In the light of the Quran and Hadith, the jurisprudential rulings and issues of partnership: Volume 02: Page 103
Question
Peace be upon you and God's mercy and blessings
Partnership and its types
Answer with the help of the Bestower, provided the question is correct
And peace be upon you and God's mercy and blessings!
الحمد لله، والصلاة والسلام علىٰ رسول الله، أما بعد!
It is very important to know the issues of partnership, as many people encounter them in trade. Partnership refers to mutual cooperation to gain and increase financial benefits; partners also benefit from each other's experiences.
There are evidences in the Quran and Sunnah regarding the permissibility of partnership in trade, etc. Allah Almighty says:
﴿ وَإِنَّ كَثيرًا مِنَ الخُلَطاءِ لَيَبغى بَعضُهُم عَلىٰ بَعضٍ... ﴿٢٤﴾... سورة ص
"And indeed, most partners (shareholders) oppress one another."
Reference: p. 38:24
This verse indicates the permissibility of partnership and simultaneously prohibits a partner from oppressing another partner.
One evidence for the permissibility of partnership from the Sunnah of the Messenger ﷺ is this Hadith: "إِنَّ اللَّهَ يَقُولُ أَنَا ثَالِثُ الشَّرِيكَيْنِ مَا لَمْ يَخُنْ أَحَدُهُمَا صَاحِبَهُ فَإِذَا خَانَهُ خَرَجْتُ مِنْ بَيْنِهِمَا "
"Allah Almighty says: I am the third of two partners as long as one of them does not betray the other, and when betrayal occurs, I withdraw from them."
Reference: (Weak) Sunan Abi Dawood, Al-Buyu, on Partnership, Hadith 3383; Sunan Al-Daraqutni 3/31, Hadith 2910; Al-Sunan Al-Kubra by Al-Bayhaqi 6/78, and the wording is from both
This Hadith emphasizes not only the permissibility of partnership but also the strong admonition against betraying each other's rights. The purpose of partnership is mutual cooperation, and this principle was articulated by the Prophet ﷺ as follows:
"And Allah Almighty helps His servant as long as the servant continues to cooperate with his brother."
Reference: Sahih Muslim, Dhikr and Dua, Chapter on the Virtue of Gathering for the Recitation of the Quran and for Remembrance, Hadith 2699
In business partnerships, the wealth involved must be lawful and pure, and it is essential to completely avoid any unlawful wealth or mixture of the unlawful.
If the supervision of buying and selling in a partnership is in the hands of a Muslim, then it is also permissible for a non-Muslim to be a partner in the partnership; because in this case, the risk of including usurious business or haram wealth is reduced.
Types of Partnership
There are two basic types of partnership:
① Partnership of Assets
② Partnership of Contracts
◈ Partnership of Assets: This means sharing in entitlement, such as being a partner in the ownership of land, factories, vehicles, etc.
◈ Partnership of Contracts: This means sharing in the act of disposal, such as buying and selling or renting something, and each partner having the right to dispose of it.
In a partnership of contracts, the sharing can sometimes be in both capital and labor, and sometimes only in labor (not in capital). Its five forms are as follows:
① Both partners contribute capital and also work: this is called "Shirkat-e-Anan."
② One partner provides capital and the other works: this is "Mudarabah."
③ Both take responsibility without capital: this is called "Shirkat-e-Wujooh."
④ Both engage in physical labor: this is "Shirkat-e-Abdan."
⑤ Complete delegation and authority sharing in all matters: this is called "Shirkat-e-Mufawadah," and it encompasses Shirkat-e-Anan, Wujooh, Abdan along with Mudarabah.
This was a brief outline of the types of partnership. Now, some details of each type will be presented considering their necessity.
Shirkat-e-Anan
"Shirkat-e-Anan" means that two or more partners share in capital and management, and generally both contribute their capital and labor.
The arrangement is that two (or more) individuals combine their capital to create a total investment and agree that:
✔ We will all do business together, or
✔ If one does business, he will be given more profit compared to the other.
In this regard, "Shirakat-e-Anan" is unanimously permissible, as mentioned by Ibn Mundhir (may Allah have mercy on him), although there is disagreement among scholars regarding some of its conditions.
In this joint property, both parties can act independently and as agents, meaning one does not need to seek permission from the other.
The scholars agree that in partnership business, the original capital should be in the form of gold and silver coins/currency, because from the time of the Prophet (peace be upon him) until today, people have been engaging in partnerships without objection on this basis, and no reputable scholar has raised an objection to it.
However, if the original capital in Shirakat-e-Anan is in the form of goods/items, then there is disagreement regarding its permissibility or impermissibility:
◈ Those who say it is impermissible argue that the value of goods can fluctuate, which disrupts the equal distribution of profit; one party's wealth may increase while the other unjustly becomes a partner in it, and there is also a risk of rights being violated and the unlawful consumption of wealth.
◈ According to those who permit it, the purpose of partnership is that all partners have control over the entire wealth and share the total profit among themselves; this purpose can also be achieved through goods like cash, and this is the more accurate statement.
For the permissibility of a partnership of the type known as 'Shirakat-e-Anan', it is a condition that the distribution of profits is determined according to shares, for example, one-third, one-fourth, etc.; because the profit is common and each partner's share will be clear according to the condition.
If:
✔ Each partner's share is left ambiguous, or
✔ A specific condition is placed for the profit of a particular asset for one partner, or
✔ The profit of a limited time or specific journey is designated,
then in these cases, the partnership of 'Shirakat-e-Anan' is not permissible; because sometimes there is profit in a specific share and sometimes there is not, and sometimes more is obtained than the determined profit.
The result is that such situations lead to disputes and disagreements, and there is a fear of one party's efforts being wasted; therefore, Islamic law prohibits us from this, as the law was revealed to protect people from deception and loss.
Statement of Mudarabah
The word "Mudarabah" is derived from "Darab," which literally means to travel in the land (for the sake of trade). Allah Almighty says:
﴿وَءاخَرونَ يَضرِبونَ فِى الأَرضِ يَبتَغونَ مِن فَضلِ اللَّهِ...﴿٢٠﴾... سورة المزمل
"And some others will travel in the land seeking Allah's bounty (provision)."
Reference: Al-Muzzammil 73:20
In legal terminology, Mudarabah is:
◈ One person provides capital, another conducts business with it, and the profit is shared between them according to the agreed-upon portions.
The condition for the validity of Mudarabah is that the working party (the agent) has a specified share in the profit, as they become entitled based on this condition.
This business arrangement is unanimously permissible, because during the time of the Messenger of Allah ﷺ, partnerships were conducted, and he ﷺ upheld it. There are reports from Sayyidina Umar, Uthman, Ali, and Ibn Mas'ud (may Allah be pleased with them) regarding this, and none of the Companions (may Allah be pleased with them all) opposed it.
Analogy and wisdom also demand the permissibility of partnerships, as people have a need for it, and wealth increases only through trade.
Imam Ibn Qayyim (may Allah have mercy on him) states:
"In a partnership, the person conducting the business is a trustee, a laborer, an agent, and a partner... When he takes possession of the money, he is a trustee; when he acts, he is an agent; due to performing certain tasks, he is a laborer; and in the case of profit, he is a partner... The condition for the validity of a partnership is that the share of the worker is specified..."
Reference: Zad al-Ma'ad 1/161
Ibn Mundhir, may Allah have mercy on him, states:
"The scholars agree that the agent should stipulate a condition to take one-third or one-fourth of the profit with the owner of the wealth, or any agreement made with the consent of both is valid. If the owner of the wealth has fixed all the profit for the agent, or has specified the amount of profit (for example, one thousand rupees), or has left an unknown share, then this contract will be invalid."
Reference: Al-Mughni and Al-Sharh Al-Kabir 5/140
The determination of the agent's profit will be with the consent of both:
✔ If the owner says: "You trade, the profit will be divided between us," then both will receive half each, just as it is said: "This house is shared between you and me," thus entitling each to half.
✔ If the owner says: "My share of the profit will be three-quarters/one-third," or "You will receive three-quarters/one-third," then this is also valid; if one party's share is specified, the remaining will belong to the other party.
If there is a dispute about who the specified share (for example, one-third) was for, it will be considered for the worker, whether it is less or more; because the worker has become entitled to this share due to their work, and according to circumstances, the worker's share can be adjusted to be less or more. Even the shares of two workers doing the same job can be different, as one may be more skilled and the other less.
In summary, the worker's right is established by the condition, while the owner of the wealth is entitled to profit due to their wealth, not because of the condition.
If the partnership becomes invalid:
◈ The profit will go to the owner of the wealth because the profit was generated from their wealth.
◈ The worker will receive the customary wage for such work, because their entitlement was based on the condition, and in the case of invalidity, that condition is no longer valid.
Mudarabah can be for a limited duration, for example, the owner may say: "I give this dirham for mudarabah for one year." Similarly, mudarabah can also be conditional upon a permissible condition, for instance: "When such and such month arrives, then do the mudarabah" or "When you receive my goods from Zaid, then it will remain with you for mudarabah." The reason is that mudarabah is the permission to utilize the capital, therefore it can be made conditional on something related to the future.
It is not permissible for the agent to start mudarabah with someone else's capital unless he has the prior permission of the owner/mudarib; because the increase in the second capital may either affect the first trade, or the engagement of the first capital may cause a delay in the second's work. However, if permission is granted or there is no fear of loss, then there is allowance.
If the agent has engaged in a partnership with another without prior permission and the first party has incurred a loss, then the right of the first party will be deducted from the profits of the second partnership; then the agent's share will be added to the profits of the first partnership, and the total amount will be divided between the agent and the first owner according to the agreed terms, because the right of the first party is included in the profits obtained from the second party.
The agent should not deduct separate expenses for travel and food from the partnership capital unless there is a condition with the owner; because he is taking a specific share of the profits according to the agreement, he does not have the right to take extra without a condition, unless it is customary and known in that context.
As long as the contract of partnership remains in effect, profits should not be distributed unless both parties agree to the distribution; because the principal capital is preserved through profit, and in the case of loss, the deficiency is compensated from the profit. If profits are distributed during the contract, then there remains no means to cover the loss. For this reason, the agent only becomes entitled to compensation when the principal capital is fully preserved.
The agent is a trustee; he should fear Allah in his responsibilities. In the case of loss or destruction of the property, his word will be considered valid. If there is a dispute over whether the agent purchased something personally or for the partnership, the agent's word will be accepted, as he is considered a trustee.
Partnership of Resources
The partnership of causes is when two or more individuals purchase something on a shared responsibility basis, then sell it and distribute the profit according to agreed terms (similarly, both can be affected in case of loss). It is called "partnership of causes" because the original capital is not present; rather, each partner's responsibility, market influence, and people's trust, etc., come into play. Based on this, they engage in buying and selling and distribute profits as per the conditions.
The evidence for its validity is the prophetic saying:
"المُسْلِمُونَ عَلَى شُرُوطِهِمْ"
"Muslims should adhere to the agreed terms."
Reference: Jami` at-Tirmidhi, Al-Ahkam, Chapter on what has been mentioned about the Messenger of Allah (peace be upon him) regarding reconciliation among people, Hadith 1352
This type is similar to "partnership of the reins," and therefore its ruling is the same.
In this, each partner is also an agent for their companion and a guarantor for the price; thus, it is also related to agency and guarantee.
The distribution of profit will be according to the terms and based on the ownership of the asset, for example, half or more or less. Similarly, the loss will also be in proportion to ownership: the one who owns half will bear half the loss.
In summary, each partner will receive profit according to the terms, for example, half, a quarter, or a third—because some may have more market confidence, some may have more experience, and some may have more effort and character; thus, the terms will be adhered to.
In the partnership of causes, the abilities and competencies of each partner will also be taken into account, as is the case in a partnership of management.
Partnership of Bodies
In this, two or more individuals mutually agree to work through physical labor, and any earnings will be equally distributed among them or in the ratio they decide.
The evidence for its justification is the statement of Hazrat Abdullah bin Mas'ud (may Allah be pleased with him):
"I, Sa'd (may Allah be pleased with him), and Ammar (may Allah be pleased with him) agreed on the day of Badr that whatever spoils of war we obtain today, we will all be equal partners in it. Consequently, Sa'd (may Allah be pleased with him) brought two captives while I (Abdullah) and Ammar (may Allah be pleased with him) brought nothing."
Reference: (Weak) Sunan Abi Dawood, Al-Buyu', Chapter on Partnership without Capital, Hadith 3388; Sunan An-Nasa'i, Al-Buyu', Chapter on Partnership without Capital, Hadith 4701
Imam Ahmad (may Allah have mercy on him) states:
"The Prophet (peace be upon him) maintained their (Abdullah bin Mas'ud, Sa'd, and Ammar may Allah be pleased with them) partnership."
Reference: Al-Mughni wa Al-Sharh Al-Kabir 5/111
When partners have made an agreement, if one of them takes on a responsibility, the remaining partners should also fulfill it, as this is the demand of the agreement.
If the skills and work of the partners are different, then bodily partnership is permissible, for example: one sews clothes and the other works with iron. Each one has the right to demand and receive wages, and the employer can pay any one of them, because each partner is an agent of the other. Then the wages obtained will be equally distributed among all partners.
Partnership in permissible matters is valid, such as:
✔ Collecting wood
✔ Picking fruits from mountains
✔ Extracting something from a mine
If one partner becomes ill, the income earned from the labor of the other will also be divided between them, just as the companions participated in the two captives of Sa'd (may Allah be pleased with him).
Reference: Sunan Abi Dawood, Al-Buyu, Chapter on Partnership without Capital, Hadith 3388
If the healthy partner demands that a deputy be appointed for the ill partner, it is obligatory to fulfill this demand, because both entered into the agreement to work within the scope of partnership. If the ill partner is disabled and does not appoint a deputy, the other partner will have the right to terminate the contract.
If two or more individuals (who have their own means of transport/vehicles) agree that we will load goods or passengers onto our respective animals/vehicles and any income generated will be equally divided among us, then this partnership is also valid, as it is a form of earning.
Similarly, if someone gives an animal or vehicle to another and it is agreed that they will earn from it and share the income, this is also permissible.
If three individuals come together—one has a horse, the second has a carriage, and the third works as a coachman—and they equally divide the income, this is also correct and permissible.
If two or more individuals enter into a partnership in brokerage, for example, both call out to sell goods or search for customers, this is also permissible and the earnings obtained will be equally divided between them.
Partnership Negotiation
In partnership negotiation, each partner grants the other all rights of financial and physical participation. This partnership encompasses all forms of partnership, including 'anān, muḍārabah, wajūh, and abdan—meaning all partners share equally in rights and obligations.
This type is permissible because it combines all the partnerships that are individually permissible; therefore, when permissible types are combined, there is no reason for them to become impermissible.
The rate of profit will be implemented as mutually agreed upon; however, in the case of a loss, they will bear it in proportion to their capital.
Islamic Sharia has expanded the scope of earning and income within permissible limits and has declared it permissible for a person to earn alone or to partner with someone. The condition is that the agreed-upon terms must be adhered to and no impermissible or forbidden condition should be included. This makes it clear that Sharia is applicable in every era.
We pray to Allah that He guides us to follow His Sharia, keeps us steadfast on it, and grants us the ability to follow and perform righteous deeds. Indeed, He is the All-Hearing and the All-Accepting.
ھذا ما عندی والله اعلم بالصواب
