Mushaarakah

CategoriesTrade, Business & All Things Money [467]

Person A and B go into partnership, person A and B both put £3000 into the business, they invest a total amount of £6000, after several months person B finds that he cannot cope with the pressure of the business and decides to quit, leaving person A to run the business alone. During the several months they were partners’ person B took benefits from the business such as clothing and still wears them on a daily basis, now does person A need to give person B his £3000 back as person B quit the business on his own account?

In the name of Allah, the most Beneficent, the most Merciful.

Answer

The aforementioned scenario is based on the Islamic concept of Shirkat-ul-Amwal where all the involved partners invest some capital into a commercial enterprise.

Musharakah or Shirkat-ul-Amwal is a relationship established by the parties through a mutual contract. Therefore, all the necessary ingredients of a valid contract must be present. For example, the parties should be capable of entering into a contract; the contract must take place with free consent of the parties without any duress, fraud or misinterpretation, etc…

But there are certain conditions, which are peculiar to the contract of “Musharakah.” They are summarized here:

  1. The proportion of the profit to be distributed between the partners must be agreed upon at the time of entering the contract. If no such proportion has been determined, the contract is not valid in Shari’ah.
  1. The ratio of profit for each partner must be determined in proportion to the actual profit accrued to the business, and not in proportion to the capital invested by him. It is not allowed to fix a lump sum amount for any one of the partners or rate any profit tied up with his investment. For example if A and B enter into a partnership and it is agreed that A will receive £10,000 per month as his share of the profit, and the rest will go to B, the partnership will be invalid. The correct basis for distribution would be an agreed percentage of the actual profit accrued to the business.
  1. According to Imam Abu Hanifah (RA) the ratio of profit of each partner may differ from the ratio of capital invested by him. However if a partner has put an express condition in the agreement that he will never work for the Musharakah and will remain a sleeping partner throughout the term of the Musharakah, then his share of profit cannot be more than the ratio of his investment.
  1. In the case of loss, all the Muslim jurists agree on the point that each partner shall suffer the loss exactly according to the ratio of his investment. Therefore, if a partner has invested 40% of the capital he must suffer 40% of the loss not more, not loss, and any condition to the contrary shall render the contract invalid.
  1. Most of the Muslim jurists are of the opinion that the capital invested by each partner must be in liquid form. It means that the contract of Musharakah can be based only on money, and not on commodities. (Extracted from An Introduction to Islamic Finance, Mufti Taqi Usmani, p.35- p.39)

In regards to your question when one of the partners decide to terminate the contract and the asset is a commodity in the shape of cash then the partners should calculate how much the asset amounts to and give half the share to the partner who has left.

It should be borne in mind that the share he will receive from the business might be more or less than the £3,000 he initially invested. If the amount he receives is not worth £3,000 and partner B is still demanding the outstanding amount it is up to partner A whether he pays him the extra amount.

Finally, leaving the business through ones own accord will not have an effect on the outcome as the masala is that every partner has the right to terminate the partnership contract when he wishes. (An Introduction to Islamic Finance, Mufti Taqi Usmani, p.42)

Only Allah Knows Best.

Mohammed Tosir Miah

Darul Ifta Birmingham.

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