aggregate theory may each be used to support contradictory political positions regarding issues such as corporate governance and corporate social responsibility, and that, in fact, such contrary positions were so asserted. See, e.g., Horwitz, supra note 67; Millon, supra note 67. However, Phillips cites divergent views and states that "general conceptions of the corporation may have been implicit in some scholarly discussions during the 1930-1980 period. Due to the scarcity of explicit theorizing, however, this assertion is conjectural." Phillips, supra note 48, at 1070 n.63. Courts usually describe corporations as entities separate from their shareholders. See Trustees of Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518, 634 (1819) ("A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it."). For other cases, see Fletcher, supra note 40, 25 n.2. See also Joseph K. Angell & Samuel Ames, A Treatise on the Law of Private Corporations Aggregate 1 (reprinted 1972) (stating that a corporation is a "body, created by law, . . . [which] for certain purposes is considered [] a natural person"); Organization of the Corporation, supra note 39, 1101 ("A corporation is an entity, created by law for carrying on a business, separate and distinct from the person(holding that even if a vessel sails under a neutral flag and title is owned by a neutral corporation, international law allows seizure if the ship is equitably owned by an enemy citizen). On occasion, state and federal courts pierce the corporate veils of profit and nonprofit corporations and hold individual shareholders responsible for corporate debts and, in so doing, arguably treat corporations as aggregates of individuals instead of as entities. See generally Carsten Alting, Piercing the Corporate Veil in American and German Law - Liability of Individuals and Entities: A Comparative View, 2 Tulsa J. Comp. & Int'l L. 187, 192 (1995) (crediting I. Maurice Wormser, Piercing the Veil of Corporate Entity, 12 Colum. L. Rev. 496 (1912), with coining the phrase to "pierce the veil"). There are many uncertainties regarding the history of veil piercing. Compare Phillippe M. Salomon, Comment, Limited Liability: A Definitive Judicial Standard for the Inadequate Capitalization Problem, 47 Temp. L.Q. 321, 323 (1974) (tracing veil piercing to the early nineteenth century), with Robert B. Thompson, Piercing the Corporate Veil: An Empirical Study, 76 Cornell L. Rev. 1036 (1991) (arguing that veil piercing is a relatively recent phenomenon). There also are uncertainties regarding the circumstances under which it is done. The standard for piercing a corporate veil varies from jurisdiction to jurisdiction. See, e.g., Stephen B. Presser, Piercing the Corporate Veil (1991); David H. Barber, Piercing the Corporate Veil, 17 Williamette L. Rev. 371 (1981); G. Michael Epperson & Joan M. Canny, The Capital Shareholder's Ultimate Calamity: Pierced Corporate Veils and Shareholder Liability in the District of Columbia, Maryland, and Virginia, 37 Cath. U. L. Rev. 605 (1988); Roger E. Meiners et al., Piercing the Veil of Limited Liability, 4 Del. J. Corp. L. 351 (1979); Patricia J. Hartman, Comment, Piercing the Corporate Veil in Federal Courts: Is Circumvention of a Statute Enough?, 13 Pac. L.J. 1245 (1982); Note, Piercing the Corporate Law Veil: The Alter Ego Doctrine Under Federal Common Law, 95 Harv. L. Rev. 853 (1982). Even within a single jurisdiction, the precise criteria for piercing a corporate veil are not entirely clear. See Mitchell, supra note 49, at 1169 ("I will spare the reader an exegesis of the law of piercing the corporate veil because the literature is massiv Piercing Doctrine and Its Application to the Toxic Tort Arena, 5 Tul. Envtl. L.J. 605, 617 (1992) ("One reason the corporate veil piercing standard is more uncertain under federal common law than under state common law is that the Supreme Court has not explicitly set a standard in this area."). The principles that courts articulate are typically ambiguous and incapable of predictable application. See Wilson McLeod, Shareholders' Liability and Workers' Rights: Piercing the Veil Under Federal Labor Law, 9 Hofstra Lab. L.J. 115, 121 (1991) ("The veil-piercing doctrine is justifiably renowned for its ambiguity and uncertainty. According to one pair of commentators, veil-piercing is '[l]ike lightning' - 'rare, severe, and unprincipled.'" (quoting Frank H. Easterbrook & Daniel R. Fischel, Limited Liability and the Corporation, 52 U. Chi. L. Rev. 89, 89 (1985))). Most courts assert that they utilize three factors to determine whether to pierce a corporate veil: (1) control or complete domination of the corporation by one or more of the shareholders, (2) fraud or other wrongdoing committed by use of this control or domination, and (3) injury or loss suffered by the plaintiff as a result of the fraud or wrongdoing. See Phillip I. Blumberg, The Law of Corporate Groups: Tort, Contract, and Other Common Law Problems in the Substantive Law of Parent and Subsidiary Corporations 6.02 (1987). For a number of reasons, including applicable governmental regulation and market scrutiny, it is highly unlikely that the veil of public corporations, which have large numbers of shareholders, would ever be pierced. See Thompson, supra, at 1039, 1048 (finding a "total absence" of veil piercing of public corporations). But see Thomas V. Harris, Washington's Doctrine of Corporate Disregard, 56 Wash. L. Rev. 253, 254 (1981) (stating, without citing any cases, that "[i]n an appropriate case, Washington's courts will refuse to recognize even the largest publicly-held corporation as being separate from its shareholders, officers, directors, or other entities that have abused it"). Even if a corporation has only a single shareholder, this fact alone does not cause American courts to disregard the corporate entity. See Fletcher, supra note 40, 25.1, 41.35; Organization of the Corporation, supra note 39, 1116; see also Pipe Fitters Health & Welfare Trust v. Waldo, R., Inc., 969 F.2d 718 (8th Cir. 1992); Benschoter v. Shapiro, 418 S.E.2d 381 (Ga. Ct. App. 1992). In other countries, however, corporate law may require a certahareholders for incorporation). However, on closer inspection it does not seem that when a court pierces the corporate veil it actually denies that a corporation, or even that the particular corporation, is a separate entity. Instead, it seems to state that although corporations are regarded as separate entities, the shareholders of the corporation, in this case because of equitable considerations, are going to be personally liable to the plaintiffs in this case. After all, although limited liability for shareholders is consistent with the entity theory, it is not a logically ineluctable consequence of it. See, e.g., Robert Emanuel Zimet, Comment, The Validity of Limited Tort Liability for Shareholders in Close Corporations, 23 Am. U. L. Rev. 208 (1973). In fact, the entity theory of corporations was commonly articulated long before limited liability became firmly established. See Edwin Merrick Dodd, American Business Corporations Until 1860 364-437 (1954); Blumberg, supra note 48, at 577 ("Despite widespread confusion on the matter, it is clear that the entity view of the corporation rests essentially on philosophical notions and that this view was firmly established well before acceptance of the principle of limited liability."); Mitchell, supra note 49. In addition, the modern partnership is often described as an entity even though its partners are not afforded limited liability. See Rev. Unif. Partnership Act 201, 306 (1994). Moreover, even when a corporation's veil is pierced and shareholders are held personally liable in a particular case, the corporate veil is not disregarded for other purposes. See Fletcher, supra note 40, 41.20. It is important to note that in disregarding the corporation as a distinct entity, the courts do so for the purpose of adjudging the rights and liabilities of parties in the case. They have no jurisdiction to do more. The cases do not always say this in express terms, but it is necessarily implicit in all of them. No case implies that a corporation may be disregarded, or regarded as identical with persons or corporations not brought under the jurisdiction, for the purpose of adjudging their rights and liabilities without jurisdiction. Id.; see also Alting, supra, at 193-94.

70 After a number of opinions apparently based on the aggregate theory, the Supreme Court, in Southern Railway Co. v. Greene, 216 U.S. 400, 412 (1910), clearly adopted the entity theory with respect to the Privileges and Immunities Clause of the Fourteenth Amendment of the United States Constitution. The Court declared, "That a corporation is a person, within the meaning of the Fourteenth Amendment, is no longer open to discussion." Id.; see also Austin v. Michigan Chambers of Commerce, 494 U.S. 652 (1990) (holding that state restriction on corporate political contributions satisfied compelling state interest test); First Nat'l Bank of Boston v. Bellotti, 435 U.S. 765 (1978) (stating that corporations have some First Amendment rights). But see Hale v. Henkel, 201 U.S. 43 (1906) (holding that corporations are not entitled to the Fifth Amendment privilege against self- incrimination).

71 See Schane, supra note 67, at 563 n.2 ("The reference work, 34 Words and Phrases 335-38 (West 1956 & Supp. 1986), under the heading 'Person' and subheading 'Private Corporation,' lists nearly a hundred court cases and several score of state statutes where the word 'person' expressly includes corporations."); see also Millon, supra note 67, at 206 (citing cases).

72 The concept of limited liability emanates easily from the entity theory. See Phillips, supra note 48, at 1083. Although some scholars, who support the modern aggregate argument that corporations represent a nexus of contracts among the participants in the corporation, attempt to reconcile the doctrine of limited liability, see id., their efforts are less than totally satisfying, especially with respect to limited liability as to nonconsensual creditors, such as tort victims. The text only states that the entity theory is consistent with the doctrine of limited liability because it would be possible to espouse the entity theory while supporting unlimited shareholder liability. Even if the corporation is a separate entity, the shareholders, when perceived as the corporation's equitable owner, real owner, or indirect controller, still could be ultimately liable for unpaid corporate debts. Indeed, the entity theory was in fact well established in England and in the United States while the limited liability doctrine was still substantially in doubt. See id.; see also Blumberg, supra note 38, at 19-20; Dodd, supra note 69, at 364-437; Blumberg, supra note 48; Edwin Merrick Dodd, The Evolution of Limited Liability in American Industry: Massachusetts, 61 Harv. L. Rev. 1351 (1948); Mitchell, supra note 49. Similarly, although section 201 of the Revised Uniform Partnership Act defines a partnership as an "entity distinct from its partners," it nonetheless states in section 306 that partners are jointly and severally liable for all partnership obligations.

73 See Fletcher, supra note 40, 25 n.4.

74 See, e.g., Goulding v. Ag-Re-Co, 599 N.E.2d 1094 (Ill. Ct. App. 1992).

75 See supra note 65.

76 An important exception applies to corporations qualified under Subchapter "S" of the Internal Revenue Code, which are not taxed as separate entities. Instead, the shareholders of a Subchapter S corporation are treated as if the corporation's tax year profit had been received directly by them in their individual capacities. See 26 U.S.C.A. 1366 (West Supp. 1997). The Subchapter "S" statutory criteria are designed to afford this treatment only to those corporations that have few shareholders and that, in effect, resemble small general partnerships seeking to avail themselves of the benefits of incorporation.

77 See New York Central & Hudson River R.R. v. United States, 212 U.S. 481 (1909) (holding that corporation could be guilty of a crime requiring intent).

This position contrasts with the nineteenth century view that, although corporations were entities, they were not entities that could possess criminal intent. See Blumberg, supra note 38, at 5. In addition, a corporation can be found to have sufficient knowledge to be guilty of a crime by adding up the pieces of information possessed by separate corporate agents, even if none of the agents alone possessed the necessary knowledge. See, e.g., Michael B. Metzger, Corporate Criminal Liability for Defective Products: Policies, Problems, and Prospects, 73 Geo. L.J. 1, 47-53 (1984); Phillips, supra note 48, at 1079 n.112 (1994) (citing the "collective knowledge doctrine").

78 See Fletcher, supra note 40, 29.

79 See generally id. 31 (stating that shareholders do have "equities" in the property).

80 Of course, the voting shareholders as a whole can control corporate assets subject to applicable corporate law.

81 See Marshall v. Baltimore & Ohio R.R. Co., 57 U.S. (16 How.) 314, 328 ("In courts of law, an act of incorporation and a corporate name are necessary to enable the representative of a numerous association to sue and be sued.") Note, however, that one or more shareholders may be able to bring a derivative suit in the name of the corporation. The right to bring such a suit, which is equitable in nature, is nonetheless judicially and statutorily restricted. See generally Mary Elizabeth Matthews, Derivative Suits and the Similarly Situated Shareholder Requirement, 8 DePaul Bus. L.J. 1 (1995).

82 See Marsh Inv. Corp. v. Langford, 490 F. Supp. 1320 (E.D. La. 1980), aff'd, 652 F.2d 583 (5th Cir. 1981) (per curiam); see also Glenn G. Morris, Personal Liability for Corporate Participants Without Corporate Veil-Piercing: Louisiana Law, 54 La. L. Rev. 207 (1993).

83 See Fletcher, supra note 40, 28.

84 See Thomas J. Bamonte, The Meaning of the "Corporate Constituency" Provision of the Illinois Business Corporation Act," 27 Loy. U. Chi. L.J. 1 (1995).

85 Recent developments, for instance, have reaffirmed that corporate directors have inherent, not merely delegated, authority to manage, sometimes by depriving the shareholders of the unfettered right to vote to determine certain matters of vital corporate concern. See Millon, supra note 67, at 216.

86 For a miscellaneous sample of such references see Gucci v. Gucci Shops, Inc., 651 F. Supp. 194 (S.D.N.Y. 1986); Berle & Means, supra note 52; Lynne Bolduc, A Case Without a Client: The Private Securities Litigation Reform Act of 1995, 43 Fed. Law. 33, 39 (1996); Herbert Hovenkamp, The Classical Corporation in American Legal Thought, 76 Geo. L.J. 1593, 1668-69, 1683 (1988); Randy K. Johnson, Choice of Business Entity in Utah, Utah B.J., Dec. 1995, at 7; Keatinge, supra note 63, at 151; Lawrence E. Mitchell, The Puzzling Paradox of Preferred Stock (and Why We Should Care About It), 51 Bus. Law. 443, 446 (1996) (referring to preferred stockholders as owners); Michael D. Belsley, Comment, The Vatican Merger Defense- Should Two Catholic Hospitals Seeking to Merge Be Considered a Single Entity for Purposes of Antitrust Merger Analysis?, 90 Nw. U. L. Rev. 720, 776 (1996) ("Stockholders are a corporation's owners."). Corporations are commonly described, in part, by emphasizing the dichotomy between ownership by shareholders and control by corporate management.

87 One of the principles of Jewish law is that if a person owns a slave, then he automatically owns all of the slave's property. Therefore, even if a corporation were recognized under Jewish law as a separate entity, if shareholders owned the entity, they might be perceived as owning the corporation's property.

88 See Shulhan Arukh, Yoreh Deah 367:22, Hoshen Misphat 127:1; see also Babylonian Talmud, Pesahim 88b.

89 See Jeanne L. Schroeder, Some Realism About Legal Surrealism, 37 Wm. & Mary L. Rev. 455 (1996).

90 See John H. Matheson & Brent A. Olson, Shareholder Rights and Legislative Wrongs: Toward Balanced Takeover Legislation, 59 Geo. Wash. L. Rev. 1425, 1475 (1991) ("[T]he voice incident to typical individual share ownership [in publicly held corporations] is that of one crying out in a vast wilderness far removed from the corporate metropolis.").

91 See Manual A. Utset, Towards a Bargaining Theory of the Firm, 80 Cornell L. Rev. 540 (1995). Utset states that the managerialistic theory of the firm is that "managers' interest in maximizing their compensation gives them an incentive to choose investment projects that will increase the size of the firm, even if these decisions will not maximize shareholder wealth," id. at 542, while pointing out that the agency theory of the firm contends that marketplace forces control managerial behavior. See id. Utset, however, advances the "bargaining theory" of the firm which maintains that managers utilize their power not only to advance their interests for greater compensation but also to try to increase their bargaining power for future negotiations with shareholders. Specifically, managers try to shape the relevant legal and nonlegal institutions affecting their relationship with shareholders, to change shareholder perceptions and preferences, and to use their control over the production and distribution of information to gain strategic advantages. These mechanisms make it more costly for shareholders to remove managers, who can therefore become more entrenched. Id. at 546-47. The seminal writings in this area are Berle & Means, supra note 52, and Michael J. Jensen & William H. Meckling, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, 3 J. Fin. Econ. 305 (1976).

92 This point is persuasively argued by Daniel J.H. Greenwood, Fictional Shareholders: For Whom Are Corporate Managers Trustees, Revisited, 69 S. Cal. L. Rev. 1021, 1038-45 (1996). Greenwood cites the Restatement (Second) of Agency and makes many of the points made in the following text. See also Beveridge v. N.Y.E.R.R. Co., 19 N.E. 489 (N.Y. 1889); Hoyt v. Tompson's Executors, 19 N.Y. 207, 217 (1859).

93 See Restatement (Second) of Agency 1, 14 (1958).

94 See id. 118 & cmt. b.

95 See id. 122; see also Hans A. Lapping, License to Steal: Implied Gift-Giving Authority and Power of Attorney, 4 Elder L.J. 143 (1996); Steven H. Resnicoff, Durable Power of Attorney, New Jersey Law., Aug. 1985, at 35. But see Alexander M. Meiklejohn, Incompetent Principals, Competent Third Parties, and the Law of Agency, 61 Ind. L.J. 115 (1986) (pointing out that courts in some cases have enforced powers of attorney even where the principal is incompetent).

96 See Shulhan Arukh , Even Ha-Ezer 141:41.

97 See Del. Code Ann. tit. 8, 141(a) (1991); People ex. rel. Manice v. Powell, 94 N.E. 634, 637 (N.Y. 1911) ("[T]he powers of the board of directors are in a very important sense original and undelegated."). See generally Greenwood, supra note 92.

98 See, e.g., Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986).

99 See Del. Code Ann. tit. 8, 242 (1991 & Supp. 1996).

100 See Del. Code Ann. tit. 8, 251 (1991 & Supp. 1996).

101 See Del. Code Ann. tit. 8, 271 (1991).

102 See Del. Code Ann. tit. 8, 275 (1991).

103 Many courts will enforce shareholder agreements binding directors of close corporations. See Greenwood, supra note 92, at 1041 (citing Galler v. Galler, 203 N.E.2d 577 (Ill. 1964)).

104 See Greenwood, supra note 92, at 1041.

105 See id. at 1030-31. Greenwood states, Shareholders are a legal fiction in a very precise sense. The law demands that corporate directors and managers manage the corporation in the interests of the shareholders and the corporation. But by "shareholder interests" the law does not mean the interests-let alone the will-of the actual people who are the beneficial owners of the shares (or, in our increasingly institutional stock market, the people who are the ultimate beneficiaries of the legal entities that own the shares). The actual people are not consulted; they have only primitive, indirect and ineffective means of letting their perceived interests or actual will be known. Id. (footnote omitted).

106 See Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985) (members of board of directors were held to be personally liable in derivative suit for putting a merger proposal to a shareholder vote without first having the board make its own informed decision); Sealy Mattress Co. of New Jersey, Inc. v. Sealy, Inc., 532 A.2d 1324 (Del. Ch. 1987).

107 Greenwood, supra note 92, at 1024-28.

108 See id. Greenwood explains, The consequences for corporate law [of focusing on fictional rather than human shareholders] are also twofold: First, in the eyes of the law and corporate management, shareholders are all the same. As a result, managers are given relatively clear direction without any need to pierce the cacophony of inconsistent demands from conflicted and conflicting individuals. Corporate management is therefore far easier than political management. This simplicity, however, is based on an illusion-the conflicts do not disappear merely because the law presumes that shareholders are above them. Second, the actual owners of the shares are irrelevant to corporate law: Neither the interests nor the desires of the people behind the shares count. Because managers manage on behalf of a fictional principle rather than a human principal, corporations are a strange, driven kind of institution-neither managers nor anyone else has the ultimate authority to stop the institution from acting out its logic to the fullest. Id. at 1026-27.

109 See Bamonte, supra note 84.

110 See 805 Ill. Comp. Stat. Ann. 5/8.85 (West 1993).

111 Id.

112 This would include shareholders who intend to sell within the short- term as well as long-term shareholders who, for any number of reasons, might prefer short-run profits. See William J. Carney, Does Defining Constituencies Matter?, 59 U. Cin. L. Rev. 385 (1990).

113 See Bamonte, supra note 84, at 6-11. See generally Steven L. Schwarcz, Rethinking a orporation's Obligations, 17 Cardozo L. Rev. 647, 665-66 & n.87 (1996).

114 In fact, directors are free to consider factors other than the real shareholders' best interests. Of course, if a shareholder can find a buyer to purchase her shares, she can terminate her relationship with the directors, but only at the cost of simultaneously terminating her status as a shareholder.

115 See Bamonte, supra note 84.

116 See Greenwood, supra note 92, at 1042 n.48 (citing Unif. Partnership Act 31 & commentary (1914); Revised Unif. Partnership Act 602, 603 (1994)).

117 Section 14.30 of the Revised Model Business Corporations Act provides, under specified circumstances, for judicial dissolution of a corporation without the approval of the board. See Revised Model Bus. Corp. Act 14.30 (1984).

118 See Del. Code Ann. tit. 8, 141(a) (1991) (stating that "the business and affairs of every corporation organized under this chapter shall be managed by or under the direction of a board of directors"); Revised Model Bus. Corp. Act 8.01(b) ("All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of, its board of directors . . . ."). Both of these statues, however, provide for some exceptions if they are enumerated in a corporation's articles of incorporation.

119 See Greenwood, supra note 92, at 1042.

120 See id. As a practical matter, corporate directors themselves usually own some shares of the corporation's stock. Consequently, if they refuse to give their consent, the non-director shareholders cannot satisfy the unanimous consent requirement.

121 See Revised Model Bus. Corp. Act 14.30.

122 In addition, one might argue that some shareholders, such as those who voted against the directors or who acquired stock after the directors were already appointed, never meaningfully agreed to enter into a relationship with particular directors.

123 See Greenwood, supra note 92, at 1042-43.

124 See Del. Code Ann. tit. 8, 141(k)(1) (1991) (stating that directors of a staggered board may not be removed without cause).

125 See Revised Model Bus. Corp. Act 8.08 (authorizing the removal of a director without cause as long as the corporation's articles of incorporation do not require cause, yet permitting the removal of directors only at a meeting called for that purpose and only if notice of the meeting states that such removal is the, or one of the, purposes of the meeting).

126 In some instances, ownership might pass under the terms of a testator's last will and testament or under state intestacy laws, while in other cases ownership might pass pursuant to reciprocal contracts entered into by shareholders before their death.

127 See Matheson & Olson, supra note 90, at 1472; Robert J. Klein, Note, The Case of Heightened Scrutiny in Defense of the Shareholders' Franchise Right, 44 Stan. L. Rev. 129, 129 (1991) ("It is not clear that corporate democracy really is at the disposal of stockholders, because management controls the corporate election process, known as the proxy system.").

128 See Matheson & Olson, supra note 90, at 1497 (arguing that shareholders are denied an adequate role in determining whether legislative or board- imposed antitakeover measures are appropriate and that such measures may devalue shareholders' investments).

129 See id. at 1441.

130 See id. at 1442.

131 See id.

132 The relative powerlessness of a minority shareholder in a close corporation does not necessarily mean that the analogy to a partnership is inappropriate. Minority partners in a partnership may also find themselves to be comparatively helpless against a majority partner. Minority partners, however, typically have significantly more power to cause dissolution of the partnership than minority shareholders enjoy with respect to the corporation.

133 State law may also allow for the debtor's voluntary assignment of assets for the benefit of creditors or for the involuntary appointment of a receiver. In light of the availability of federal bankruptcy proceedings, which are generally favored by both the debtor and creditor, these state processes are rarely invoked. To the extent that the appointment of a receiver involves control of the assets by someone who cannot be controlled by corporate shareholders, the textual discussion regarding Chapter 7 bankruptcies may apply.

134 See Katz v. Oak Indus. Inc., 508 A.2d 873, 879 (Del. Ch. 1986) ("[T]he relationship between a corporation and the holders of its debt securities, even convertible debt securities, is contractual in nature."); Brent Nicholson, Recent Delaware Case Law Regarding Director's Duties to Bondholders, 19 Del. J. Corp. L. 573, 575 (1994) ("[I]t is settled Delaware law that directors do not owe bondholders any duty other than compliance with the terms of the bond indenture."); Schwarcz, supra note 113, at 655.

135 See Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985); see also Schwarcz, supra note 113; James E. Spiotto, Director and Officer Liability: Who Watches the Watchmen?, in Derivatives, 1996: Avoiding the Risk and Managing the Litigation (1996). Pursuant to corporate constituency statutes, see supra text accompanying notes 109-13, corporate directors are authorized to consider the interests of third parties such as corporate creditors, but they are not typically required to do so.

136 See Schwarcz, supra note 113.

137 There are a variety of ways in which to define insolvency. Some tests compare a corporation's debts with the liquidation value of its assets, others consider a corporation's liquidity, while still others evaluate a corporation's value as an ongoing concern. It is quite possible that a corporation that is technically insolvent under one or more definitions of insolvency may be financially healthy, such as a situation in which it possesses valuable but illiquid intangible assets that will ensure its future profitability.

138 See Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986); Geyer v. Ingersoll Publications Co., 621 A.2d 784, 787 (Del. Ch. 1992) ("neither party seriously disputes that when the insolvency exception does arise, it creates fiduciary duties for directors for the benefit of creditors"); 1 James D. Cox et al., Corporations 10.18 (1995) ("There is a developing body of law that suggests directors do owe a fiduciary duty to creditors when the corporation is insolvent or is approaching insolvency."); Spiotto, supra note 135. See generally Nicholson, supra note 134, at 580-82 (surveying the development of Delaware law). At least one case has found such fiduciary duties to exist as soon as the corporation enters the "vicinity" of insolvency. See Credit Lyonnais Bank Nederland, N.V. v. Pathe Communications Corp., Civ. A. No. 12150, 1991 WL 277613 (Del. Ch. Dec. 30, 1991), reprinted in 17 Del J. Corp. L. 1099 (1992). Disparate theories are offered to justify the directors' fiduciary duties to creditors. Many cases and commentators argue that when a corporation becomes insolvent, the corporation's assets constitute a "trust fund" for corporate creditors, and the corporate directors manage the fund as fiduciaries for such creditors. See Automatic Canteen Co. of Am. v. Wharton, 358 F.2d 587, 590 (2d Cir. 1966); Bank Leumi-Le-Israel, B.M. v. Sunbelt Indus., Inc., 485 F. Supp. 556, 559 (S.D. Ga. 1980) ("In the case of an insolvent corporation, the directors and officers stand as trustees of corporate properties for the benefit of creditors first and stockholders second."); see also Eric J. Gouvin, Resolving the Subsidiary Director's Dilemma, 47 Hastings L.J. 287, 307-08 (1996) ("Several cases hold that directors must manage an insolvent corporation's assets as if they were in trust for creditors."); Henry T.C. Hu, Hedging Expectations: "Derivative Reality" and the Law and Finance of The Corporate Objective, 73 Tex. L. Rev. 985 (1995); Laura Lin, Shift of Fiduciary Duty Upon Corporate Insolvency: Proper Scope of Directors' Duty to Creditors, 46 Vand. L. Rev. 1485, 1524 n.92 (1993) ("The courts have reasoned that, upon insolvency, the directors become 'trustees' for the creditors and hold corporate assets as a 'trust fund' for the benefit of these investors."). But see Norwood P. Beveridge, Jr., Does a Corporation's Board of Directors Owe a Fiduciary Duty to its Creditors?, 25 St. Mary's L.J. 589 (1994) (criticizing the "trust fund" doctrine). Another approach focuses on the purported "realities" regarding the respective interests of shareholders and creditors. As a corporation becomes insolvent, the shareholders effectively, albeit not theoretically, lose their interests and begin to resemble the holders of subordinated debt. According to this reasoning, the creditors are the ones most likely to benefit from any business success or lose from any business failure that the corporation then encounters. See Janet M. Meiburger, Column: Last in Line, Directors of Insolvent Corporations Owe Fiduciary Duties to Creditors, 15 Am. Bankr. Inst. J. 38 (1996); Schwarcz, supra note 113, at 655.

139 See Lin, supra note 138, at 1512 ("There is, however, an important yet ill-defined exception to the legal primacy of shareholder interests. Several courts have held that once the corporation becomes insolvent, directors owe a fiduciary duty to creditors.").

140 For example, depending on the "realities" of corporate governance in a particular case, all or some of the shareholders still may be able to exercise substantial control over the use of the corporate assets. If the assets are used to generate profits in excess of corporate debt, such profits may inure to the benefit of the shareholders, not to the creditors. Similarly, if the assets appreciate in value so that there is a net surplus over the corporation's debt, such surplus will benefit the shareholders. Note that the mere fact that the corporate directors owe some fiduciary duty to corporate creditors is unlikely to cause Jewish law to recognize the creditors as owners of the corporate assets. After all, the corporation can continue to use its assets, while the creditors cannot. The creditors are given no greater right to execute on the assets, and even if the value of the assets increases greatly, the creditors will be restricted to the right to receive payment of their claims.

141 See, e.g., 11 U.S.C. 548 (1994); Unif. Fraudulent Transfer Act (1984); Unif. Fraudulent Conveyance Act (1918). See generally Steven H. Resnicoff, Fraudulent Transfers, in Advanced Commercial Finance and Creditors Rights in Illinois (1993); Gerald K. Smith & Frank R. Kennedy, Fraudulent Transfers and Obligations: Issues of Current Interest, 43 S.C. L. Rev. 709 (1992); John E. Sullivan III, Future Creditors and Fraudulent Transfers: When a Claimant Doesn't Have a Claim, When a Transfer Isn't a Transfer, When Fraud Doesn't Stay Fraudulent, and Other Important Limits to Fraudulent Transfers Law for the Asset Protection Planner, 22 Del. J. Corp. L. 955 (1997).

142 These avoidance rules do not make the corporation's creditors owners of the corporate property. First, the avoidance laws apply only to any corporate property that is improperly transferred. Second, even improperly transferred property is not brought within the creditors' control. In a bankruptcy context, such property is returned to the debtor's estate. In a state proceeding, the property is merely treated as if it still belonged to the debtor and becomes subject to a creditor's collection activities, just as any other property owned by the debtor.

143 See 11 U.S.C. 101(6), 101(9), 548 (1994) (defining a debtor as a "person liable on a claim" and defining "person" as including, inter alia, an individual and a corporation); Unif. Fraudulent Transfer Act 1(6), 1(9) (defining a debtor as a "person liable on a claim" and defining "person" as including, inter alia, an individual and a corporation); Unif. Fraudulent Conveyance Act 4-6 (referencing conveyances by "persons").

144 See 11 U.S.C. 701-766 (1994).

145 "Promptly after the order for relief," an interim trustee is appointed. See id. 701(a). A "permanent" trustee may be elected by creditors pursuant to 702. See id. 702.

146 11 U.S.C. 541 (1994).

147 See id. 704(1).

148 Not all claims that are valid outside of bankruptcy are allowed by the Bankruptcy Code. See U.S.C. 502 (1994). If a claim is not allowed by the Bankruptcy Code, the holder of the claim is not entitled to receive any distribution from the property of the estate based on such claim.

149 See 11 U.S.C. 727(a) (1994).

150 See 11 U.S.C. 706(a) (1994).

151 In Chapter 11, the debtor is designated the "debtor in possession," see 11 U.S.C. 1101(1) (1994), and generally exercises control over the debtor's assets until and unless a trustee is appointed. See 11 U.S.C. 1106, 1107 (1994). In Chapter 7, trustees are promptly appointed and elected. See 11 U.S.C. 701-702 (1994). In Chapter 11, trustees are appointed by the court only if certain statutory criteria are satisfied. See 11 U.S.C. 1104 (1994).

152 See Thomas G. Kelch, Shareholder Control Rights in Bankruptcy: Disassembling the Withering Mirage of Corporate Democracy, 52 Md. L. Rev. 264 (1993); Harvey R. Miller, Corporate Governance in Chapter 11: The Fiduciary Relationship Between Directors and Stockholders of Solvent and Insolvent Corporations, 23 Seton Hall L. Rev. 1467 (1993); see also infra text accompanying notes 153-54.

153 See 11 U.S.C. 1101, 1107.

154 Of course, in some Chapter 11 reorganizations the pre-bankruptcy shareholders, as a class, lose their stock. When this happens, such shareholders certainly cannot be considered owners of the corporate assets. Nevertheless, if the corporation reorganizes, new stock will be issued to new shareholders, and it will be necessary to determine whether these new shareholders own the corporate assets.

155 See 11 U.S.C. 1104.

156 See 11 U.S.C. 1106.

157 At least some authorities suggest that this would be the result. See Menashe Klein, Mishnah Halakhot 6:277. Nonetheless, it seems possible that the principle "the law of the land is the law" could conceivably operate to forbid third parties from taking corporate property even if legal title to the property were not necessarily vested in any particular legal person. An alternative approach might be that because no attempted transfer of property to the corporation would be valid under Jewish law, title to such property would remain vested in the original owners of the property, the purported transferors. In addition, consider the view of Rabbi Moshe Feinstein, discussed infra Part V.C, wherein he disagrees with the entire approach of determining ownership of the corporate assets by focussing on who owns title.

158 See generally supra notes 45-46, 79-83 and accompanying text; infra Part V.A.2.

159 This assumes that the shareholders are not perceived as the owners of the corporation. One of the principles of Jewish law is that if a person owns a slave, then he automatically owns all of the slave's property. See Shulhan Arukh, Yoreh Deah 367:22, Hoshen Mishpat 127:1; Babylonian Talmud, Pesahim 88b. Therefore, even if a corporation were recognized under Jewish law as a separate entity, if shareholders owned the entity, they might be perceived as owning the corporation's property. The possibility of a halakhic problem if shareholders are regarded as owners of the corporate entity does not seem to have been raised by any of the authorities who have addressed this issue. See, e.g., Moshe Sternbuch, Moadim Uzmanim 3:269 n.1 ("If the acquisition [of shares] occurred according to the conceptualization of the non-Jews, a Jewish shareholder would certainly not violate the prohibition against keeping hametz on Passover because all he would own are shares of stock.").

160 "In Jewish law, corporations and organizations lack capacity to hold property as 'legal persons.' Property must be held by individuals, otherwise it is ownerless." J. David Bleich, 4 Contemporary Halakhic Problems 388 (1995); see also Menashe Klein, Mishnah Halakhot 6:277, at 169-70 (stating that only human beings may acquire property); Moshe Sternbuch, Moadim Uzmanim 3:269 n.1 (stating that the existence of a company does not prevent the shareholders from being the owners of the corporate property); Yitzhak Elhanan Wasserman, Interest from Loans to Banks, Noam 3:195-203 (5720).

161 The corporation would also be considered separate and apart from the other human beings representing various corporate constituencies.

162 See Soloman Ganzfried, Kitzur Shulhan Arukh 65:28; Menashe Klein, Mishnah Halakhot 6:277; see also Moshe Sternbuch, Moadim Uzmanim 3:269 (stating that a corporation is a partnership unless all or most of the shareholders are non-Jews).

163 See infra Part V.B for a discussion as to whether a shareholder's rights or status under Jewish law depends on whether she possesses voting or nonvoting shares.

164 However, some Jewish law authorities rule that in deciding whether a particular act or failure to act is permissible, halakhah is "strict" and assumes that non-Jews could act as agents for Jews. See Yeheil Mekheil Epstein, Arukh HaShulhan, Hoshen Mishpat 188:1 (citing the views of Rashi and Tosafot). In addition, some authorities argue that even though minhag hasohrim and dina de'malchuta dina are not powerful enough to import the secular corporate entity theory into Jewish law, they may be sufficient to enable non-Jews to serve as halakhicly valid agents for Jews. See Wasserman, supra note 160, 3:195-203; Yitzhak Yaakov Weiss, Minhat Yitzhak 3:1. As explained in Part III.C, infra, secular law does not treat shareholders as agents of one other. Nor does secular law treat corporate directors, officers, or employees as agents of the actual shareholders. Consequently, irrespective of the possible potency of these doctrines, neither the validity of commercial custom (minhag hasohrim) nor the effectiveness of secular law (dina de'malchuta dina) in fact operates to make such non-Jews the agents of Jewish shareholders.

165 See Shulhan Arukh, Hoshen Mishpat 158:1.

166 Interestingly, the Jewish law of partnership seems to presuppose that each partner must be capable of being the agent for the other. As Isaac Herzog, the former Chief Rabbi of Israel, points out, Maimonides codifies the rules governing partnership under the joint title of sheluhin ve-shuttafin, "Agents and Partners". [sic] This coupling of partnership with agency suggest that partnership is logically associated with agency, or, in other words, that when two or more people enter into a partnership-agreement each has become the agent of the other partner or of the other partners. Isaac Herzog, 2 The Main Institutions of Jewish Law 155 (1967); see also Israel H. Levinthal, The Jewish Law of Agency, in Studies in Jewish Jurisprudence 1, 17 (Edward M. Gershfield ed., 1971) ("A partner is also an agent, but his agency is of a special and peculiar character. Maimonides, for instance, felt the closeness of the legal relationship to such an extent that he joins the laws of both of these subjects under one heading-Hilkot Sheluhin we shutafin."). Indeed, Levinthal argues that the Babylonian Talmud, at Kiddushin 41a, "hints that partnership is a special form of agency." Id. at 17 n.22. Consequently, it seems that unless individuals are eligible under Jewish law to serve as agents for one another, they cannot form a Jewish law partnership. Once a partnership is formed, however, the parties may agree to restrict the extent to which one partner may in fact act as the agent of another. Even if Jewish law does not permit a non-Jew and a Jew to become full-fledged partners, it could permit them to become co-owners of property, assuming that both the non-Jew and the Jew took the necessary steps to acquire ownership interests in the property. Secular law similarly recognizes the possibility that persons could jointly own property without being partners. See TUA v. Carriere, 117 U.S. 201 (1886) (noting that under Louisiana law, the death of one partner dissolves the partnership, and the surviving partner and the decedent's heirs become joint owners); Unif. Partnership Act 202(c) (1914) ("(1) Joint tenancy, tenancy in common . . . does not by itself establish a partnership, even if the co-owners share profits made by the use of the property."); John C. Ale, Substantive Partnership Law: Special Problems of General and Limited Partnerships, CA86 A.L.I.-A.B.A. 1, 11 (1996) ("Co- ownership of property by itself does not make the co-owners partners [under either the Uniform Partnership Law or the Revised Uniform Partnership Law], even if they should make profits from the property."). Under secular law, however, where co-owners jointly operate a business and share profits and losses, the co-owners are recognized both as agents for each other and as partners. Under Jewish law, because such individuals are not agents for each other, they would not be partners but would remain co-owners. However, Jewish law would allow the co-owners to contractually create rights and responsibilities regarding the use of the property and the distribution of any resultant profits and losses; they simply could not act as agents for each other.

167 There is a view that a non-Jewish daily worker could act on behalf of a Jewish employer in a manner similar to that of an agent. See Ephraim Navon, Mahne Ephraim, Hilkhot Shluhin V'Shutfin, no. 11. Corporate employees might qualify as daily workers. Nevertheless, if the people who hired these employees were not themselves agents for Jewish shareholders, the employees probably would not be considered daily workers of the Jewish shareholders. It seems unlikely that corporate directors would fall into the class of daily workers.

168 See Saul Weingart, Corporations and Hametz, in Yad Shaul 35-49 (1954) (applying it apparently with respect to an Austrian or German corporation). As will be discussed in Part V.D, infra, earlier halakhic authorities also stressed the uniqueness of the relationship between corporations and shareholders. Nevertheless, these authorities did not explicitly recognize corporations as separate legal entities.

169 See Weingart, supra note 168. See generally Shulhan Arukh, Orah Hayyim 442:1, 448:1. The fact that a business is a corporation may affect the applicability of these prohibitions irrespective of whether the corporation is considered an independent halakhic entity. This issue will be further developed infra Part V.A.2.

170 See Weingart, supra note 168. Weingart believes that it is nonetheless appropriate to conduct oneself in accordance with the other theories if doing so would not be too inconvenient. Consequently, he suggests that if it is not too difficult, Jewish shareholders should, prior to Passover, sell their shares in companies that possess hametz. Nonetheless, if they do not do so, he rules that they may rely on the halakhic entity theory. See id.

171 See id.

172 These shareholders, just as any other consumers, could enter corporate premises as customers.

173 See Weingart, supra note 168.

174 See id.

175 See id. Weingart's last point is questionable. That rejecting the halakhic entity approach is unthinkable simply because it would mean that numerous Jews are in violation of the Jewish law is not logically persuasive. Even though it would be lamentable if many Jews were found to be transgressing religious strictures, it could be that the practices he points to are improper. The prohibition against benefitting from dough that was illegally owned by a Jew during Passover (hametz she'avar alav ha-Pesach) is of rabbinic origin. One halakhic principle is that any rabbinic rule that most of the community cannot conform to is intrinsically invalid. Perhaps Weingart's implicit argument is that one must endorse the halakhic entity theory because otherwise the entire rabbinic ban on hametz she'avar alav ha-Pesach would be invalidated. Nevertheless, he does not make this argument explicitly. Alternatively, and more happily, these practices may be justified on other Jewish law grounds. Indeed, it could be that the halakhic entity approach is even unnecessary to justify stock ownership in the corporation Weingart considers. Although Weingart rejects the "relationship test" discussed in Part V.D, his dismissal of that test may be unwarranted. Similarly, other approaches not addressed by Weingart, such as the purchaser of entitlements approach examined in Part V.C, may be correct.

176 See Weingart, supra note 168. The transliteration of the word Weingart uses is "paper gelt." The German word "gelt" is used for "money."

177 See id. The truth is that Weingart's currency argument is unclear. Thus, he says that "every citizen in the country has a share of the property that belongs to the government and the paper money ('papiergelt') is itself a document attesting to his share." Id. His reference to "every citizen" suggests that his argument is based on some political theory as to the relationship between the government and its citizens. It is possible that Moshe Sternbuch interpreted Weingart as making this argument. See Moshe Sternbuch, Moadim Uzmanim 3:269 n.1 (arguing that the right Weingart referred to was not transferrable). Nevertheless, it does not seem reasonable to suggest that paper currency attests to any rights based on political theory. After all, non-citizens may possess paper currency while some citizens-who, for instance, may live abroad-may not. Consequently, as stated in the text, it seems that Weingart's argument is based on the fact that currency represents a debt from the government to the holder of the currency based, perhaps, on the assumption that the holder could present the currency to the government and demand some payment therefor. This right would seem to be transferrable by transferring ownership of the currency to someone else. This seems to be the way in which Yitzhak Yaakov Weiss interpreted Weingart. See Yitzhak Yaakov Weiss, Minhat Yitzchok 3:1. Incidentally, it is worth noting that many, perhaps most, countries are no longer legally obligated to pay anything in exchange for their currency. In such countries, Weingart's argument seems to be completely undermined.

178 Similar problems would theoretically arise in connection with investments by Jews in United States bonds. Since the 1930s, the United States government has been a significant purchaser and seller of wheat. Inasmuch as the Jewish calendar is designed to have Passover occur during the harvests season, it is reasonable to assume that the United States may well own or benefit from wheat during Passover.

179 See generally Shulhan Arukh, Hoshen Mishpat 39, 40.

180 See Shulhan Arukh, Orah Hayyim 440:4.

181 As discussed in the text, the Israeli Rabbinical Court and Rabbi Regensberg are among those who explicitly adopt this approach, and several other authorities, such as Isaac Aaron Ettinger and Moshe Shick (Maharam Shick), may have implicitly endorsed it. See infra Part V.A.2.a.

182 See Piskei Din Rabanayim, supra note 17, 10:273, 7. But see id. 3:354; infra note 312 and accompanying text (assuming an arguably different approach to corporations).

183 See Piskei Din Rabanayin, supra note 17, 10:273, 7.

184 See id.

185 See id.

186 See id.

187 Id.

188 See id.

189 See id.

190 One could contend that the concept of ownership enjoyed by partners in a partnership differs qualitatively from the ownership of a sole owner of property. This is arguably reflected by the fact that the Talmud frequently discusses whether the same rules apply both to property held by partners and property held solely by one individual. See Babylonian Talmud, Hullin 135a; cf. Yaakov Ettlinger, Binyan Tzyyon, no. 65 (stating the prohibition against charging interest applies to a partnership of a Jew and a non-Jew).

191 See Piskei Din Rabanayin, supra note 17, 10:273, 7; see also Shemaya Eliezer Dekhovsky, Naot Desha 40-56; Moshe Ameil, Responsa Darkei Moshe- Derekh HaKodesh 1:5 (10-11); Yitzhak Bari, Ha-Torah V'hamedina 11-13:461; Menachem Zemba, Zera Avraham 4:21-24; Hayyim David Regensberg, Mishmeret Hayyim 134-37 (1966).

192 See Piskei Din Rabanayin, supra note 17, 10:273, 7. For example, when a partnership brings this sacrifice, a process known as smikhah is required in which the owners of the animal press down on its head before it is slaughtered. This step is not required with respect to a communal offering.

193 See Menachem Zemba, Zera Avraham, no. 4:21-24; Moshe Amiel, Darkei Moshe-Derekh HaKodesh 1:5 (10, 11); see also Regensberg, supra note 191, at 135-37.

194 See Piskei Din Rabanayin, supra note 17, 10:273, 7. The author of the ruling wrote that he had expounded elsewhere on the qualitative distinction between tzibur and partnership.

195 See id. Rabbi Hayyim David Regensberg makes the same argument. See Regensberg, supra note 191, at 135-37.

196 See Tosafot, Babylonian Talmud, Menahot 78b, s.v. oh.

197 See Zemba, supra note 193.

198 Zemba construes the Rambam, Mishnah Torah, Temurah, ch. 1:1, as disagreeing with Tosafot because the Rambam states that members of the tzibur (community) constitute a partnership with respect to public sacrifices such that, by a particular improper action or intention, an individual could disqualify the tzibur's offering. Nevertheless, Zemba and the Israeli Rabbinical Court argue that this aspect of partnership is present in every tzibur, but that it does not negate the overall concept of tzibur as a separate and distinct legal entity. See Zemba, supra note 193; Piskei Din Rabanayim, supra note 17, 10:273, 7.

199 See Piskei Din Rabanayim, supra note 17, 10:273, 7.

200 In Hebrew it is Ain tzibur maitim. See Babylonian Talmud, Temurah 15b & commentary by Tosafot s.v. ka.

201 See Babylonian Talmud, Temurah 15a.

202 The process through which this atonement is achieved is referred to as the egla arufa.

203 See Babylonian Talmud, Temurah 15b; see also Encyclopedia Talmudit 10:435-38.

204 See id.

205 See Babylonian Talmud, Nedarim 46b.

206 Id.

207 See Babylonian Talmud, Nedarim 48a.

208 Id.

209 See Regensberg, supra note 191, at 134-37; see also Moshe Ameil, Darkei Moshe-Derekh HaKodesh, vol. II, at 308.

210 In the Talmud, this Mishnah is cited in tractate Shekalim 3b as the third halakhah in the first chapter.

211 See David Frankel, Korban Ha-Eida, on Jerusalem Talmud, Shekalim 3b.

212 Leviticus 6:16.

213 These three offerings are as follows: (1) the Omer, consisting of barley; (2) the two loaves of wheat bread offered on the holiday of Pentecost (Shavuot); and (3) the "Show Bread," consisting of twelve loaves of bread brought each week.

214 Ben Buchri disagrees but nonetheless opines that if the Kohanim contribute with a full heart, they may totally abandon their personal ownership of the funds they contribute, such that the offerings purchased with the funds would not at all be considered to belong to them. See Regensberg, supra note 191, at 134-37.

215 See Rambam, Mishnah Torah, Shekalim 1:7.

216 See Rambam, Mishnah Torah, Maaser 6:15-17 (discussing when such money must be returned).

217 In Hebrew it is shevet aniyim.

218 In Hebrew it is a havurat tzedakah.

219 See Babylonian Talmud, Bava Kama 36b.

220 See Rambam, Mishnah Torah, Matanot Aniyim 8:5.

221 See Moshe Natan Lemberg, Ribit B'Halva'ah Bankit, Noam 2:241.

222 Id. Although Greenfeld states that the problem is that there are no "known" owners, it seems, in context, that he means not only that the owners are not known but that there exist no specific owners. Note that although the Maharshag refers to these monies as hekdesh aniyim, he does not mean the concept of hekdesh referred to earlier in this text.

223 The Holy Treasury is known as hekdesh.

224 This is analogous to treatment of a bishop as a corporation sole in early English law. Bishops were deemed to own church property in a corporate capacity.

225 The treasurer is known as the gizbar.

226 See Hekdesh, Encyclopedia Talmudit 10:435-38.

227 See Aaron Kirschenbaum, Legal Persons, in Principles of Jewish Law cols. 160-63 (Menachem Elon ed., 1986).

228 See Hekdesh, Encyclopedia Talmudit 10:399-431. For example, hekdesh was exempt from (1) obligations to provide certain properties to the poor, to the priests, or to the members of the tribe of Levi (such as the mitzvot of leket, shickcha, peah, terumot, and maasrot); (2) ritual rules (such as the prohibition against owning dough on Passover); and (3) limitations on financial transactions (such as prohibitions against lending on interest and overcharging).

229 This phrase is transliterated as shel re'eihu.

230 This phrase is transliterated as mamon govoha.

231 See Regensberg, supra note 191, at 136. Regensberg also suggests that because the property of hekdesh is dedicated for particular holy purposes, individuals are not permitted to derive personal benefit from it. He indicates that the expression mamon govoha, which may be translated as "money pertaining to that which is lofty," is intended to describe the elevated purpose to which the property is consecrated. See id.

232 The Hebrew expression is kinyan hatzer.

233 A person may inherit property by operation of Jewish law without any action by himself or another.

234 See Regensberg, supra note 191, at 136. Obviously, Jewish law does allow hekdesh, as a legal person, to act through its agents such as gizbar. However, Regensberg would presumably say that the ability to act through an agent is itself an innovation (a hidush) and according to Tosafot and Rashbam, cannot be extended further to kinyan hatzer.

235 See id.

236 The Hebrew expression is daat.

237 See Regensberg, supra note 191.

238 See Boudewijn Bouckaert, Corporate Personality: Myth, Fiction or Reality, 25 Israel L. Rev. 156, 170-72 (1991); Millon, supra note 67, at 211-21.

239 Regensberg, supra note 191, at 136-37.

240 See id.

241 The animals set aside are referred to as maaser behaima.

242 See Piskei Din Rabanayim, supra note 17, 10:273, 7.

243 See Menashe Klein, Mishnah Halakhot 6:277; Moshe Sternbuch, Moadim Uzmanim 3:269 n.1; Simcha Meron, The Creation Known as a "Corporation" in Jewish Law, Sinai 59:228 (5726); Wasserman, supra note 160, 3:195-203; cf. J. David Bleich, 3 Contemporary Halakhic Problems 388 (1989).

244 Some of them, such as havurat tzedakah, were voluntarily created even if not for the purpose of conducting a business.

245 Critics of the halakhic entity approach might argue that even a havurat tzedakah is not a "voluntary" endeavor because there is a communal obligation to create such an institution.

246 See Regensberg, supra note 191, at 135.

247 See Tzvi Pesah Frank, Har Tzvi, Yoreh Deah 126.

248 For a discussion of a variety of such solutions see Yitzhak Blau, Brit Yehuda 7:25.

249 A number of responsa that permit Jews to hold shares in corporations that charge interest on loans describe the attenuated relationship between Jewish shareholders and the corporation's issuance of a loan and, basically, the Jewish shareholder's lack of control over corporate conduct. They do not specifically explain why these factors are significant as a matter of Jewish law. Although Moshe Shick, in Maharam Shick, Yoreh Deah, no. 158, writes at length, his view is also a bit unclear. It is possible that he also implies the halakhic entity theory. Maharam Shick discusses whether there is a problem of collecting interest for those who invest in a company that lends money on interest. Shick states that each bit of money contributed by Jewish and Gentile investors is dedicated, meshubad, to the company. Although he uses the word shutfut, which is customarily used to mean partnership, the responsum makes it clear that the case involves a corporation. The prohibition against lending with interest refers to the lending of "your money" (kaspekhah). Shick argues that money that is also meshubad is not called kaspekhah. However, on the surface, this contention is troubling. If a Jewish investor makes his money meshubad to himself and to a Gentile investor, the money should be no less his money (kaspechah) than if he had made it meshubad only to a Gentile. Yet it does not seem that a Jew prevents his money from being kaspechah when he makes it meshubad to a Gentile. Realty belonging to a Jew that is meshubad to a Gentile still belongs to the Jew. For example, if the Jew sells the property, the sale is valid. Consequently, if the property in Maharam Shick's case is not considered kaspekhah of the Jew, there must be something more at play than a mere lien (shibud) in favor of a Gentile. Maharam Shick's interpretation is that each bit of the money invested is meshubad no longer belongs to the individual investors. If so, to whom does it belong? Perhaps it belongs to the company as a distinct halakhic entity.

250 See Isaac Aaron Ettinger, Maharyah Ha-Levi 1:54.

251 See Babylonian Talmud, Nedarim 48a.

252 The political leader is known as the Nasi. Although the Talmud only explicitly mentions transferring these interests to the Nasi, Jewish law authorities make it clear that the Talmud only mentioned the Nasi as an example; a person could confidently transfer his interest to the Nasi without fear that the Nasi would prohibit him from using his share in the community property. Jewish law commentators indicate that a transfer to anyone else would also work in a similar fashion. See, e.g., Yeheil Mekheil Epstein, Arukh HaShulhan, Yoreh Deah 224:7.

253 A person who formally transfers his interest in this type of property to the community's political leader does not expect any change in his ability to utilize the property. Prior to the transfer, he was entitled to use the property because of his partnership interest. After the transfer, he intends to use it based on the political leader's own partnership interest in the property. The transferor is fully confidant, and justifiably so, that the political leader of the community would ordinarily permit the transferor to use the property.

254 Interestingly, the Jewish term malveh literally means "lender."

255 Isaac Aaron Ettinger, Maharyah Ha-Levi 1:54. In the case of the bank, the Jewish shareholder really does not have the power to control collection of the loan.

256 Id.

257 At least one commentator argues that the public was treated as a partnership in the Talmud but was transformed, in post-Talmudic literature, into a corporate body. See Kirschenbaum, supra note 227, at col. 161.

258 See id; see also Shulhan Arukh, Hoshen Mishpat 37.

259 The language of the Rambam, for instance, suggests that the disqualification is not based on the concept of ownership but founded on the principle that members of the public could personally benefit from self-serving testimony. See Rambam, Mishnah Torah, Aidut 15:1 ("A person may not testify if his testimony will benefit him because it is as if he were to testify about himself.").

260 See Hafara, Encyclopedia Talmudit 10:121, 123.

261 See generally Greenwood, supra note 92.

262 See Wasserman, supra note 160, 3:195, 195-203.

263 See Piskei Din Rabanayim, supra note 17, 10:273, 7.

264 See id.

265 See id.

266 See Hefker Beit Din Hefker, Encyclopedia Talmudit 10:95.

267 Aryeh Leib HaKohen Heller, Kitzot Ha-Hoshen 39:1. Interestingly, the point made in the text might also have been phrased that the Torah does not allow a transfer of partial ownership rights. Nevertheless, the translation in the text is true to the original Hebrew.

268 See Piskei Din Rabanayim, supra note 17, 10:273, 7.

269 The Israeli Rabbinical Court asserts that a rabbinical court has the power to invoke hefker beit din hefker to rule that a corporation is a distinct halakhic entity. Nevertheless, perhaps because it adduces alternative grounds for the halakhic entity theory, the court does not elaborate on the practical consequences of the hefker beit din hefker approach. It does not seem that hefker beit din hefker, if used on a case by case basis, would resolve all of the relevant halakhic problems. It is not likely that all of these matters would involve litigation or a beit din's ruling. Moreover, even if there were such a ruling, it likely would be prospective, not retroactive. Consequently, conduct prior to the ruling, before recognition of the corporation as a separate halakhic entity, would remain problematic. On the other hand, the court might have believed that it could invoke its power pursuant to the doctrine of hefker beit din hefker to promulgate a general decree that would recognize all corporations as independent halakhic entities. The difficulty with this argument is that it is unclear whether a particular Israeli rabbinical court panel would be entitled to enact such a decree, thereby binding other Israeli rabbinical courts. Even if it could do so under Israeli law, it is unclear whether it could take such action as a matter of halakhah. Moreover, the Israeli rabbinical court is not at all authorized by Jewish law to issue decrees that would be binding outside of its immediate jurisdiction, and therefore, any such decree would not resolve halakhic issues in the United States or in other parts of the world.

270 See Meron, supra note 243, 59:228.

271 See Moshe Sternbuch, Moadim Uzmanim 3:269; Menashe Klein, Mishnah Halakhot 6:277; Wasserman, supra note 160, 3:195.

272 See Principles of Jewish Law, cols. 507-15, 686-90 (Menachem Elon ed., 1986).

273 See generally id. at cols. 880-987.

274 See id.

275 Babylonian Talmud, Bava Metzia 83a.

276 See Shulhan Arukh, Hoshen Mishpat 331:1; see also Jerusalem Talmud, Bava Metzia 27b (statement of Rav Hoshea, "Custom supersedes halakhah"); Joseph Kolon, Maharik, no. 102; Shlomo Shwadron, Maharashdam, no. 108.

277 Moshe Feinstein, Iggerot Moshe, Hoshen Mishpat 1:72; see also Yeheil Mekheil Epstein, Arukh HaShulhan, Hoshen Mishpat 73:20. See generally Resnicoff, supra note 7, at 10-14.

278 See Moshe Feinstein, Iggerot Moshe, Hoshen Mishpat 1:72; David Chazan, Nidiv Lev, no. 12; Eliyahu Chazan, Nidiv Lev, no. 13; Isaac Aaron Ettinger, Maharyah Ha-Levi 2:111; Avraham Dov Baer Shapiro, D'var Avraham 1:1; Israel Landau, Beit Yisroel, no. 172; Yitzhak Blau, Piskei Choshen, Dinei Halva'ah, ch. 2, halakhah 29 n.82. For example, Yosef Iggeret, Divrei Yosef states, One cannot cast doubt upon the validity of this custom on the basis that it became established through a decree of the King that required people to so act. Since people always act this way, even though they do so only because of the King's decree, we still properly say that everyone who does business without specifying otherwise does business according to the custom. Yosef Iggeret, Divrei Yosef, no. 21.

279 See Asher ben Yeheil, Responsa of the Rosh 13:20; Maharam Me'Rutenberg, in Mordechai, on Babylonian Talmud, Shabbat 472; Shlomo Luria, Maharshal 36; see also Jacob Lorberbaum, Netivot; Biurim on Shulhan Arukh, Hoshen Mishpat 201:1 (appearing to agree).

280 Jewish law distinguishes between different categories of things "that do not yet exist." Perhaps the greatest dispute concerns a person's ability to agree to sell property that exists but that he does not possess. The origin of this controversy is found in a difference of opinion between the Sages (a term used to refer collectively to a number of rabbis) and Rabbi Meir regarding the case of a man who attempts to take all the legal steps necessary to marry a woman at a time before it is legally permissible for them to be wed. "Suppose a man says to a woman, 'Be wedded to me after . . . your husband dies.' . . . [Then the woman's husband dies. The Sages rule:] she is not wed. Rabbi Meir rules: she is wed." Babylonian Talmud, Kiddushin 63a. According to Jewish law, the formation of a Jewish marriage requires a man to acquire ownership interests in his intended and the woman to agree to transfer herself to him. Consequently, the Talmud interprets the debate between the Sages and Rabbi Meir as founded on the basic issue as to whether a person has the power to effectuate a deal involving property not yet in existence or not yet in his possession. The Talmud applies and extends this argument to the sale of a field that the seller has not yet acquired, to "what my trap shall ensnare," to "what I shall inherit," and to the fruit that will grow on a particular tree in the future. See Babylonian Talmud, Bava Metzia 16b, 33b. In each of these cases, the Sages rule that the agreement is not legally effective or binding.

281 Shlomo ben Aderet, Teshuvot Ha-Rashba, 1:546.

282 See Menashe Klein, Mishnah Halakhot 6:277.

283 Rabbenu Yeheil is cited in Mordekhai, on Babylonian Talmud, Shabbat 472. A similar approach can be found in David ibn Zimra, Radvaz 1:278 and is accepted as correct by Aryeh Leib HaKohen Heller, Kitzot Ha-Hoshen on Shulhan Arukh, Hoshen Mishpat 201:1.

284 Rabbi Joseph Karo is known as "the Author" (ha-Mehaber) because of his authorship of the Shulhan Arukh.

285 See Shulhan Arukh, Hoshen Mishpat 369:6, 11.

286 See id. Rabbi Moses Isserles is known as the "Rama."

287 See Shabtai HaKohen (Shakh) on Shulhan Arukh, Hoshen Mishpat 73:39. For example, according to Shakh, secular law can require that one return lost property in a case where Jewish law permits but does not mandate that it be returned. However, secular law cannot permit one to keep a lost object that Jewish law requires to be returned.

288 See Yaakov Breish, Helkat Yaakov 3:160; Shmuel Shilo, Dina De'Malkhuta Dina 145-60 (1974) (listing authorities adopting either the approach of Shakh or Mehaber).

289 This was the approach of Moshe Feinstein. See Moshe Feinstein, Iggerot Moshe, Hoshen Mishpat 2:62; Yosef Eliyahu Henkin, Teshuvot Ibra 2:176; see also Shilo, supra note 288, at 157 (asserting that most Jewish law authorities adopt the Rama's view and listing many of these authorities). A contemporary rabbi, Menashe Klein, questions whether dina de'malkhuta dina applies in the United States. He states, [The applicability of the principle of] dina de'malkhuta dina in our times, when there is no king but rather what is called democracy needs further clarification. As I already explained the position cited in the name of Rivash quoting Rashba, one does not accept dina de'malkhuta dina except where the law originates with the king. But in a case where the law originates in courts, and the judges have discretion to rule as they think proper, or to invent new laws as they see proper, there is no dina de'malkhuta dina, as there is no law of the king. . . . This is even more true since we have here [in the United States] an institution called a "jury" where the government takes drunks from the market who have never studied law and who establish the law based on a majority vote. Indeed, even the government sometimes creates law and the Supreme Court contradicts it. Certainly in such a system there is no dina de'malkhuta dina according to Rivash and Rashba. Menashe Klein, Mishnah Halakhot 6:227. Despite Klein's views, it is important to note that most authorities have held that dina de'malkhuta dina does not apply only to laws issued by a king. See id. Moreover, a number of preeminent Jewish law authorities have specifically held that dina de'malkhuta dina applies within the United States and have not found any problems caused by the democratic form of government, the judiciary, the jury system, or the possibility of judicial review. See Moshe Feinstein, Iggerot Moshe, Hoshen Mishpat 2:62; Yosef Eliyahu Henkin, Teshuvot Ibra 2:176. Indeed, once one acknowledges that dina de'malkhuta dina applies to non- monarchical governments, it is unclear why these other factors would, as a general matter, be problematic as a matter of Jewish law. For example, juries (and sometimes judges) perform a fact-finding role that is a necessary element in the application of law. A Noahide system of law could surely invest juries (and judges) with this responsibility without impairing the legitimacy of dina de'malkhuta dina. At least as to civil law, where there is no formal notion of jury nullification, juries are not supposed to create law. Nor is there any apparent Jewish law deficiency in the secular system for interpreting the law. Even if a king were to promulgate written laws, he would undoubtedly delegate the daily responsibility of judging cases to others, and such judges would have to interpret the law. An argument might be made that in the American system, a jury is sometimes required not only to find facts but to make decisions regarding "mixed questions of law and fact." Although a comprehensive analysis of the jury function is beyond the scope of this Article, the question of jury interpretation is also not significant as a matter of Jewish law. A secular system must delegate the interpretative function to someone, and it is not fatal under Jewish law even if the secular system were to delegate some aspect of this function to juries. Although Rabbi Klein obviously questions the jurors' ability to make any reasonable decisions, he has not demonstrated that this criticism is significant under Jewish law. In any event, even if there were some irregularity in the secular procedure for applying the law, and even if this would deny Jewish law validity to the outcome of a secular case, it would not prevent dina de'malkhuta dina from rendering the substantive rules of secular law valid as a matter of Jewish law. For example, disputes between Jews, even when dina de'malkhuta dina applies, are supposed to be litigated in Jewish courts that would decide the dispute in accordance with secular law rules. In such instances, the Jewish courts themselves would serve as the fact- finders. Judges are also required to determine whether legislative acts are consistent with legally superseding documents such as treaties, constitutions, or even certain other legislative acts. There seems to be no reason why a secular legal system division of power between legislative and judicial branches should impair dina de'malkhuta dina.

290 See Aryeh Leib HaKohen Heller, Kitzot Ha-Hoshen; Jacob Lorberbaum, Netivot on Shulhan Arukh, Hoshen Mishpat 201:1.

291 See Moshe Feinstein, Iggerot Moshe, Even Ha-Ezer 1:104, 105; Shlomo Shwadron, Maharsham 224; Yaakov Ettlinger, Binyan Tziyon 24; Ezekiel Ledvalla, Sefer Ikkarei Ha-Dat, Orah Hayyim 21; Aaron Parchi, Perah Mateh Aharon 1:60. Isaac Herzog also maintains that these wills are at least post facto valid. See Isaac Herzog, Techukah Le-Yisrael Al Pi Ha-Torah vol. 2, ch. 5 (1989).

292 Situmta is the Talmudic term for a secular convention of the transfer of title that is incorporated into Jewish law by common commercial practice. For more on situmta, see Shulhan Arukh, Hoshen Mishpat 201, Aryeh Leib HaKohen Heller, Kitzot Ha-Hoshen, and Jacob Lorberbaum, Netivot who discuss whether this is a Biblical or rabbinic form of acquisition. See also Principles of Jewish Law, supra note 272, cols. 916-20.

293 See Aryeh Grossnass, Lev Aryeh 1:53; Isadore Grunfeld, The Jewish Law of Inheritance (1987); Feivel Cohen, Kuntres Midor L'dor: Laws of the Torah Relating to the Writing of a Will and the Distribution of One's Estate (1982). Of course, the textual discussion does not address the appropriateness of bequeathing one's assets to people who are not the proper heirs according to Jewish law. Even if such a transfer is post facto valid, halakhah may deem the transfer to be unethical. Indeed, Jewish law authorities disagree as to how much of a person's assets should be left to individuals other than the heirs prescribed by Jewish law. While some believe that only a de minimus amount should be distributed in this way, others are considerably more lenient. See generally Ezra Batzri, Dinei Mamonot 3:140-98; Judah Dick, Jewish Law and the Conventional Last Will and Testament, 2 J. Halacha & Contemp. Soc'y 5 (1982); Rabbi Hershel Schachter, Letter to the Editor, 29 Tradition no. 1 (1995); Arthur M. Silver, May One Disinherit Family in Favor of Charity?, 28 Tradition no. 3, 79 (1994).

294 Interestingly, there are currently individuals who state that they believe themselves to be obligated to observe the Noahide Code. Indeed, some Noahide communities exist. See Ex-Christians Drawn to Noah's Law, San Jose Mercury News, January 26, 1991, at 11D. In part, the article states, Some are former Christian clergymen who no longer consider themselves Christians. They use many Jewish practices, but don't convert to Judaism. About 250 of them met in Athens, Tenn., recently, reports Ecumenical Press Service. James D. Tabor, member of an advisory council, says members tend to be "disenfranchised former Christians" who "do not denounce belief in Jesus" but that "most they would say is that he was a great teacher." Tabor says members want to identify with the "ethical monotheism" of Judaism without converting to it. He says that they uphold the "laws of Noah," such as those against idolatry, blasphemy, bloodshed, sexual sins and theft. Id. Such communities seek rabbinic guidance. See Dan George, Tennessee Church Studies Judaism, Sun-Sentinel, May 31, 1991, at 5E (discussing involvement of local Orthodox rabbi). At the time this Article was written, there was at least one site on the world wide web dedicated to Noahide law.

295 See Moshe Feinstein, Iggerot Moshe, Hoshen Mishpat 2:62; see also Broyde, supra note 16, at 83-99. It is true that Moshe Isserles, in Responsa of Rama 10, and, Moshe Sofer, in Hatam Sofer, Likutim 14, believe that Nahmanides (commenting on Genesis 34:13) interprets the Noahide commandment regarding laws (dinim) as incorporating Jewish commercial rules into the Noahide Code. Nevertheless, an overwhelming number of authorities believe that the Noahide commandment provides non- Jews with the flexibility to adopt different commercial laws. See, e.g., Rambam, Mishnah Torah, Melachim 10:10; commentary of Abraham Isaiah Karelitz, Chazon Ish ad loc; Issser Zalman Meltzer, Even Ha-Azel Hovel U-Mazek 8:5; Yom Tov Ishbili, Teshuvot Ha-Ritva, no. 14 (quoted by Beit Yosef on Tur, Hoshen Mishpat 66:18); Tosafot, Babylonian Talmud, Eruvin 62a (s.v. "ben Noah"); Yeheil Mekheil Epstein, Arukh Ha- Shulhan He-Atid, Melahim 79:15; Naftali Tzvi Berlin, He-Amek She'alah 2:3; Abraham Isaac Kook, Etz Hadar 38, 184; Zvi Pesah Frank, Har Tzvi Orah Hayyim, vol. II, Kuntres Milei di-Berakhot 2:1; Ovadiah Yosef, Yehaveh Daat 4:65; Yitzhak Yaakov Weiss, Minhat Yitzhak 4:52:3. For a more complete analysis of this issue see Nahum Rakover, Jewish Law and the Noahide Obligation to Preserve Social Order, 12 Cardozo L. Rev. 1073, app. I & II at 1098-1118 (1991).

296 Secular rules enacted pursuant to the Noahide Code may be enforceable by a Jewish litigant against another Jewish litigant, but only if the latter has no substantial connection to Jewish law and would not wish to be governed by Jewish law. Thus, Sternbuch, in Teshuvot Ve-Hanhagot, vol. 1, no. 795 (rev. ed.), suggests the possibility that a litigant, who does not generally observe Jewish law and who would not adhere to Jewish financial law when it would be to his detriment, may not be entitled to insist on Jewish law's rules when they would inure to his benefit. In some areas of law, a non-observant Jew has the same status as a Gentile. Sternbuch states that it is not clear whether this rule applies to commercial transactions in which it would operate to the non-observant Jew's detriment. For more on this issue see Yehudah Amihai, A Gentile Who Summons a Jew to Beit Din, Tehumin 12:259-265 (1991). Thus, even authorities who would not ordinarily apply dina de'malkhuta dina to enforce secular law against religiously observant Jews enforce secular law against non-observant Jews.

297 For example, the sale might be void or voidable as violative of the Jewish law prohibition against price gouging. See Aaron Levine, Free Enterprise and Jewish Law 99-110 (1992).

298 An example illustrates the significance of this issue. Assume that corporation A's shareholders are not Jewish. Assume further that corporation A's director is, under applicable secular corporate law, authorized to sell certain corporate property. Nevertheless, shareholders holding fifty-four percent of the corporate stock have contacted the director and told him that they do not want him to sell the property. May a Jew purchase the property and, under Jewish law, acquire ownership thereby? If secular corporation law is valid as an exercise of Noahide law, the answer is yes.

299 See Moshe Sternbuch, Moadim Uzmanim 3:269.

300 This, of course, assumes that the shareholders have not wrongfully siphoned off the corporation's assets. See, e.g., Menashe Klein, Mishnah Halahot 6:277. In addition, some commentators may be reluctant to provide limited liability for close corporations. For example, in discussing the leniency of allowing a borrower to pay interest to a corporation based on the fact that the corporation has limited liability, Rabbi Blau states, In addition, it seems that even those who rule leniently do so only with respect to public corporations where the loan proceeds are invested in the name of the company. But as to private companies (as is common today where a husband and wife or a father and son establish a company for income tax purposes and they own all of the stock), I am unsure if it is possible to include them in this leniency. For if you would do so, even a private individual might file bankruptcy and, according to secular law, even if he subsequently acquires assets, he would not have to pay his debts. Yaakov Blau, Brit Yehuda 7:25 (66).

301 See Menashe Klein, Mishnah Halakhot 6:277; Moshe Sternbuch, Moadim Uzmanim 3:269 n.1; Ezra Batzri, Dinei Mamanot, vol. 3, at 315.

302 See id; see also Moshe Feinstein, Iggerot Moshe, Hoshen Mishpat 1:72.

303 See Yitzhak Blau, Brit Yehuda 7:25-26; Yitzhak Blau, Pitkhei Hoshen, Shutfut 1:76.

304 See Yitzhak Yaakov Weiss, Minhat Yitzhak 3:1; Moshe Sternbuch, Moadim Uzmanim 3:269; Saul Weingart, Corporations and Chametz, in Yad Shaul (1954) (written in 1938). Many authorities disagree over whether the limited liability principle avoids the prohibition against the charging or paying of interest on loans involving corporations in which Jews own stock. Virtually all of the authorities at least implicitly assume that there is such limited liability. The debate focuses only on the effect limited liability has on the prohibition against charging or paying interest.

305 Of course, even some tort victims, such as those who assert claims for injuries arising out of product defects, might be considered to have voluntarily entered into transactions with the corporation.

306 But see Moshe Feinstein, Iggerot Moshe, Hoshen Mishpat 2:62 (suggesting that dina de'malkhuta dina does not apply to damages caused by one's animals as well as to certain other types of laws).

307 See, e.g., Van Dam Egg Co. v. Allendale Farms, Inc., 489 A.2d 1209 (N.J. Super. Ct. App. Div. 1985) (holding that sole shareholder and president of corporation could be personally liable for inducing supplier to deliver on credit by purposefully misrepresenting corporation's ability to pay for the goods). See generally Fletcher, supra note 40, 11.35 (Supp. 1996) (describing rules regarding personal liability of corporate officers, directors, and agents for torts they committed or in which they participated).

308 Where the act to be performed by a purported agent would violate Jewish law, the primary explanation for the fact that the principal is not liable is a Talmudic dictum to the effect that if the Master's words (the words of the Almighty) contradict a pupil's words (the words of a mere mortal, in this case the supposed principal), the Master's words should be heeded. See Babylonian Talmud, Kiddushin 42b; see also Yeheil Mekheil Epstein, Arukh HaShulhan, Hoshen Mishpat 182:9-13. Consequently, no purported agent is deemed to be acting for the pupil, the supposed principal, in violation of Jewish law. Instead, the purported agent is deemed to be acting for himself. Because of this logic, the agency is valid where the agent did not realize that the action violated Jewish law or where the agent was forced to comply with the principal's directions. See generally Israel Herbert Levinthal, The Jewish Law of Agency, in Studies in Jewish Jurisprudence 51-58 (Edward M. Gersheld ed., 1971). Similarly, Jewish law provides that if an agent acts negligently, the principal is not responsible because he can assert, "I only appointed you to act for my benefit and not for my harm." See Shulhan Arukh, Hoshen Mishpat 182:3; Yeheil Mekheil Epstein, Arukh HaShulhan, Hoshen Mishpat 182:17. See generally Steven F. Friedell, Some Observations on the Talmudic Law of Torts, 15 Rutgers L.J. 897 (1984); Hayyim S. Hefetz, Vicarious Liability in Jewish Law, 6 Dine Israel 49 (1975).

309 Of course, it is theoretically possible to justify the incorporation of vicarious tort liability on a basis that would not necessarily warrant assumption of the limited liability rule.

310 Perhaps a more interesting question would involve the seepage of a corporation's property, such as toxic wastes, onto adjacent land or into adjacent water supplies.

311 However, adding another level of analysis, one might argue that the reasons why a court pierces the corporate veil may be relevant. See supra note 69 for the relevant standards. Creditors' expectations may depend on the fact that they are dealing with a corporation. If a court pierces the corporate veil because the corporation did not conduct itself as a corporation, the creditors' expectations were arguably based on a misunderstanding of the reality and, therefore, should not be used to limit their ability to recover from the shareholders personally.

312 See Piskei Din Rabanayim, supra note 17, 3:354.

313 See id. The court's position as to the halakhic entity approach is unclear. Had the court adopted the halakhic entity rule, it might have explained that the corporation became personally liable for its debts, and that the right to sue it and collect from its property was not at all in the nature of collateral (a mashkhon) for the debts of the shareholders. Indeed, according to the halakhic entity approach, the shareholders, as shareholders, are simply not part of any transaction between the corporation and corporate creditors. However, even if the court were inclined to support the halakhic entity rule, it might have thought the concept of personal liability, according to the Rosh a sine qua non to create a lien on property, was simply inapplicable to a halakhic entity-that it was meaningless to talk about the personal liability of a corporation. But see Ezra Batzri, Dinei Mamonot, vol. 3, at 316 (arguing that this Israeli Rabbinical Court apparently did not believe that the corporate entity theory was part of indigenous Jewish law).

314 See Piskei Din Rabanayim, supra note 17, 3:354.

316 Asher ben Yeheil, Babylonian Talmud, Kiddushin 1:10.

317 See Piskei Din Rabanayim, supra note 17, 3:354.

318 See id.

319 As discussed above, Shakh would apparently not agree that dina de'malkhuta dina could introduce a commercial rule inconsistent with halakhah. Perhaps, the Shakh would not impose the same limits on the principle of minhag hasohrim. Alternatively, Shakh may disagree with Rosh and construe the Talmudic passage in accordance with the views of Ramban and Rashba.

320 See the comment on Babylonian Talmud, Kiddushin 8a.

321 See Shulhan Arukh, Even Ha-Ezer 29:6; comment of Moshe Breish, Helkat Mehohek; comment of Shmuel M-Purdah, Beit Shmuel; comment of David HaLevi, Taz ad loc. This is also endorsed by Beit Yosef, commenting on Tur, Even Ha'ezer 29. Aryeh Leib HaKohen Heller, Avnei Meluim seems to accept this approach, too. See commentary on Shulhan Arukh, Even Ha-Ezer 29:10.

322 See Moshe Sternbuch, Moadim Uzmanim 3:269 n.1.

323 Sternbuch does not clarify whether the essential part of a corporation's shareholders is based on the percentage of investors who are Jewish or on the percentage of shares owned by Jews. Nor does he provide guidance as to how to approach this question when there are different classes of shares.

324 See Moshe Sternbuch, Moadim Uzmanim 3:269 n.1. The validity of the limited liability condition against third parties is discussed supra Part V.A.2.b.iv.

325 See Moshe Sternbuch, Moadim Uzmanim 3:269 n.1. It is unclear whether Sternbuch would contend that Jewish law would infer such agreement if some of the Jewish shareholders were not religiously observant and would not ordinarily want to be bound by Jewish law.

326 Sternbuch does not identify what these differences are. He states, If a company of Gentiles or of a majority of Gentiles issues stock, they [the Gentiles] intend to act only in accordance with the secular law, to create an entity whose name is "company" and who will be the sole owner as we explained before[,] and it is not possible to force them [the Gentiles] to other transfers even if there is not much of a practical difference. Moshe Sternbuch, Moadim Uzmanim 3:269 n.1.

327 See id. Weiss argues that Sternbuch is inconsistent. Weiss reasons that if Jewish law would treat a corporation as a partnership when the shareholders are all Jews, then it would treat it that way even if most of the shareholders are not Jews. See Yitzhak Yaakov Weiss, Minhat Yitzhak 3:1. One might question Sternbuch's approach from the opposite direction as well. If non-Jewish investors are entitled to be treated as corporate shareholders when they constitute the essential part of the shareholders, exactly why do these non-Jews lack this right, according to Sternbuch, when they do not constitute the essential part of the shareholders? Moreover, Sternbuch is not explicit as to how the rule applies when there is a shift, such that Jews or non-Jews initially constituted the essential part of the body of shareholders but no longer do so.

328 Moshe Sternbuch, Moadim Uzmanim 3:269 n.1. Sternbuch refers to the corporation's menahalim.

329 See id.

330 See id. Interestingly, although most authorities agree that corporate shareholders would have limited liability for corporate debts, Sternbuch's analysis results in corporate managers being personally liable for debts they never thought they were incurring.

331 This seems to be the case because it allows for the explanation set forth in the text. Sternbuch himself provides no indication as to whom he means when he uses the word "menahalim."

332 Taz, in his commentary to Shulhan Arukh, Yoreh Deah 150, makes a similar argument. The Taz deals with a case in which A, B, and C are Jews. A, thinking that B is his agent, gives money to B so that B can deliver the money to C, thereby consummating a loan from A to C pursuant to which C has agreed to pay interest (ribit). In fact, however, Jewish law does not allow B to serve as A's agent for the purpose of consummating the loan from A to C because such a loan, involving ribit, would violate Jewish law. Consequently, the Taz says that under Jewish law, when A handed the money to B, A made a loan to B even though neither A nor B intended such a loan. As Jewish law prevents B from having taken the money as A's agent, B must be treated as if he took the money for himself.

333 If the limited liability rule applied, there are Jewish law authorities who would argue that there would be no prohibition on the charging of interest on loans. However, if, as Sternbuch suggests, it is a loan from the Jewish investor to the corporate managers and the corporate managers would not be entitled to limited liability, the question of charging interest is certainly relevant.

334 Rabbinic rules regarding the charging and paying of interest are too complex to consider in depth in this Article. See generally Yisrdel Reisman, The Laws of Ribbis (1995); Yeheil Grunhaus, The Laws of Usury and Their Significance in Our Times, 2 J. Halacha & Contemp. Soc'y 48-59 (1982). Cf. Resnicoff, supra note 2.

335 For instance, assume that a predominant portion of the shareholders are non-Jews. Even Sternbuch seems to assume that in such a situation the non-Jews, as to themselves, have the ability to create a corporate entity. This seems implicitly to be based on the rules regarding Noahide laws. See supra Part V.A.2.b.iii.(b).

336 Approval of the halakhic entity theory in this context could be a result of both construing the Noahide laws as capable of creating rights and relationships that could not exist under Jewish law and transferring such rights and relationships to Jewish purchasers.

337 See Yitzhak Yaakov Weiss, Minhat Yitzhak 7:26, 3:1.

338 See id. Query how Weiss would characterize the status of a person who owns voting stock but who, because of a control share acquisition statute described in Part III.C supra, is not entitled to vote such shares for a number of years.

339 Weiss says that this is the view of Ettinger (citing his responsum 2:124), Rabbi Moshe Shick, and Rabbi Hanoh Dov Padua. See Yitzhak Yaakov Weiss, Minhat Yitzhak 7:26.

340 Interestingly, Weiss seems to cite Ettinger as one of those who thinks that a corporation is never a partnership. Although Ettinger does not discuss whether the Jewish shareholders in the cases before him had any voting rights, it seems that Weiss assumes that they did. Otherwise, Weiss could have argued that Ettinger could have agreed with him.

341 See Moshe Sternbuch, Moadim Uzmanim 3:269; Israeli Rabbinical Court, Piskei Din Rabanayim, supra note 17, 10:273; Hanoh Dov Padua, Kheishev Ha-Ephod 2:52.

342 See Yitzhak Yaakov Weiss, Minhat Yitzhak 7:26 (citing Isaac Aaron Ettinger, Maharyah Ha-Levi 2:124).

343 See Isaac Aaron Ettinger, Maharyah Ha-Levi 2:124.

344 See id.

345 See id.

346 See id.

347 According to this interpretation, when Ettinger says the case is "like" that of a Jew who is financially responsible for the dough of a Gentile in the possession of the non-Jew, what does he mean? He might mean that it is similar to that situation because, although the corporation is not a "Gentile," it is a Jewish law entity, and it is not a Jew.

348 According to this approach, when Ettinger says that the case is "like" that of a Jew who is financially responsible for a non-Jew's dough in the possession of the non-Jew, he is comparing the two situations qualitatively and not equating them.

349 See Moshe Feinstein, Iggerot Moshe, Hoshen Mishpat 2:15; Orah Hayyim 1:90, 4:54.

350 This possibility is not equally true with respect to all of his responsa. In one case, Moshe Feinstein, Iggerot Moshe, Hoshen Mishpat 2:15, he states that a corporation is not "a new creation by itself," as was suggested in Darkhei Teshuva 160:15. But Darkhei Teshuva seems to be dealing with large corporations and not small, close corporations.

351 If Feinstein is referring to a public company, it is unlikely that the original investors retain an actual majority of stock. Because of the proxy system and the diffusion of stock ownership among countless people who do not know each other and who, in many cases, have relatively minor holdings, much less than an absolute majority of stock is required to control the corporation.

352 Moshe Feinstein, Iggerot Moshe, Even Ha-Ezer 1:7.

353 See id.

354 Shulhan Arukh, Hoshen Mishpat 209:1-3.

355 See Yitzhak Yaakov Weiss, Minhat Yitzhak 7:126. Weiss states that according to Ettinger, the Jewish shareholders made a loan. Weiss does not say to whom the loan was made and whether such a loan would raise questions regarding the charging or collecting of interest.

356 See supra text accompanying notes 349-52.

357 Moshe Feinstein, Iggerot Moshe, Even Ha-Ezer 1:7.

358 Id.

359 Rabbi Lintz reports views expressed by Rabbis David and Reuven Feinstein, sons of Rabbi Moshe Feinstein. Lintz does not assert that David and Reuven Feinstein are explaining their father's perspective. It is interesting to note that David and Reuven Feinstein may disagree about the very factors discussed in the accompanying text. While David Feinstein seems to suggest that some threshold amount of potential control is enough to cause someone to be an owner, Reuven Feinstein seems to argue that potential control may be insufficient if the shareholder has no interest in exercising it. When asked . . . [about whether a partner or corporate shareholder violates the prohibition against dealing in non-kosher foods if the partnership or corporation deals in such foods,] David Feinstein posited that the determining factor is whether or not the investor is involved in the running of the business. He made no distinction between the various investment structures such as partnerships, limited partnerships, or corporate stock. According to . . . [David] Feinstein, if an investor owns a substantial enough amount of stock of a corporation to involve himself in the voting or management of the company, even if he is a minority shareholder, he is subject to the prohibition of trading in non-kosher products. He added that the same criteria apply to determining whether a stockholder may retain his ownership of a company which owns chametz on Pesach . . . . . . . Reuven Feinstein added that in his view the intention of the stockholder is a determining factor in the question. If, for instance, a shareholder with only one share intends to get involved in dictating policy of the company by speaking at shareholder meetings or contacting other shareholders, then even that limited amount of ownership would be prohibited. On the other hand, if a person's intention is just to profit from short term market moves, then even a large block purchase would be permissible . . . . [Reuven] Feinstein said it was questionable whether a small percentage of a company which is intended to be held for a long

360 Even in the preceding case discussed in the text, in which a few shareholders owned significant percentages of corporate stock and were considered partners who owned interests in the corporate assets, it is unclear how their respective proportional interests would be determined.

361 The numbers used in the example are selected arbitrarily. If Feinstein were to restrict his position to companies with more shares and shareholders, the numbers could be adapted. The theoretical problem remains the same.

362 Feinstein might believe that it is possible even for someone who purchases a single share to acquire a small ownership interest in the corporate property if he intends to make the acquisition. Nonetheless, at the very least, Feinstein implicitly suggests that when someone makes a small investment, we assume that his only intent was to buy a right to the corporation's profits.

363 A similar question could be asked about a person who acquires a significant percentage of corporate shares but who does so in small increments. If, when making initial acquisitions, the person did not intend to acquire a role in corporate governance, Feinstein presumably would not have considered him an owner at that time. When he finally acquires enough shares to influence corporate conduct, does he suddenly become an owner of corporate property, and if so, what degree of an ownership interest does he acquire?

364 It is the emphasis on who owns "legal title" that seems to have led some of those who reject the halakhic entity theory to adopt the halakhic partnership approach. See, e.g., Menashe Klein, Mishnah Halakhot 6:277. Contemporary halakhic authority J. David Bleich also argues that whoever possesses "legal title" to property is the property's owner. Letter from J. David Bleich, Professor of Law at Cardozo School of Law and Rosh Yeshiva at Yeshiva University to Steven H. Resnicoff, Professor of Law at DePaul University (on file with the authors).

365 Rabbi Moshe Heinemann suggests that this is Feinstein's position. See written notations on an earlier draft of this Article by Rabbi Moshe Heinemann, Rosh Yeshiva at Baltimore's Ner Israel Rabbinical (on file with the authors). .

366 Without relevant discussion between the parties, it is difficult to discern precisely what creates this option. Secular law certainly does not recognize that sales of stock involve such options.

367 See Shimon Greenfeld, Maharshag 5; Moshe Feinstein, Iggerot Moshe, Yoreh Deah 2:62-63; see also Broyde, supra note 16, at 115-19.

368 See generally Lintz, supra note 359.

369 Shlomo Kluger, Ha-Alef Lekhah Shlomo, Orah Hayyim, no. 238. It is not clear from this responsum whether shareholders had absolutely no voting rights or whether they had voting rights, but as a practical matter, these rights did not afford shareholders any meaningful ability to control the corporation's conduct.

370 See Hanoh Dov Padua, Heishev Ha-Ephod 2:52.

371 See David Tzvi Hoffman, Melamed Lehoil 1:91.

372 See id.

373 See Ezra Batzri, Dinei Mamanot, vol. 2, at 314-21.

374 See generally J.E. Penner, The "Bundle of Rights" Picture of Property, 43 UCLA L. Rev. 711 (1996).

375 See Ezra Batzri, Dinei Mamanot, vol. 2, at 314-21.

376 See id.

378 See supra note 69.

379 See supra Part V.A.2.b.ii.

380 However, as noted in Part V.C, it is unclear what Feinstein's position would be if a particular shareholder had acquired his shares by inheritance from a shareholder who Feinstein would have considered an owner of an interest in corporate property.

381 Of course, Weiss does not explicitly state whether his analysis would change if the nonvoting shareholder had the right to convert his shares to voting shares. It is possible that until and unless the nonvoting shares were converted, Weiss would still consider the shareholder to be a creditor, just as he presumably regards those who purchase convertible bonds from a corporation.

382 Because it is not realistic to believe that all of the shareholders of a public corporation are Jews, Sternbuch would follow his halakhic creditor approach and maintain that the Jewish shareholders had merely loaned money to the corporate managers.

383 See Menashe Klein, Mishnah Halakhot 6:277. For example, to the extent that the corporation pays interest on money it borrows from Jews, the limited liability doctrine would, according to some authorities, avoid the ban against taking interest. See supra note 300.

384 The difficulty in applying Feinstein's approach is that it departs from formal notions of possession of title and emphasizes substance. Nevertheless, he does not articulate rules for evaluating the substance of particular cases.

385 As noted in Part V.C, Feinstein's position is unclear as to someone who inherited shares from a voting shareholder who had influence in corporate government.

386 As discussed in Part V.C, it is unclear how Feinstein would rule in the case of a shareholder with a significant percentage of voting shares if these shares were purchased from shareholders who did not have an ownership interest in the corporation's property.

387 See Piskei Din Rabanayim, supra note 17, 10:273, 7.

388 See id.

389 If this lending activity were not within the parameter of permitted corporate activities, the loans would be considered ultra vires. Because such conduct is not permitted, secular law might regard the loans as having been made by the baker personally. If the halakhic entity theory agrees with this characterization, then despite the Jewish law entity theory, the baker would be liable under Jewish law for violating the prohibition against charging or paying interest.

390 See Yitzhak Yaakov Weiss, Minhat Yitzhak 3:1.

391 See Regensberg, supra note 191.

392 See Yitzhak Yaakov Weiss, Minhat Yitzhak 3:1.

393 See Part V.A.

394 A leitmotif is whether, and in what way, this Article can contribute to the Jewish law process.

395 Moreover, the sanhedrin was empowered to promulgate decrees that could alter rabbinic law. As the Israeli Rabbinic Court and others believe, such decrees might have been able to recognize corporations as distinct halakhic entities. In today's world, there are few, if any, rabbinic leaders who enjoy unquestioned authority to issue binding decrees on any wide scale basis.

396 The authors hope that the analysis and information provided by this Article may modestly assist Jewish law authorities in reaching a greater consensus as to the halakhic status of Jewish shareholders.

397 For a discussion of some of the rules pursuant to which various independent grounds can be combined to permit a lenient ruling see Shulhan Arukh, Yoreh Deah 110.

398 See David Tzvi Hoffmann, Melamed Lehoil 1:91. This responsum recounts that Rabbi Hildesheimer and his students engaged in an intricate discussion of this issue in the Berlin Beit Midrash and developed these many different rationales.