459. Investing in a Business Venture

66:1 If one person gives another money to invest in some business venture with the understanding that the profits or losses will be divided between them, this arrangement – which is called an “iska” – is prohibited. The reason that such an arrangement is not permitted is because half of the money is considered a loan to the businessman since he is responsible for it. It is on this half that the businessman receives his share of the profits or losses. The other half of the money is considered a deposit left with the businessman, the responsibility for which remains with the investor, whose profits or losses come from this half. The one who received the investment does business with the half that is considered a deposit from the investor only because he received the half that is considered a loan. Since the investor receives this additional benefit, it is considered interest and is forbidden. Such an arrangement is permitted if the investor gives the businessman some money as payment for the work that the recipient does with his half of the money. They should fix the amount at the time the money is given; even a small amount suffices for this purpose.

The investor may stipulate that the businessman will not be believed if he claims that he lost money from the investment unless the claim is supported by statements from reliable witnesses. He will likewise not be believed regarding the amount of profit unless he takes an oath.