Fatwa ID: 07644
Answered by Maulana Abdurrahman Mohammad
Question:
Our late father had an agency for a textile company based on a commission basis. Simply, if we sell for R1000, we get a 5% commission once the account is paid to the principal company. That agency was passed onto us 3 sons before Papa passed on in 2017. The agency has no stock and is a pure commission received on a mutual agreement that we call on the customer, take care of the client, and ensure that the sale is always concluded to the end.
The agency agreement was then re-signed with us 3 brothers, our holding company, and the principal textile company. I am the main representative for the agency. In August 2021 our brother Imran passed on and the surviving brothers are myself and Imtiaaz.
In attempting to sort the estate, it’s unfortunate that our late brother’s family are now claiming that the agency has a “Goodwill” value and part of the payment to them should be “Goodwill” value for the agency. The agency is one part of the business, whereas the other two divisions are a retail outlet and a wholesale portion.
Payments have been made to Marhoom Imran’s family according to cash held in the bank, and stock held (33.3%) = to his share. (There is a dispute in regard to the timeline of calculation which is outside of this claim)
- If the principal takes the agency away, we get no money or compensation.
- If the principal closes down, we get no money or compensation.
- If the principal decides to change the area demarcation of customers that we serve, there is no compensation.
- If the principal decides to change representatives, there is no remuneration for customers that we brought to the business etc.
Based on the above, simply the question of “Goodwill” or a civil business value to the agency is what we need to know. Does Sharia have a component for this type of value and is Marhoom Imran’s family entitled to such a portion? If it does allow, how will the calculation be done and do they get 33.3% after all expenses and deductions?
In the name of Allah, the Most Gracious, the Most Merciful
Answer:
Your Business Situation
Based on the terms of your contract, it appears that you and your brothers are involved in a Mudārabah arrangement as there was no capital contribution from your side and you and your brothers are primarily responsible for providing labour for the principal textile company.
Fatawa Hindiyyah describes Mudārabah “As for its explanation in Sharia, it is a contract for partnership in profit with money from one side and work from the other side, so that if the profit is stipulated in its entirety for the owner of the money, it is merchandise, and if it is stipulated in its entirety for the Mudārib, it is a loan.”[1]
By describing your business as an “agency agreement”, you act as agents operating on commission selling textiles but not maintaining any stock of your own, which further categorises your relationship as a broker-based (Dallāl) arrangement[2, 3]. Therefore, your earnings are strictly derived from the commission on sales and not from direct ownership of business assets like inventory or property.
Goodwill Value in Islam
According to Investopedia[4]:
- Goodwill is an intangible asset that accounts for the excess purchase price of another company.
- Goodwill includes proprietary or intellectual property, brand recognition, and other aspects of a company that are valuable but not easily quantifiable.
- It’s calculated by taking the purchase price of a company and subtracting the difference between the fair market value of the assets and liabilities.
In simpler terms, goodwill refers to the intangible value of a business beyond its tangible assets, such as its brand recognition, reputation, and customer relationships. Islamically, this intangible value is only relevant when a business is sold and is not considered wealth on its own. Such a business should be sellable and there must be a buyer willing to pay over the market value for a goodwill value to materialise.
Since your agency is structured purely on a commission basis without stock or tangible assets, there is no meaningful goodwill value. Any goodwill value (brand recognition, reputation, and customer relationships) would belong to the textile company. Moreover, claiming an inflated value without an actual sale or a buyer to pay over the fair market value would be impermissible. This would fall under receiving compensation without a clear exchange (exchanging money for an intangible value) which is classified as Ribā “Excess wealth without compensation in the exchange of money for money.” (Raddul Muhtār)[5]
Termination of Contract Upon Death
Shariah law dictates that certain contracts, including Mudārabah, come to an end with the death of a partner unless otherwise specified in the contract “(And the partnership is void) meaning the partnership of the contract (by the death of one of them) whether the other knew or not because it is a legal dismissal.” (Raddul Muhtār)[6] This means that when your brother passed away, his Mudārabah contract was terminated. As a result, his share of the partnership did not pass to his heirs. Note that a business relationship is different from the ownership of assets or investments which would transfer to heirs. Unlike stocks, properties, or other investments with shares, a business contract does not get inherited unless specified in the contract.
As you noted, your agency has no stock or inventory to pass on to heirs, and this commission structure also terminates upon the brother’s death. The proceeds from the commission your brother earned up until his passing can be distributed to his heirs but beyond that, there is no tangible asset to inherit.
Goodwill in Inheritance
If there was a goodwill value associated with the business, it would need to be realized through the sale of the business. The goodwill value only materializes when there is a buyer willing to pay above the market value.
Due to the agency’s contractual structure, only the principal company can select representatives and partners. This limits the market for the business, as no external party can buy a share. Theoretically, if the business could be sold, the business would have to be sold to the surviving brothers. By paying the fair market value, you would instead be purchasing your brother’s share of the agency instead of paying the proceeds from your brother’s commission. In that situation, whether you attach a goodwill value or pay the fair market value is up to your discretion. This is only in the case if the agency could be sold.
Conclusion
Claiming a goodwill value without actually selling the business contradicts Shariah principles because intangible assets like goodwill cannot be considered wealth unless they are sold or monetized. Since your brother’s wife is claiming an intangible, hypothetical goodwill value without an actual sale or bidder, this claim would fall under the prohibition of Ribā.
Only Allah (عز و جل) knows best
Written by Maulana Abdurrahman Mohammad
Checked and approved by Mufti Mohammed Tosir Miah
Darul Ifta Birmingham
References:
- أَمَّا تَفْسِيرُهَا شَرْعًا فَهِيَ عِبَارَةٌ عَنْ عَقْدٍ عَلَى الشَّرِكَةِ فِي الرِّبْحِ بِمَالٍ مِنْ أَحَدِ الْجَانِبَيْنِ وَالْعَمَلِ مِنْ الْجَانِبِ الْآخَرِ حَتَّى لَوْ شَرَطَ الرِّبْحَ كُلَّهُ لِرَبِّ الْمَالِ كَانَ بِضَاعَةً وَلَوْ شَرَطَ كُلَّهُ لِلْمُضَارِبِ كَانَ قَرْضًا هَكَذَا فِي الْكَافِي. (Al-Fatāwā Al-Hindiyya, vol. 4, pg. 285, Al-Maṭba’ah Al-Kubrā Al-Amīriyyah via Shamela)
- (افْتَرَقَا، وَفِي الْمَالِ دُيُونٌ وَرِبْحٌ يُجْبَرُ الْمُضَارِبُ عَلَى اقْتِضَاءِ الدُّيُونِ) إذْ حِينَئِذٍ يَعْمَلُ بِالْأُجْرَةِ (وَإِلَّا) رَبِحَ (لَا) جَبْرَ؛ لِأَنَّهُ حِينَئِذٍ مُتَبَرِّعٌ (وَ) يُؤْمَرُ بِأَنْ (يُوَكِّلَ الْمَالِكَ عَلَيْهِ) ؛ لِأَنَّهُ غَيْرُ الْعَاقِدِ (وَ) حِينَئِذٍ فَ (الْوَكِيلُ بِالْبَيْعِ، وَالْمُسْتَبْضَعُ كَالْمُضَارِبِ) يُؤْمَرَانِ بِالتَّوْكِيلِ، (وَالسِّمْسَارُ يُجْبَرُ عَلَى التَّقَاضِي) وَكَذَا الدَّلَّالُ؛ لِأَنَّهُمَا يَعْمَلَانِ بِالْأُجْرَةِ.(Radd Al-Muhtār, vol. 5, pg. 656, Darul Fikr Beirut via Shamela)
- لِأَنَّ الدَّلَّالَ فِي الْعَادَةِ يَبِيعُ بِالْإِذْنِ كَمَا هُوَ مُقْتَضَى اشْتِقَاقِهِ مِنْ الدَّلَالَةِ فَإِنَّهُ يَدُلُّ الْبَائِعَ عَلَى الْمُشْتَرِي أَوْ بِالْعَكْسِ لِيَتَوَسَّطَ بَيْنَهُمَا فِي الْبَيْعِ فَزَادَ قَوْلَهُ أَوْ فُضُولِيٌّ لِيُنَاسِبَ قَوْلَ الْبَيْعُ) لِأَنَّ حَقَّ الْقَبْضِ لَهُ عَيْنِيٌّ وَغَيْرُهُ. (Radd Al-Muhtār, vol. 5, pg. 269-270, Darul Fikr Beirut via Shamela)
- https://www.investopedia.com/terms/g/goodwill.asp#:~:text=It’s%20calculated%20by%20taking%20the,year%20and%20record%20any%20impairments.
- فَضْلُ مَالٍ بِلَا عِوَضٍ فِي مُعَاوَضَةِ مَالٍ بِمَالٍ (Radd Al-Muhtār, vol. 5, pg. 168, Darul Fikr Beirut via Shamela)
- (وَتَبْطُلُ الشَّرِكَةُ) أَيْ شَرِكَةُ الْعَقْدِ (بِمَوْتِ أَحَدِهِمَا) عَلِمَ الْآخَرُ أَوْ لَا لِأَنَّهُ عَزْلٌ حُكْمِيٌّ (Radd Al-Muhtār, vol. 4, pg. 327, Darul Fikr Beirut via Shamela)
