Answer

Hello A.,
I no longer fully remember the question. This is a question about the prohibition of interest, not about holding shares in companies that violate prohibitions, right?
I have now seen that in the opinion of most halakhic decisors, it is forbidden to buy bonds directly from issuance in a company that does not have a heter iska, unless you sell the bond before you receive the coupons (the guaranteed interest at the end of the term). Even that is open to question, because you still gave an interest-bearing loan, except that in the end you did not actually collect the interest.
I saw that at the Keter Institute they distinguish between buying from issuance and buying on the secondary market (that is, buying from someone who already has bonds). They base this on the fact that in a secondary purchase you can sell before you receive the interest, but that is also true when buying from issuance. Perhaps what they mean is the reasoning I wrote above: that in a purchase from issuance, you gave an interest-bearing loan even if you do not actually collect the interest.
They refer there to volume 6 of their publications, which discusses this at length, and it would be worthwhile for you to try to look there. I have now found a concise article by Rabbi Eishon:
http://www.dintora.org/print_page/articles/390
 
In addition, I found here a list of companies that have a heter iska:
http://www.gilefrati.org/aska/mhiterisk
For government bonds there is more room to be lenient, because perhaps the prohibition of interest does not apply there at all.
 
As I told you, I am very skeptical about applying the prohibition of interest to companies (and I recall halakhic decisors such as Rabbi Asher Weiss who were skeptical about this, and I seem to remember that Rabbi Moshe Feinstein permits lending money at interest to a limited company). Such a prohibition does not make sense conceptually, and in practice it also cannot really be implemented today (the Torah was not given to ministering angels).
 
I am copying for you a summary of the opinions regarding lending at interest to a company (corporation) that I found in a file:

·       The Talmud in tractate Bava Metzia says that a person may, on his own initiative, tell his fellow that he should take a certain sum of money in return for being willing to lend money to a third person. The lender receives repayment of the loan from the borrower, and in addition receives an extra payment from someone else for having agreed to lend to that person. In this way the lender receives extra money because of his loan, and therefore such a case should seemingly be forbidden משום the prohibition of interest. Nevertheless, Rava says that this is permitted, because the Torah forbade only interest that comes from borrower to lender alone, whereas in this case the extra payment comes from another person who is not the borrower, and therefore it is permitted. On the basis of this, the Rashba concludes that not only is it permitted to lend at interest when the interest itself is paid by another person of his own accord, without the borrower’s instruction; rather, by the same principle, it is also permitted to lend at interest when the lender is a consecrated fund for Torah study and the like. Since the lender is not a person but rather a kind of entity in itself, this is permitted, because it does not constitute the forbidden form of interest, as no person is doing the lending. The Rosh, cited by the Rivash, disagrees and holds that they permitted lending at interest to consecrated funds only in the case of rabbinically prohibited interest, just as they permitted lending at rabbinic interest for the needs of orphans, but Torah-level interest remains forbidden. The Rosh therefore understands that this case is indeed somewhat like interest passing from borrower to lender. He says this because it is not comparable to the case discussed by the Talmud, where an entirely different person gave the interest, whereas here the lender receives the interest directly. In addition, the Rashba himself does not accept this ruling in practice, out of concern that on the basis of this rule people would come to permit all forms of forbidden interest. The Shulchan Arukh rules in accordance with the Rosh. The Rema notes that there were those who practiced in accordance with the Rashba and lent Torah-prohibited interest from communal funds, on the understanding that the community has the status of consecrated property and this is not interest from borrower to lender, but he holds that this should be allowed only in a case of great need, since even the Rashba himself did not permit it in actual practice. Based on these words of the Rashba, some later authorities understood that in a loan to a limited company as well there is no rule of interest passing from borrower to lender. This is because a limited company is an independent legal entity, and in the words of the Tzafnat Pa’neach, who adopts this approach, it is form without substance. According to these halakhic authorities, a limited company is not like communal assets, where despite the lack of specifically defined owners, the entire community is the owner; rather, by its very definition, a limited company has no defined owners at all. Therefore they understand that in such a case the Rashba would agree in practical halakhah that it is permitted to lend at interest to such a company, because this is not interest passing from borrower to lender. It follows from this that according to the Rashba and the later authorities who actually maintain that a limited company is a legal entity in the sense recognized by law and therefore the prohibitions of interest do not apply to it, they understand that interest not passing from borrower to lender is permitted because it is considered like a loan to and from a non-Jew, which is permitted. Therefore anyone who is not defined as a Jew is not subject to the prohibition on lending and borrowing at interest. Since, according to these authorities, a limited company is a company without owners, it is permitted to borrow from it and lend to it at interest. The Rosh, however, understands the Talmudic passage differently and holds that it is forbidden to lend at interest to consecrated property, and therefore it would also be forbidden to lend to a limited company. This is because interest that does not pass from borrower to lender is not, in the Rashba’s sense, like interest involving non-Jews, which is permitted, but rather interest that comes only indirectly. Therefore, according to the Rosh, there is no opening to regard public bodies and limited companies as if they were non-Jews for whom and from whom interest-bearing loans are permitted. Chelkat Yaakov agrees in principle with the Tzafnat Pa’neach, that one can indeed accept that a limited company is a legal entity. However, he follows the plain meaning of the Rashba, who held that in practice it is forbidden to lend at interest in this way out of concern that this would become a subterfuge for evading the prohibitions of interest, though the prohibition is only rabbinic. In the responsa Har Tzvi, he too accepts in principle the words of the Tzafnat Pa’neach, but holds that a limited company does not have an independent legal existence disconnected from its shareholders. However, he says that the Tzafnat Pa’neach’s reasoning is correct with respect to government companies, because a large partnership company, no matter how many shareholders it has, is not comparable to the public, which is considered an independent legal personality. Therefore, according to him, although limited companies may not lend and borrow at interest, government companies may do so based on the principle set forth in the Rashba cited above. Rabbinical court rulings state that even if we accept the opinion of the Rosh in practical halakhah, as indeed this view was brought in the Shulchan Arukh as noted above, according to which Torah law has no place for defining an ownerless legal entity, it can still be argued that a limited company should be treated as a legal entity because that is how the law of the land treats it. Therefore, by the principle of the law of the kingdom, a limited company would be considered a legal entity, and it would be permitted to borrow from it and lend to it at interest. In the responsa Minchat Yitzchak it is stated that one cannot rely on the law of the kingdom in this matter, because even the state itself does not completely remove ownership from the shareholders, but only says that their ownership is limited. Therefore, with regard to the prohibitions of interest, this partial ownership does not help to permit interest, because any degree of ownership at all leaves the prohibition of interest in place. However, Minchat Yitzchak innovates that although for purposes of interest the shareholders do have the status of owners, nevertheless if the limited company engages in business involving leavened food on Passover, or with assets through which other transgressions are committed, one may hold shares in that company, provided that the shareholding is so small that those shareholders have absolutely no ability to express any view regarding the company’s affairs. In that situation, holding the shares is in practice only a participation in the company’s profits and losses, and such shares are not considered ownership of assets, but rather something like creditors. It seems that the basis of this novel ruling in Minchat Yitzchak rests on what we explained above regarding a specifically designated collateral asset, according to which the owners of the collateral—the borrowers—are not really its owners, but it remains in their hands only for the purpose of generating profits, and they cannot sell it and the like. Since a limited company is akin to such a specifically designated collateral asset, it follows that regarding the ownership of shareholders as well, when they have no ability whatsoever to make decisions about the company’s conduct, this is comparable to a borrower in the case of such designated collateral, where the asset mortgaged to the lender has in practice left the borrower’s ownership. We therefore find that regarding whether halakhic decisors accept the currently prevailing legal treatment of a limited company as a legal entity, opinions are divided. Therefore it is very difficult to permit the prohibitions of interest in limited companies based solely on the words of those who are lenient. However, according to all these authorities, it is permitted to hold a very small percentage of shares in limited companies, even if those companies trade in leavened food on Passover or are involved in other prohibitions such as Sabbath desecration and the like.
·       Some halakhic decisors refused to accept the legal definition of a limited company as an ownerless legal entity, and therefore forbade lending at interest to such a company, but they tried to find an opening from another direction to permit lending at interest to a limited company. Because of the special nature of such a company, in which there are situations where the company goes bankrupt and the lenders lose their money entirely, it is possible to view the interest in such a case as payment for the risk the lender takes that his money may not return to him. In fact, that is how loans to certain bodies are viewed today, where interest rates are raised because of the risk involved. However, the Talmud, which is ruled as practical halakhah in the Shulchan Arukh and permits collecting extra payment because of existing risk, allows this only where the risk is actually real and present. And indeed, in certain situations, as we said, there are also cases in today’s economy where it would be possible to lend at interest in this way because the risk is common and realistic. But with regard to the interest collected by banks in savings programs, it is very hard to rely on this permission, because the likelihood that a bank in the State of Israel will go bankrupt is not at all reasonable. However, this permission can definitely be used to lend at interest to companies whose financial condition is poor, on the understanding that the interest collected in such cases is payment for the risk that the money will not return to the lenders, and not payment for the waiting time of the money. As we said in the past, when the extra payment to the lender is not for waiting on the money, it is permitted. But as noted, the large credit systems in the economy cannot make use of this permission. It should be added that this solution does not help one borrow money from such companies; it only helps one lend money to them. This is because if one borrows money from them, there is no risk that the money will not come back, since in that case the company in difficult financial circumstances is the lender and the private individual is the borrower, and with him there is no risk that the loan will not be repaid.
·       Igrot Moshe, who also holds that a limited company cannot be defined as a legal entity unto itself so as to permit it to borrow and lend at interest, nevertheless also permits lending money to limited companies. The basis of his permission rests on the understanding that a limited company is, as we said above, like specifically designated collateral. The meaning of this is that in such a company, even if we regard the shareholders as the owners of the company, still they bear no responsibility for repayment of the debt, and when the company’s assets are exhausted and it goes bankrupt, the owners bear no responsibility to repay the debt. According to Igrot Moshe, this is considered a type of loan on which it is permitted to take interest, because in any loan where the borrower has no personal liability for repayment and only his assets—in this case the assets of the limited company—stand behind it, the Torah did not forbid lending at interest. It seems that the basis of Igrot Moshe’s words rests on the passage cited above concerning a person who lends money to priests and stipulates that repayment of the debt will come only from the tithes that grow in his field, which he will take for himself and sell, as cited above. In that passage the Talmud says that even if one lends at interest in such a way, there is no prohibition. Tosafot, as noted above, hold that one cannot derive from that passage, because the significant leniencies stated there were said in order to make it easier for lenders to lend in this way to priests, Levites, and the poor. But the Ritva learns from that passage that one may indeed lend at interest in similar loans. The reason for the permission, according to his understanding of the Talmud, is that since this is a case of specifically designated collateral, and therefore the lender has no right to demand repayment in any other way, it is permitted to lend at interest because the borrower has no personal obligation to repay the debt. One may add and explain his words based on what we said above: since a limited company is defined as specifically designated collateral, which as we explained at length above regarding such a lien on assets is considered as though the borrower transferred the asset to the lender—in our case, the limited company itself—it follows that when the lender receives interest from the limited company, it is considered as though he is not receiving interest from the borrower, but rather profits from his own asset—the specifically designated collateral—the assets of the limited company. This follows from the special status of specifically designated collateral, which is considered to belong to the lender and not merely to be pledged to him. Therefore, although a person lends to a limited company, in practice, since the shareholders and their private assets have no obligation of repayment, the relationship between the lender and the company’s assets changes from that of borrower and lender to that of an equity holder. Therefore all the profits defined as interest are considered the profits of an equity holder in the company, and of course no prohibition of interest applies to them.
We thus learn that the halakhic decisors are indeed divided on whether it is permitted to lend money to a limited company, and there are decisors who forbid it in practical halakhah and do not accept any of the above permissions in practice. However, since the matter is disputed, and many decisors permit lending at interest to a bank and to limited companies, and some even permit borrowing money at interest from limited companies, therefore, together with the heter iska that we studied previously, it seems that one may rely without hesitation on lending at interest to limited companies, even if the heter iska on its own and the permission to lend at interest to a limited company on its own are not sufficient permissions from a halakhic standpoint. In addition, it is even more permissible to borrow and lend at interest with government-controlled companies, regarding which even more decisors are lenient. From this it again emerges that there is a need to legislate laws that would limit the extension of credit and interest-bearing loans to institutional systems such as banks and large credit companies, which by their nature are all limited companies, and some of them are even government-controlled companies. Combined with the heter iska that they have signed, interest-bearing loans with them are halakhically preferable to loans between private individuals. It also appears from this that in the privatization processes common in our day, among the many considerations that are taken into account, one should also include the fact that from a halakhic standpoint it is easier to lend at interest to government companies. So from this perspective alone, one should refrain from privatizing credit-providing businesses and the like. Likewise, it is preferable to trade in government bonds rather than other bonds, where one relies only on the permission based on the company being a limited company. In addition, in light of the major leniencies on which the decisors rely regarding limited companies, every move that expands the number of businesses that are considered limited companies should be encouraged, so that, in addition to heter iska arrangements, the interest-bearing loans that are common in today’s economic marketplace will become more acceptable from a halakhic standpoint.