Qitzur Shulchan Arukh – 66:1
If someone gives his friend money as an investment, such that the profits will be divided in halves [between them] and the losses will also be upon them equally,this is called an iska [a business agreement], and is prohibited.
[The reason is] because half of the money is [effectively] a loan held by the recipient, because he is responsible for it — he gets [a share of] the profit, and the losses are also his. And the other half is [effectively] a deposit with him, because it is the responsibility of the investor — who gets his profit from this half, and any losses from this half are also his. The recipient, who busies himself and troubles himself with the half [that is a] deposit belonging the investor, it is only because of the half which was given to him as a loan. This is considered as interest and is forbidden.
There is a way to do this permissably: if the investor gives to the recipient payment for the work and effort which he busies himself on his [the investor’s] portion. One set a fixed salary, or should pay him at the same time as giving the money. Even if it’s a small amount, it’s enough.
By the rules we derived from the last siman, the person who loses if the money is lost is it’s owner. So, partners who share profits and loss are each owners of part of the money, according to their percentages of the risk. Therefore, doing business for a partner’s share of the money is benefit to the partner. And if the working partner’s only payment is the profit or loss, then he is giving that benefit in exchange for the loan of money that is his share. Which would be prohibited as ribis.
If he is paid, even a nominal amount, then he is an employee of the backing investor, and doing the work for that pay. The work isn’t tied to the percentage of the capital whose loss would be from his account, and thus permitted.
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