An Investor and Fund Manager Partnership

Fatwa ID: 03627

Answered by: Alimah Sabrina al-Faarsiyyah

 

Question

Assalamu alaykum wa rahmatullahi wa barakatuh,

I pray this reaches you in the best of health and Iman.

 

I have a slight issue on which I need your advice, in sha Allah. Forgive me for disturbing you and making you stray from your busy schedule.

 

I and my friend started a business a year ago, alhamdulillah. I approached my friend with an idea in which I wanted him to invest in because I had no capital of my own. He was interested in the idea and accepted. He put all the money in, as much that was needed to get the business up and running. I gave him a 50% share of the business for his generous investment.

 

Now, my first question is, should I take a wage from the business for all the hours I put in? Because I work many hours along with the other employees that we have under our employment. Is it fair for me to also take a wage for the hours I work?

 

Secondly, if we sell the business do we split the profit 50/50? I am of the opinion that if we sell the business, he should get what is owed to him from the initial investment and then we split whatever is leftover 50/50. Am I right in thinking that? Or does he get everything from the sale because he put the initial investment in?

 

I look forward to your response in sha Allah. Wassalaam

 

بِسْمِ اللهِ الرَّحْمنِ الرَّحِيْم

In the name of Allah, the Most Gracious, the Most Merciful

 

Answer:

The type of business you have described is a mudharabah partnership, which is recognized in the Shari’ah as a valid category of business. In this type of partnership, your friend is the investor (rabbul maal) and you are the fund manager (mudharib).

 

With regards to your first question, you should not take a periodical wage from the business. A fund manager cannot claim any periodical salary as part of the mudharabah. As for your second question, it is necessary for the validity of the business that the parties agree, right at the beginning, on a definite proportion of the actual profit to which each one of them is entitled. You may share the profit in equal proportions or you can also allocate different proportions for each of you. However, you cannot allocate a lump sum amount of profit for any party, nor can you determine the share of any party at a specific rate tied up with the capital. So, according to the amount of profit you made, you may distribute the portions accordingly.[1]

 

 

Only Allah knows best

Written by Alimah Sabrina al-Faarsiyyah

Checked and approved by Mufti Mohammed Tosir Miah

Darul Ifta Birmingham

 

 


[1] An introduction to Islamic Finance, pp.47-50, Muhammad Taqi ‘Uthmani

 

 

 

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