The following is
a translation from Arabic.
The Company (Partnership) in Islam
Company (ash-sharika) linguistically means mixing
two or more shares together such that neither can be distinguished from the
other. Company in Shar'a is a contract between two or more persons, in which
they agree to perform financial work with the intention of making profit. The
contract of the company requires the existence of both offer and acceptance, as
is the case with all Islamic contracts. An offer occurs when one party says to
the other: ‘I made you a partner in such and such’ and the other party replies
by saying, ‘I accepted.’ These actual words are not necessary but the meaning
is. There must occur in the offer and acceptance something that indicates that
one of the parties addressed the other orally or in writing on the matter of
partnership over something, and the other accepted. Therefore, an agreement on
partnership only does not represent a contract. An agreement to pay money or
property for partnership is also not considered a contract as well. Rather, the
contract must include the concept of partnership in something. The condition of
validity of the partnership contract in Islam requires that the contracted
matter be a right of disposal and that this right of disposal, over which the
company contract is concluded, is suitable for representation (wakala) such
that what is gained by the disposal becomes shared between the two partners.
Partnership is allowed in Islam because when
Muhammad (SAW) was sent as a Messenger people were dealing with companies and
he (SAW) did not forbid this. Al Bukhari narrated that Abu Al-Minhal said: “I
and my partner bought something in cash and credit. Al-Bara ibn 'Azib came to
us so we asked him about this. He said: My partner, Zaid ibn Al-Arqam, and I
did the same and we asked the Prophet (SAW) about this. He (SAW) said: 'That
which is in cash you take, and that which is in credit you return it back'.”
Ad-Daraqutni narrated from Abu Hurairah that the Prophet (SAW) said: “The
Supreme said I am the third of the two partners as long as one of them does not
betray his companion. If he betrayed, I would withdraw from them.”
Partnership is allowed amongst Muslims, dhimmis
(non-Muslims living under Islamic authority), and between Muslims and dhimmis.
So it is allowed for a Muslim to enter into partnership with a Christian, a
fire-worshipper or other dhimmis. Muslim narrated from Abdullah ibn 'Umar who
said: ‘The Prophet (SAW) dealt with the people of Khaybar, who were Jews, for
half of the land production of plant or fruit.’ In another narration by Bukhari
from Aisha: “The Prophet (SAW) bought food from a Jew in Madinah and he
deposited his armour with him as security.’ At-Tirmidhi narrated from Ibn
'Abbas who said ‘The Prophet (SAW) passed away while his armour was left as a
security in return for twenty cubic measures (sa'a) of food which he took for
his family.’ At-Tirmidhi narrated from Aisha that ‘the Messenger of Allah (SAW)
sent for a Jew asking him for two garments (and to wait) until (the time of)
prosperity.” Entering into partnership with Jews and Christians and other dhimmis
is therefore allowed, as dealing with them is permissible. However, dhimmis are
not allowed to sell alcohol and pork while acting as partners with Muslims.
Prior to forming a partnership with a Muslim, a dhimmi may have sold alcohol,
the proceeds of which would be halal for the company. Partnership is only valid
between people whose right of disposal is allowed, as it is a contract based
upon the disposal of property. It follows that it is invalid to form a company
with a person who is prevented from disposal of property. It is also not
allowed to enter into partnership with a person who is placed under
guardianship, or a person whose right of disposal is not allowed.
Partnership is either a partnership of properties
or a partnership of contracts. The company of properties is a company of
assets, such as partnership in a property that has been inherited, bought or
gifted. The company of contracts is the subject of discussion regarding
increasing of ownership. From the examination of partnership contracts in
Islam, and the divine rules (ahkam shar'iyah) related to them it can be
concluded that there are five types of company in Islam. These are Al-'Inan
(equal), Al-Abdan (bodies), Al-Mudharaba (two or more), Al-Wujooh (faces) and
Al-Mufawadha (negotiation).
The Company of Equal (Al-'Inan)
This is two bodies (abdan) associating with their
properties. Namely, two persons associate with their properties and share the
work dividing the profit between them. It is called a company of 'Inan because
they are equal in their right of disposal where ‘inan means two riders in a
race if their horses are equal and their race is equal, so their bridles
('inan) are equal. This form of company is allowed by the Sunnah (of the
Prophet) and Ijma of the Sahabah (consensus of the Companions). People have
entered into this form of partnership since the time of the Prophet (SAW) and
the Sahabah.
In this type of company, the capital is
represented by money, because money represents the value of the properties and
the sales. It is not allowed to enter into partnership over merchandise unless
it was evaluated in monetary terms at the time of contract. Its value at this
time represents the capital. It is a condition that the capital be defined and
disposable. The partnership is thus not allowed to be formed over an unknown
capital, absent property or a debt as the capital has to be referred to at the
time of division and because the debt cannot be disposed with immediately and
this is the aim of the company. It is not necessary that the two property
shares are equal or of the same kind. However, they must be evaluated by one
measure so that both shares become one property. It is, therefore, valid to
become partners with, for example, Egyptian and Syrian money, but these should
be evaluated by one value so that there is no difference between them and they
become one of the same kind. It is a condition that the capital of the company
be one property and common for both such that neither partner can differentiate
his property from the other's. It is also conditional that the two partners
have authority over the capital. The 'inan (equal) company is based on
delegation and trust. The partners trust each other through handing over
properties, and by delegating permission to each other to dispose of property.
Once the company has been formed it becomes one entity. It is obligatory for
the partners to start work themselves as the company is established upon their
bodies. Neither of them is allowed to delegate another person to work for the
company on his behalf. The company as a whole employs whom it wants and uses
the body of whom it likes as its employee not as an employee for one of the
partners.
It is allowed for any of the two or more partners
to trade in whatever way he feels is beneficial to the company. Each of the
partners is also allowed to collect the price and make purchases, to litigate
for and request payment of debt, to remit and accept remittance, and to return
faulty goods. Each is allowed to hire and lease the capital of the company, as
the benefits to the company are as good as the commodities, in a similar way to
selling and buying. Each partner would be allowed to sell an item like a car
for example, or to lease it in its capacity as a commodity for sale. The
benefit to the company becomes like the commodity itself and is as good as this.
It is not conditional that the two partners have
equal shares, but it is necessary that they are equal in the right of disposal.
With regard to the capital, it is valid that the partners have different or
equal shares, while the profit is divided as they stipulate. It is thus valid
to stipulate equality in the profit or to give preference. According to what
'Abdurrazzaq narrated in Al-Jami', 'Ali (ra) said: ‘The profit is according to
what they stipulated.’ With regard to losses in the 'Inan company, it is according
to the capital share only. If their shares are of equal value then the loss
between them is divided equally, and if the capital is divided in thirds then
the loss is divided in thirds. If they stipulated other than that, no value
will be given to their stipulations. The rule on loss is then executed without
regard to their stipulations, by dividing the loss based upon the ratio of
their capital shares. This is because the body does not lose property; rather
it loses the spent effort only. The loss is thus carried on the capital and it
is distributed according to the shares of the partners. This is because a
company is a form of representation (wakala). The rule is that the deputy is
not held responsible for the loss but the loss is carried upon the property of
the deputising person. Abdurrazzaq narrated in Al-Jami' from 'Ali (ra): “The
loss (al-wadhi'a) is upon the capital and the profit is according to what they
stipulated.”
The Company of Bodies (Al-Abdan)
This is a company in which two or more persons
participate by their bodies only, without their capital. They share in that
which they gain by their labours of intellectual or physical nature. Examples
of such labours are by craftsmen who share in work using their craft and divide
that which they profit amongst themselves such as engineers, doctors,
fishermen, porters, carpenters, car drivers and the like. It is not necessary
that the partners be of the same craft, nor that they are all craftsmen. It is
allowed that craftsmen of different crafts associate in an allowable (halal)
form of profit. Their partnership is valid (sahih) just as if they were of the
same craft. It is acceptable for the partners to perform a particular role in
the company, so that one administers the company, another receives the money
and the third works by his hands. This means that it is allowed for labourers
in a factory to enter into partnership together, whether or not all of them
understand the process of manufacturing. They can associate with other
craftsmen, labourers, clerks and guards, and they can all become partners in
the factory. However, it is stipulated that the work they associate together in
for the purpose of making a profit be halal. If the type of work is haram, then
to form a company undertaking such work is forbidden.
The profit in the company of bodies is distributed
according to the agreement of the partners, whether equally or preferentially.
As it is the work which produced the profit and since it is allowed for the
partners to differ in work, it is allowed that they differ in profit which is
derived from the work. Each of the partners has the right to collect all of
their wages from their employer, and to demand the price of the goods they
manufactured from prospective purchasers. Similarly, the one who employed them
or the one who bought goods from them has the right to pay all wages or to pay
the whole price of the goods to anyone of them. He will be cleared of
responsibility once he has made the payment to any one of them. Even if only
one of the partners worked, the income is still divided amongst all of them,
because the work is guaranteed by all of them together, and through their joint
responsibility for the work. The wage in other words, deserves to be shared. In
other words, the wage is for all of them as the responsibility is carried by
all of them. None of them is allowed to deputise on his behalf a person as
partner in the company or to employ a person to do the work on his behalf as a
partner. He himself must be the one who handles the work directly as the
contract stipulates this in this type of company. However, each partner is
allowed to hire employees and such hiring would be by the company and for the
company, even if only one of the partners handled the employment. The employee
would then not be that partner’s own deputy, agent or employee. The disposal of
each partner would be on behalf of the company, and every one of them is bound
by the work accepted by his partner.
This form of company is allowed due to what Abu
Dawud and al-Athram narrated from Abu 'Ubaydah from his father, 'Abdullah ibn
Mas'ud, who said: “I shared with Ammar ibn Yasir and Sa'ad ibn Abu Waqqas in
whatever we gained at the day of Badr. Sa'ad came with two captives, while
Ammar and I brought nothin” and the Messenger of Allah (SAW) consented to this
to both of them. Ahmad ibn Hanbal said: “The Messenger of Allah (SAW)
associated them together.” This hadith is an explicit evidence about the
partnership of bodies of a group of the Sahabah to perform an action, which was
fighting against the enemies, and to divide amongst themselves that which they
gained in terms of booty if they won the battle. With respect to the rule of
the booties being in disagreement with this partnership, this is not relevant
to this hadith because the rule of the booties was revealed after the battle of
Badr. When this company of bodies occurred there was not yet any rule of
booties. In addition, the rule of booties which was revealed after the battle
did not abrogate the company which occurred before. Rather it clarified the
shares of the benefactors, and the rule of the company of bodies’ remains as
established by this hadith.
The Company of Body and Capital
(Mudharaba)
This is called loaning (qiradh), and it is the
partnership of a body with property. It means that one pays his property to
another person for him to trade with and the resulting profit is divided
amongst them according to what they stipulated. The loss in the mudharaba is
not subject to the agreement of the partners but rather to that which came in
the Shar'a. This loss is defined by Shar'a only on the property, none of it is
upon the body (mudharib). Even if the capital partner and the mudharib were to
agree that the profit and loss is divided among them, the profit would be between
them while the loss is only on the property. This is because the company is
similar to representation (wikala) and the agent (wakeel) does not guarantee.
The loss is upon the principal (muwakkil) only. This is due to what Abdurraziq
narrated in Al-Jami from Ali (ra): “The loss (al-wadhi'a) is on the property
and the profit is according to what they stipulated.” The body however does not
lose property, it loses what it spent of effort only and the loss remains on
the property.
Mudharaba would not be valid until the property is
given to the worker ('amil) and he is given a free hand over it, because
mudharaba requires handing over the property to the mudharib. In mudharaba, the
share of the worker must be defined and the property used in the mudharaba contract
must be of a defined amount. It is invalid for the owner of the property to
work with the mudharib, even if he stipulated to do so. This is because he has
no right to dispose of the property that belongs to the company, on the
company’s behalf. It is the mudharib who disposes and works, and he has full
control over the property. This is because the contract of the company was
concluded on the body of the Mudharib, and the property of partner. It is not
concluded on the body of the owner of the property, who is like a foreigner to
the company and who does not have the right to dispose of anything which
belongs to the company. However, the mudharib is restricted in his disposal to
that with which the owner of the property permitted. He is not allowed to
disagree with him because he disposes by permission. If he permitted him to
trade with wool only or he prevented him from shipping the goods by sea, the
owner has this right to restrict him in these matters. However, this does not
mean that the owner of the property disposes in the company. Rather it means
that the mudharib is restricted within the limits defined by the owner of the
property. Despite this, the disposal in the company is confined to the worker
(mudharib) only, and the owner of property has no right of disposal.
One form of mudharaba is where two properties (of
two persons) enter into partnership with the body of one of them. So if two
persons had between them three thousand of something, one of them having two
thousand and the other one thousand, and the owner of the two thousand
permitted the other to dispose of the capital so that the profit is divided
between them by halves, the company would be valid. The worker would be the
owner of the one thousand of the items as a mudharib to the owner of the two
thousand, and would also be his partner. Similarly, mudharaba could be through
the partnership of the capital of two persons and the body of a third person.
All these are forms of the mudharaba.
Mudharaba is allowed by Shar'a due to the narration
that “Al-'Abbas ibn 'Abdal-Muttalib used to pay the property of the mudharaba
and put certain conditions on the mudharib.” This (information) reached the
Messenger of Allah (SAW) and he consented to it. Ijma of the Sahabah was
established that the mudharaba is allowed. Ibn Abu Sheeba narrated from
'Abdullah ibn Hameed from his father from his grandfather “that 'Umar bin
Al-Khattab gave him the property of an orphan as a mudharaba so he worked with
it and gained a profit, and 'Umar divided the surplus with him.” Ibn Qudamah
narrated in Al-Mughni from Malik ibn al-'Alaa ibn 'Abdurrahman from his father
from his grandfather that “Uthman loaned him property as a mudharib (qaradh).”
It was also narrated from ibn Masoud and Hakeem ibn Hizam that ‘the two of them
entered in loan (qaridha).’ All of this occurred with the knowledge of the
Sahabah and none was reported to disagree with the proceedings or deny their
validity, confirming their Ijma on the mudharaba.
The Company of Reputation Faces (Wujooh)
This company is an association of two bodies with
the property of a third, namely a person gives his property to two persons or
more as a mudharaba, so the two mudharibs are partners in the profit through
the property of another person. They may agree to divide the profit in thirds,
to each mudharib a third and to the owner a third. They may also agree to
divide it in fourths, where the property takes a fourth, one of the mudharibs
takes a fourth and the other takes a half. Or they may agree on conditions other
than these so that it is possible that there are preferential shares of the
profit between the two workers. Their claim to preferential shares of profit is
based on the reputation (wajaha) of one or of both of them, whether in regard
of their profession in work or of their skills in disposal and management,
despite the fact that the right of disposal they have in the property is equal.
This company is therefore different from the company of mudharaba, although in
reality it reverts to mudharaba.
Among the company of wujooh is when two or more
persons associate in what they buy using the trust of merchants in them, and
the reputation that is based on this trust, without having property. They would
agree that the property they bought is owned by them in halves or thirds or
fourths or the like. When they sell that property and what they gain of profit
is divided between them in halves, thirds or fourths or whatever else they
agree. It is not based on the previous agreement of the share of ownership.
However, the loss is in proportion of their shares of the purchased goods,
because these shares represent their property. It is not according to what they
may agree about the loss, nor according to their share of the profit, whether
the profit was divided between them according to the value of their purchases
or otherwise.
Thus the company of the wujooh with its two forms
is allowed. This is because if the partners associated with the property of
another person it is like the mudharaba company, which is confirmed by the
Sunnah and Ijma. If however they associated with what they take from the
property of another person, by buying goods through their reputation and the
trust of the merchants in them, then it is like the company of Abdan, which is
also confirmed by the Sunnah. The company of Wujooh is thus confirmed by the
Sunnah and Ijma.
However, it is necessary to know what is meant by
trust in this regard. When trust is mentioned in the matters of trading and
company matters and the like, it is meant to be the trust in payment, which is
the financial trust, not notability nor esteem. Therefore, a person may be a
notable person yet he is not trusted to pay, so there is no financial trust in
him and thus there is no trust in him in the subject of trading and partnership.
He could be a minister, a rich man or a great merchant, but if he is not
trusted to pay, there is no financial trust in him nor is he trusted in
anything. Therefore, he cannot buy any goods from the market without paying its
price. He could be a poor person, but if the merchants trust him to pay his
debts, he can buy goods without paying their price immediately. In the company
of wujooh, the trust is thus focused on payment not on notability. What occurs
in some companies is that a minister of the government is included as a member
in the company and assigned a certain share of the profit, while he contributes
no property nor participates with any effort. He is associated as a partner due
to his standing in society so as to facilitate the dealings of the company.
This is not considered as a wujooh company nor does the definition of a company
in Islam apply to it. This type of partnership is not allowed and such a person
is not a partner and he is not allowed to take anything from such a company.
What happens in some countries like Saudi Arabia and Kuwait is that the
non-Saudi or the non-Kuwaiti person is not allowed to have a license for
trading or working so he includes a Saudi in Saudi Arabia or a Kuwaiti in
Kuwait as a partner. He assigns to him a share of the profit, while the Saudi
or Kuwaiti person does not contribute any property or his body to the company,
rather he is considered a partner because the licence is issued in his name and
he is given a share in the profit in return for this. This type of company is
also not considered of the company of wujooh, nor is it allowed by Shar'a. Such
a Saudi or Kuwaiti is not considered a partner and it is not halal for him to
take anything from the company, because he does not fulfil the conditions which
the Shar'a requires in the partner in order to become a legal partner. These
conditions include associating in the property or by his body or by the trust
in payment, so that he works with the goods he takes through this trust.
Company of Negotiation (Mufawadha)
This is where two partners share in all the types
of companies mentioned before, like a combination between the companies of
'Inan, Abdan, Mudharaba and Wujooh. For example a person may contribute some
property or capital to two engineers in partnership with their properties so
that they build houses to sell. The two engineers agree to work with property
greater than that which they hold, so they start to take goods without paying
for them immediately, based on the traders' trust in them. Thus, the partnership
of the two engineers together with their bodies is a company of bodies. With
regard to their craft and paying for property with which they work, it is a
company of 'Inan (equal). The fact that they take property from other people’
means it is a company of Mudharaba. As they share in the goods which they buy
based on the trust of the traders in them means it is a wujooh company. This
company has therefore combined all the types of companies allowed in Islam. It
is valid because each type of these companies is allowed by itself and they are
also valid together. The profit is according to their agreement. It is allowed
to make it proportional to the two properties. It is also allowed to make it
equal even if the properties are different. And it is allowed to make it
preferential even if the properties are equal. This type of company of
negotiation is allowed, because the Shari'ah text allows it. Some jurisprudents
have mentioned about other types of negotiation company, where two persons
participate, such that they are equal in their property, their right of
disposal and their debts and cash and each of them can deputise for his
colleague in absolute terms. This type of company is absolutely prohibited. No
Shari'ah text can be used as an evidence for it. As for the hadith which they
quote to say: ‘If you negotiate then improve the negotiation’ or the hadith,
‘Negotiate as it is more blessing,’ neither of these two hadith have proven to
be valid (sahih), even assuming that their meaning is correct. Moreover, this
company is a partnership of unknown property and unknown action, which is
enough by itself to make the company invalid. Additionally, included in their
property is the inheritance which is given to them after the death of an
inheriting person, and one of the partners could be a dhimmi (non-Muslim). How
then could he receive a share of the inheritance? Further, it is not allowed,
because the company includes deputation, which is not allowed over unknown
things. All this indicates the invalidity of this type of negotiation company.
