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Ribit Revisited - A Commercial Conundrum: Does Prudence Permit the Jewish "Permissible Venture?"
Prof. Steven H. Resnicoff


It seems that there is sufficient flexibility within the Jewish and American legal systems to permit Jews to avoid their religious ban on the collection and payment of interest without incurring the significant responsibilities imposed on a partner under secular law.

Certainly, a permissible venture for a non-business purpose should not give rise to a partnership. The relationship simply lacks critical partnership criteria. Moreover, other permissible ventures, if they are properly drafted, should not be treated as partnerships. There is no significant public policy requiring that Financiers be treated as partners. Virtually identical financial goals are satisfied, either through investments in corporate stock or in limited partnerships, without the imposition of personal liability. Indeed, treating permissible ventures as loans will promote tax and usury law policies.

In addition, courts have historically evaluated the substance of a transaction to determine whether a partnership relationship was established. The substance of a permissible venture is same as a loan because the rights and responsibilities of the Financier are much more like those of a lender than of a general partner. The Financier has no control in the business of the partnership; nor does he fully enjoy the business' appreciation. As a practical matter, the Recipient will not share in the profits and losses of the business. Instead, the Recipient will almost undoubtedly receive a fixed schedule of payments, either because it is practically or theoretically impossible to calculate the profits or losses. A fixed return is likely because the Recipient will rarely take steps to keep track of the profits or losses, or , alternatively because the Recipient will be unable or unwilling to take the required oath and/or adduce the prescribed witnesses. Even if there is some151 sharing of profits and losses, this factor alone should be insufficient to cause the relationship to be declared a partnership. Therefore, the better rule would treat a permissible venture as a loan, not as a secular partnership.

Casting the secular aspects of the transaction as a non-recourse loan may make it even easier for a secular court to avoid characterizing the parties' relationship as a partnership. Nevertheless, practical problems, however, including a Financier's possible unwillingness to abandon the broader protection afforded by a permissible venture agreement, may preclude this alternative.

Of course, the substance versus form approach is applied on a case by case basis, exposing a lender to the vagaries of possible litigation. A lender seeking greater assurance that it will not bear personal liability as a partner, might use a formal limited partnership format for its permissible venture arrangements. This choice, however, would not resolve issues concerning applicable regulatory restrictions. Finally, the availability of other alternatives would depend on the Jewish law views of the persons involved.

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