All praises belong to Allah, prayers and peace be upon The Prophet, Muhammad Shallallahu ‘alayh wa Sallam, his family, and his devoted companions.
Dear brother, at this moment, probably some of you already possess lots of excellent skills and experiences. However, it is still difficult for you to optimize your advance potentials, hence you could only use the small part of it. Maybe, once, you may think. ” I wish I have enough capital, so that I could have more working options, and enjoy the more abundant results…”
Well, there is no need to be pessimistic, my brother. There are plenty of doors to go through, to change your destiny. Among them, is by partnering with the other who has similar condition with you. By this option, the door of success will be wide open in front of you, due to the increasing scale of business you starts with your friend. Together, the work you’re carrying out will be more valuable. Don’t you wish of such, dear Brother of mine?
Through this simple article, I would like to give a brief picture of details regarding ruling of trading partnership in Shariah. I hope, by this, your steps to work your business out will be more steady and in harmony with the beautiful laws of Allah The Exalted.
The Ruling of Partnership in Trading
Ibn Qudama al Hambale stated that, “Generally, scholars have agreed that the ruling of trading partnership is permitted. However, they have different opinions over several of it’s details.” (Al Mughni, written by Ibn Qudama, 7/109)
Below are some argumentations which became the basis of the scholars’ agreement regarding this affair:
“Abu Minhal narrated that al Bara’ Ibn Azib and Zaid Ibn Arqam was 2 Partnering man. One day, they bought such amount of silver. Half of the payment was settled by cash, and the rest was written as debt. Then the news of this transaction reached Allah’s Apostle Shallallaahu ‘alayh wa Sallam, and he immediately urged them continue the cash transaction, and cancel the debt.” (Collected by Bukharee)
Abu Huraira – may Allah be pleased with him- told that The Prophet Shallallaahu’alayh wa Sallam declared, “Verily, Allah had decreed, ‘I always be with 2 partnering man, as long as neither of them betray his partner. If one of them committing such, then I will leave them both.” (Collected by Abu Daud, Ad Daruqutni, and graded weak by Al Albaanee).
Whom to choose to partner with?
After recognizing the ruling of partnership in Islam, the first question that may be popped in your mind is, ” Whom should I choose to partner with?”
Particularly in our world nowadays, where it is so hard to find someone to trust to as partner in trading. Or, probably you are willing to speculate and take any one as your partner, without considering their credibility? I’m sure that you must be selective and strive to choose an excellent partner with lots of positive strengths.
But then, dear brother, have you ever think that among criteria of a good partner, is his obedience and submissiveness to shariah?
Probably you may question, “And how is that so?”
The answer is simple; because every partner in trading will not only act on behalf of himself, but as the representative of all shareholders in the company. Thus, every shareholder is responsible upon any company’s decisions and actions.
This explanation is a concrete form of the basic principle of trading in Islam, which are al wakala (representation) and trusteeship. Each shareholders act as a representative and hold trusts of the other shareholders.
Thus, no wonder that the scholars advised you to avoid partnership with people from different religion as you.
Imran Ibn Abi Atha’ once asked Ibn ‘Abbas, “Indeed, there is a goat seller who partnering a Jew and a Christian.” Ibn ‘Abbas replied, “Do not take partner with Jew, Christian, or Persian.” I asked back, “Why is that so?” Ibn ‘Abbas answered, “Because they get used to do usury in their transaction, and usury is forbidden.” (Collected by Ibn Abi Syaiba and Al Baihaqi)
From Ibn ‘Abbas’ statement above, it is understood that it is legal to take a Jew or Christian as partner as long as they are not dealing directly with the business, or as long as they have a commitment to not transgressing the law of shariah. Thus, the students of Ibn ‘Abbas, such as ‘Atha’, Thawus, and Mujaheed stated that, ” Partnering a Jew or a Christian is makrooh, unless the one who operate the business is the muslim partner.”. (Collected by Ibn Abi Syaiba)
This explanation was also based upon the practice committed by Allah’s Apostle Shallallaahu ‘alayh wa Sallam who trusted the management of muslim’ s agriculture field in the land of Khaibar to the local Jews, and he imposed a requirement that, “Muslims hold the absolute authority to break the cooperation whenever they want it.”(Collected by Bukharee and by Muslim)
Scholars had agreed that capital of partnership could be in the form of money as a valid mean of transaction. However, they differed in determining, whether or not properties outside of money are valid as capital in partnership?
The stronger opinion in this problem is the one allowed properties other than money to be used as a capital of partnership. This opinion is based upon several reasons as follow:
The original ruling for every worldly affairs, including partnership, is permitted.
The analogy/ qiyas of this affair is the contract of musaqah (working on a field). Every ruling applied for musaqah is also eligible to be applied in the contract of trading partnership.
The purpose of partnership in transaction is to gain profit, while profit could be yield by managing the goods, and that is exactly what happened in the contract of trading partnership.
Nevertheless, if the capital comes in the form of goods, it is urgent to be noted down that the one counting as a capital is the selling price of that goods on the signing day of the contract. The purpose is to avoid any clashes about the part of ownership of their company (Read: Nihayat al Mathlab by al Juwaimi: 7/23; al Mughi by Ibn Qudama: 7/14)
The clarity upon capitals
Among the important requirements to be aware of before someone form a trading partnership is the clarity upon capital of each partner. If the capital comes in the form of money, then the amount is indeed clear, and if it is a property, or patent, then the selling value of it must be agreed initially before partnering. After that, it must be written down correctly, to acquire a legal power.
This requirement aimed to avoid any future clashes. Because most partnership are full of tolerance at the beginning. But as time goes, particularly after the business becomes larger, the tolerance running short, and the ambition to gain as many profit as possible growing fast.
وَإِنَّ كَثِيراً مِّنْ الْخُلَطَاء لَيَبْغِي بَعْضُهُمْ عَلَى بَعْضٍ إِلَّا الَّذِينَ آمَنُوا وَعَمِلُوا الصَّالِحَاتِ وَقَلِيلٌ مَّا هُمْ
“Truly many are the partners (in business) who wrong each other; not so do those who believe and work deeds of righteousness, and how few are they.” (Shad: 24)
Among common practice occurred in many companies today is the distribution of blank shares to several parties which are considered or hoped to be meritorious to the company. The holder deserved to get some share of profits in accordance to the percentage of that blank share. But this kind of share possess differences to the usual form of share, which are:
– The blank share possess no exact nominal written upon the share sheet, thus the right will be limited to get an amount of profits (dividend).
– The blank shareholder were not considered a member of shareholders who have the right to attend the board of shareholders, and did not have any power to get involved in decision and policy making of the company.
– Blank shares could be abolished, partly or wholly.
Based on those reasons, most of contemporary scholars forbid the practice of blank shares, with the following argumentations:
First: A blank share is actually a form of service trading, so that the nominal of it’s selling price must be known, and not in the form of percentage which exact number is uncertain. Hence, this blank share is included in the general scope of hadeeth narrated by Abu Huraira – may Allah be pleased with him:
“Allah’s Apostle Shallallaahu ‘alayh wa Sallam forbid a trading which contains gharar (an element of uncertainty).” (Collected by Muslim)
Second: Blank shares usually endangers the future of the company and harms the shareholders.
Third: A blank share usually opens chances for illegal practices, such as forgery, bribery, and other flaw practices. (Suq al Auraq al Maliyah, written by Dr. Khursyid Asyraf Iqbal, pg. 320-321)
The Business Scope of the company
There is no doubt that the scope of business of every company which was built by a Muslim, or built in the state of Islam is limited by the laws of Allah The Exalted. Thus, it is prohibited to anyone to run a business that supplies or markets illegal products and services in Islam.
The Prophet Shallallaahu ‘alayh wa Sallam had underlined this stipulation by saying, “Verily, if Allah forbid one thing, He must forbid the result of it’s selling.” (Collected by Ahmad, Abu Daud, and Ad Daruquthni)
The Foundation of Relationship Among Shareholders
Knowing the foundation of every relationship you create will help you to understand the rights and obligations of every involving parties. Because of that, since times ago, the scholars of jurisprudence had paid close attention upon this affair.
Ibn Qudama said that, “Partnership commonly was based upon representation and trusteeship, because each parties trusted the management of their capital to their partner, and simultaneously permitted them to represent himself.” (Al Mughni: 7/128; also read: Nihayatu al Mathlab: 7/24, and Bidayat Al Mujtaheed: 2/256)
If that is the condition, then each parties were obliged to work to obtain as many profits as possible. That is why, As Suyuthi explained that every one who acted on behalf of others must perform their best to their truster. (Al Asybah wa An Nazhair: 49)
One of the real application of this foundation, is that each parties were not allowed to spend the company’s properties unless to the profiting posts to the company. (Bidayat Al Mujtaheed: 2/256 and Raudhath Ath Thalibin: 3/515)
Characteristic of Contract in Trading Partnership
There is no difference among scholars that the formation of trading partnership is a non-tied up contract. Thus, each partners has rights to end the partnership whenever suits him, as long as it does not cause any losses to his partner.
Just as the contract will be ended whenever one of the partner passed away, unless the heir is willing to continue the partnership and they appoint someone as the replacement of the dead one. (Al Mughni: 7/131, Raudhath Ath Thalibin: 3/515-516, and Bidayat Al Mujatheed: 2/225-256)
Rights and Obligations of Each Partner
Dear brother, in the matter of rights, I believe you must be knowledgeable that the main right of each trading partner is to get a part of business profits. The strongest opinion regarding the profits shares is the one allowed the share, appropriated to the agreement, even though it is not linear to nominal of each partner’s capital.
The reason is that profit in business was yielded not merely from the capital alone, but also from the efforts and skills of all involving parties. That is why, it is possible that the effort and roles played by several parties are more dominant compared to the rest in yielding profits. Thus, it is appropriate for the most dominant partner to get bigger dividend than the others. This is the opinion of Madzhab Hanafee and Hambalee. (Al Mughni: 7/138 and Bada’i As Shanaii: 6/62)
Just as each partner possess the right to join the policy making and the movement of the company, each of them possess it proportionally to the capital they have. However, in today practice, there is one termed as preferential share.
The owner of such share have several strengths compare to the usual shareholder, which are:
- Acquire a guaranteed dividend, in a constant amount, and in a certain percentage of the total shares, whether the company gains profits or losses.
- Possess the right to obtain the dividend in advance.
- Possess a higher/stronger right to voice out compared to the usual shareholder.
To understand the ruling of the preferential share, you need to address two points below:
The Scholars have agreed that one’s loss must be linear to the number of share possessed, since the meaning of business loss is that the shrinking of business capital. Thus, the obligation of each partner over all losses and company’s risk is just as the percentage of their shares to the total shares of the company.
Each partners only deserved of dividend if the company truly gain profits. By this, if the company failed to achieve profits, the partners were not rightful of dividends.
The amount of dividend obtained by every partners is linear to the amount of company’s profits. Hence, the dividend of each partner is fluctuating, and not constant
By those three frames, it is concluded that the preferential share contains an element of usury, thus the ruling is clearly forbidden.
The explanation I’ve mentioned above is just a brief description of various rulings of trading partnership in Islam. I need to stress here, that the door to fallacies is always open. Due to that, advices and critics are valuable for each of us. I hope that this article will motivate you to be more zealous in studying this beloved shariah of us. And by that, you will get closer to Allah The Exalted.
And Allah knows best.
Author: Dr. Muhammad Arifin Badri, M.A.
Article of syaria.com