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 Shabbat Parashat Emor| 5766P’ninat MishpatMishpat Ve halacha Be Israel - Part VIII - A Corporation as a Litigant
We continue our series on the guiding principles behind our recently formed beit din.
In the Rules and Procedures of our beit din, par. 9 relates to a corporation as a litigant: “A. The litigants recognize the principle that a corporation has rights and liabilities and can sue or be sued. B. The litigants recognize the principle that corporations have limited liability. Therefore, claims are made in relation to the corporation’s assets, not those of its representatives, who act in its name or of its stockholders, unless beit din decides that the corporation’s director, representatives, or shareholders are personally responsible. C. Within the realm of that which is stated in subsection B, the litigants relinquish any possibility of making claims on assets that are beyond those of the corporations.”
The need for an explicit discussion of a corporation’s status in the arbitration agreement stems from a disagreement among Acharonim on the matter. The main, relevant, legal characteristics of a corporation are as follows. In a corporation, the stockholders are not liable as co-signers or able to be sued due to the affairs of the corporation. Similarly, the shareholders do not have access to the corporation’s assets and do not directly benefit from its profits, except based on an agreed-upon obligation with the corporation or based on the rise in the price of the stocks, which can be sold. Therefore, Israeli and international law view a corporation as an independent legal entity.
The question is how halacha relates to this legal creation, known as a corporation. Are the shareholders considered proportional owners of the corporation’s assets or does halacha view the corporation as an independent, ownerless, legal/financial entity? Most of the halachic discussions deal with religious questions, such as ownership of chametz on Pesach, commerce on Shabbat, and questions of usury. There is, for example, a dispute among Acharonim whether it is permitted to own stock in a company that possesses chametz on Pesach. Those who permit it posit that the stockholder is not an owner of the corporation’s assets (including chametz), whereas those who forbid it view him as an owner, as the corporation is just a fancy partnership. These questions do not necessarily impact on the proceedings of a halachic court case, except in matters of usury.
However, corporate officers may fear that, according to halacha, the corporation may not be viewed as an independent legal entity. They may thus fear that they or other shareholders may be held personally liable to pay from their own assets for the corporation’s liability. To allay such fears, we clarified the matter with the aforementioned, explicit language of the arbitration agreement. Next week we plan to get into more detail on the halachic, monetary standing of the corporation and our arbitration agreement’s dealing with the matter.
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