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Distribution of earnings between partners for various types of partnership.

Published: 24/08/2011 10:52:00 AM GMT
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In Islamic law, can a partnership be set up where one party (Party A) invests all the money and the other party (Party B) invests time, energy, and expertise? Financially, can Party B draw a salary and partake in the profit and loss?

Answered by

Sheikh Mûhammad al-Ghâmidî, professor at King Khâlid University

There are several types of companies that are recognized by Islamic Law. In one type, the capital may be provided by all partners. After that, all of them will share in the work, though possibly one of them may take charge. This is called an `anân company. The capital will be provided by all the partners and the work also by all of them. The executors should all possess legal accountability, be mature and intelligent. The capital must be from legal means, their intended work must be permissible, and the share of each partner must be predetermined and known as either a fraction or a percent. Scholars have described in detail the extent of each partner’s responsibility.

In another type of lawful company, the capital will be from all partners but only some of them will handle the company’s activities. The one taking charge of the company’s activities will be entitled to receive additional compensation in addition to his share in the profit from the capital. For example: if his share was one quarter of the capital then his share will not be confined to the quarter only. He should get something in compensation for his work as well.

Another type of legal company is where the capital is from one or some partners while the person in charge of the company’s activities does not share in the capital but only manages the company’s activities. In this case, the person may not receive a salary along with being a partner in the profit. He may get his share in the profit only as a fraction or a percentage. However, this partner will not be charged with any loss. Any loss will be borne by the contributors of the capital.

And Allah knows best.

Source: Islam Today

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