Bava Metzia 68 - Joint Venture Avoids Interest Prohibition


Originally the financier supplied the capital, and the managing partner conducted the business. They would share equally in the profits. If the venture failed, the financier would sustain the loss.
Since financiers were not eager, the Rabbis enacted that the managing partner sustain a share of the losses, corresponding to his share of the profits. Now half of the capital is essentially loaned to the managing partner, since he is responsible to return it intact. Thus the managing partner receives profit from his half of the capital and manages the financier’s half for free. This free service constitutes interest, so the managing partner must also receive wages.