There are two persons that want to start a business. One of them is going to invest in the business and the other is just going to look after the business. Could you kindly give me the options that they may use and how will the profits be shared?

There are two persons that want to start a business. One of them is going to invest in the business and the other is just going to look after the business. Could you kindly give me the options that they may use and how will the profits be shared?

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

There are many options that you may consider. Hereunder are a few options:

1. Mudarabah (Joint business partnership)

Mudarabah is a partnership wherein one partner contributes investment capital to the partnership while the other partner contributes management skills to the partnership. The investor is referred to as the Rabb al-Mal while the entrepreneur is referred to as the Mudarib.

In a Mudarabah partnership, a fixed profit ratio/percentage may be fixed. For example, partner A receives 60% of the profits while partner B receives 40% of the profits. However, a fixed amount cannot be fixed nor can a percentage on the capital investment be fixed.

All losses will be attributed to the investor. The Mudarib will merely lose his efforts in managing the Mudarabah portfolio.

The Mudarib cannot be entitled to a separate salary/wage for managing the Mudarabah portfolio. His percentage ratio may be increased to compensate him.[1]

You may download a copy of our Mudarabah Contract at: http://daruliftaa.net/index.php/publications

2. Ijarah (Employment/Hiring)

The investor may employ the entrepreneur as a manager of the business. He will only be entitled to a fixed salary/wage. He will not be entitled to a share in the profits of the business as he is not a partner in the business; rather he is an employee (Ajeer) of the business.

You may download a copy of our Employment Contract at: http://daruliftaa.net/index.php/publications

You may contact the Darul Iftaa for further details or make an appointment with the Islamic Finance Division (IFD) of the Darul Iftaa.

Darul Iftaa Contact Details:

Tel: 031 207 5772

Cell: 072 786 4923/084 299 8390

Physical Address: 35 Candella Road, Sherwood, Durban, South Africa.

We are temporarily based at 07 Sandringham Place, Sherwood, Durban, South Africa.

And Allah Ta’āla Knows Best                                       

Ismail Desai,
Student Darul Iftaa
Durban, South Africa

Checked and Concurred by,
Moulana Abdul Azeem Bin Abdul Rahmaan

Student Darul Iftaa