Fiqh of Trade or Money Matters
Mufti Abu Muhammad Ali Asghar Attari Madani
Required share for a partnership?
Question 1: A few people wish to come together and establish joint ownership of a company. What do the honourable scholars say about the minimum amount of capital that a partner must put into the business in order to establish joint ownership?
بِسْمِ اللّٰہِ الرَّحْمٰنِ الرَّحِیْمِ
اَلْجَوَابُ بِعَوْنِ الْمَلِکِ الْوَھَّابِ اَللّٰھُمَّ ھِدَایَۃَ الْحَقِّ وَالصَّوَابِ
Answer: The question relates to Shirkat al-‘Inaan. In this, it is not necessary for the capital put in by each partner to be the same; there can be an agreed disparity. Hence, any of the partners can invest any amount, as there no is limit stipulated by the Shari’ah.
It states in Bahar-e-Shari’at: ‘The duration can be specified for Shirkat al-‘Inaan. For instance, the partners can agree to be partners for a year. It can also be the case that the capital put in [by the partners] is more or less and not equal,’ (Bahar-e-Shari’at, vol. 2, p. 499; Rad-ul-Muhtar, vol. 6, p. 478).
وَاللہُ اَعْلَمُ عَزَّوَجَلَّ وَ رَسُوْلُہٗ اَعْلَم صلَّی اللہ علیہ واٰلہٖ وسلَّم
Sharing profit and loss
Question 2: An individual registers a company and works hard, preparing products and shipping them. He has invested 10,000 rupees capital into the company, whereas the other partner has invested 90,000 rupees. In this example, what do the honourable scholars say about whether the former [who invested 10,000] can specify 80% of the profit to be his and 20% for his partner or not? And in the case of incurring a loss, how should the loss be shared between them?
بِسْمِ اللّٰہِ الرَّحْمٰنِ الرَّحِیْمِ
اَلْجَوَابُ بِعَوْنِ الْمَلِکِ الْوَھَّابِ اَللّٰھُمَّ ھِدَایَۃَ الْحَقِّ وَالصَّوَابِ
Answer: There is no issue in the Shari’ah in stipulating a greater profit for an ‘Aamil (working partner) compared to the capital he has invested. However, both parties must agree on the weightage that each party will have from the time of forming the partnership.
In the question asked, the partner who has invested 10,000 rupees and is active in running the business can specify a greater share of profit compared to the capital he has put in. For him to specify 80% of the profit for himself is permitted in the Shari’ah, (Rad-ul-Muhtar, vol. 6, p. 479).
However, the principle relating to loss is that it will be divided based on the percentage of one’s capital. It states in Bahar-e-Shari’at: ‘A greater or lesser amount can be specified for profit. For example, one third for one individual, and two thirds for the other. As for loss, this will be shared on the basis of the Raas Al-Maal (capital). To specify contrary to this is Baatil (invalid).’ (Bahar-e-Shari’at, vol. 2, p. 491; Rad-ul-Muhtar, vol. 6, p. 469)
وَاللہُ اَعْلَمُ عَزَّوَجَلَّ وَ رَسُوْلُہٗ اَعْلَم صلَّی اللہ علیہ واٰلہٖ وسلَّم
Minimum and Maximum Periods of Shirkah (partnership)?
Question 3: What do the honourable scholars say about the minimum and maximum durations of Shirkah?
بِسْمِ اللّٰہِ الرَّحْمٰنِ الرَّحِیْمِ
اَلْجَوَابُ بِعَوْنِ الْمَلِکِ الْوَھَّابِ اَللّٰھُمَّ ھِدَایَۃَ الْحَقِّ وَالصَّوَابِ
Answer: There is no limit for the duration of Shirkah. Any duration can be specified by way of mutual consent. (Rad-ul-Muhtar, vol. 6, p. 478)
وَاللہُ اَعْلَمُ عَزَّوَجَلَّ وَ رَسُوْلُہٗ اَعْلَم صلَّی اللہ علیہ واٰلہٖ وسلَّم
Frequency of profit distribution?
Question 4: Someone’s business is run in a way whereby products are sold in a few months and the money is received. This money can then be used to purchase products again on multiple occasions throughout the year and sell them on. In this case, what do the honourable scholars say in relation to the frequency of profit distribution: should the investors be given an agreed percentage of the profits annually, or will they be given profit each time the products are sold?
بِسْمِ اللّٰہِ الرَّحْمٰنِ الرَّحِیْمِ
اَلْجَوَابُ بِعَوْنِ الْمَلِکِ الْوَھَّابِ اَللّٰھُمَّ ھِدَایَۃَ الْحَقِّ وَالصَّوَابِ
Answer: According to the principles of the Shari’ah, after a partnership is formed, whatever purchases are made from that type of trade, they belong to the company formed by joint ownership. For this reason, in relation to the question asked, whenever the goods linked to that trade are purchased, they will be owned jointly. Whatever profit is made by selling them, it will continuously belong to each of the partners according to their specified share. Therefore, when the profit made from buying and selling is worked out, each partner will be given his agreed share of the profit.
As for whether the profits are to be distributed after each deal, annually or at any time, this is an organisational matter that both parties can mutually decide.
It is stated in Bahar-e-Shari’at: ‘If something is purchased after the partnership is agreed, and that thing is from a category upon whose trade the agreement of the partnership occurred, it will be deemed as having joint ownership,’ (Bahar-e-Shari’at, vol. 2, p. 500; Rad-ul-Muhtar, vol. 6, p. 469).
وَاللہُ اَعْلَمُ عَزَّوَجَلَّ وَ رَسُوْلُہٗ اَعْلَم صلَّی اللہ علیہ واٰلہٖ وسلَّم
Will the percentage of the profit [given to each partner] be fixed according to the amount of profit or the amount of capital invested?
Question 5: What do the honourable scholars say about whether the percentage of profit will be fixed according to the profit made from the business or the amount of capital invested?
بِسْمِ اللّٰہِ الرَّحْمٰنِ الرَّحِیْمِ
اَلْجَوَابُ بِعَوْنِ الْمَلِکِ الْوَھَّابِ اَللّٰھُمَّ ھِدَایَۃَ الْحَقِّ وَالصَّوَابِ
Answer: After deducting the liabilities of the business, such as expenses, the amount that remains in addition to the capital is what is termed as profit. If after subtracting the expenses the amount remaining is less than the capital, this is referred to as a loss.
The actual purpose of the parties involved in a joint business is to generate profit. At the time of forming an agreement for the partnership, the parties specify a proportion of the profit’s share and percentage. They decided that if a profit is made, then it will be divided by this particular proportion. Hence, when a profit is made, it will be divided by the specified amount. When deciding how much profit each person will receive, both parties look at several things, such as who has invested more capital, and how much work each person is contributing towards the business; there is nothing wrong with this. What is important is that someone who is not doing the work—a silent partner who has merely invested capital—cannot specify a profit greater than the proportion of his capital. For example, an individual who invests 30% of the money in the business and is not actively working in it cannot specify 50% of the profit for himself.
It is stated in Fatawa Alamgeeri:
‘لو کان المال منھما فی شرکة العنان والعمل علی احدھما۔۔۔لو شرطا الربح للدافع اکثر من مال راس ماله لم یصح الشرط’
‘If the joint ownership was formed using wealth from both parties but only involves one party doing the work, it is not valid for the one not working to stipulate profit more than his capital,’ (Fatawa Aalamgeeri, vol. 2, p. 320).
وَاللہُ اَعْلَمُ عَزَّوَجَلَّ وَ رَسُوْلُہٗ اَعْلَم صلَّی اللہ علیہ واٰلہٖ وسلَّم
Joining an active business as a partner
Question 6: What do honourable scholars say about becoming a joint owner (doing Shirkah) in a business that is already active?
بِسْمِ اللّٰہِ الرَّحْمٰنِ الرَّحِیْمِ
اَلْجَوَابُ بِعَوْنِ الْمَلِکِ الْوَھَّابِ اَللّٰھُمَّ ھِدَایَۃَ الْحَقِّ وَالصَّوَابِ
Answer: It is not permissible to become a joint owner in a business that is already active, because the basic conditions of shirkah are not found in such cases. If someone wishes to do shirkah in a business that is already running, he should do so in relation to one or more products whilst acting upon the principals of shirkah. A separate account should then be kept for these products.
If someone wants to appoint a new joint owner in all of the business, then first the amount of goods and capital will need to be calculated. This can lead to different scenarios. It is possible that there are only goods in the business but no money, and other scenarios are also possible. After making all the calculations, guidance should be sought from reliable muftis whilst informing them of the details relating to the cash and other aspects related to the business. Only then can guidance be given in light of Shari’ah. Also consult the detailed fatwas of Dar-ul-Ifta Ahl-e-Sunnat on this matter. This matter has been spoken on in detail during Madani Channel’s weekly programme Ahkam-e-Tijarat as to why becoming a joint owner in a business that is already running is not permissible and the method that can be pursued if one does wish to.
وَاللہُ اَعْلَمُ عَزَّوَجَلَّ وَ رَسُوْلُہٗ اَعْلَم صلَّی اللہ علیہ واٰلہٖ وسلَّم
Revoking a partnership?
Question 7: Two people are running a joint business. What do the honourable scholars say in relation to the method of revoking the partnership?
بِسْمِ اللّٰہِ الرَّحْمٰنِ الرَّحِیْمِ
اَلْجَوَابُ بِعَوْنِ الْمَلِکِ الْوَھَّابِ اَللّٰھُمَّ ھِدَایَۃَ الْحَقِّ وَالصَّوَابِ
Answer: Whichever partner wishes to end the partnership has the right to do so. The other partners do not need to agree, as long as they are aware of the revocation. Having said that, both parties should agree on an appropriate time for withdrawing the capital of the partner revoking the partnership after assessing the circumstances of the business. If the capital is not available, as it still needs to be retrieved from people, one partner is not obliged to give that amount to the other partner from his personal assets. Rather, whenever the payment is received, both partners will take their share.
It is stated in Bahar-e-Shari’at: ‘If one of the partners revoke the shirkah, it will take effect even if the other partner is not pleased. However, this is subject to the latter being aware of the revocation, and if he is not aware, then it will not take effect. It is not a condition for the capital in shirkah to be rupees or ashrafis. If trading goods are available that have not been sold and one [partner] revokes the partnership, this revocation will take effect,’ (Bahar-e-Shari’at, vol. 2, p. 513; Rad-ul-Muhtar, vol. 6, p. 500).
وَاللہُ اَعْلَمُ عَزَّوَجَلَّ وَ رَسُوْلُہٗ اَعْلَم صلَّی اللہ علیہ واٰلہٖ وسلَّم
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