I am seeking clarification a certain matter. in Fatwa: # 16884 on your website you satate that the parentrs in the business cannot draw a fixed salary. However on your affilated website i came accross the following ruling:http://darulfiqh.com/can-a-director-of-a-limited-company-draw-a-regular-salary-along-with-dividends/. Please could you clarify for me if a working shareholder in a business is allowed to draw a fixed salary as is stated in the above link if they have a separate contract. If so what would be the exact conditions for such an arrnagement if it is permissible.
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
There are differences of opinions regarding a partner being an employee of the company and consequently drawing a fixed salary.
One opinion is that it is not permissible for a partner to be an employee and draw a fixed salary. If an active partner requires to draw money to fulfill his needs, that drawing will be against his account and balanced from his share of profits.[i]
According to another opinion, it is permissible for a partner to be an employee in the business with the following conditions:
Ø The employment contract be an independent contract from the partnership agreement without one contract being a condition on the other. Thus, it will not constitute two transactions in one.
Ø One will be entitled to a salary in lieu of the work regardless of profits or loss of the business/company.
This is also the view of Mufti Rasheed Ahmed Ludhyanwi Rahimahullah and other senior Ulama.
According to this opinion, there will be two separate contracts:[ii]
1. Partnership/Shareholder Agreement
This is mutual agreement wherein two or more partners invest some of their capital or undertake to render some services to customers in which all the partners share the profit or loss of the joint venture on an agreed ratio. In this agreement, it is not permissible for one to draw a fixed salary.
2. Employment Contract
This is an employment agreement with a defined job description, hours of work and a fixed salary. This contract must be independent of the Partnership/Shareholder Agreement. The salary is independent of the profits one receives from the business as a partner/shareholder. Accordingly, one will be entitled to a salary in lieu of the work regardless of profits or loss of the business/company.
If the two contracts are independent and separate from each other and one receives a salary in lieu of his employment work regardless of profits or loss from his partnership contract, the fixed salary received from one’s employment contract will be Halal.
We have reviewed our opinion. We have observed that it is now a norm (Urf) in partnership for an active partner to draw a salary. Our answer in Fatwa: #16884 was adopted at a time when it was not a general norm (Urf) for a partner to be an employee and receive wages for his services. We have now adopted this ruling based on the present norm.
And Allah Ta’āla Knows Best
Hammad Ibn Ismail Jogiat
Student Darul Iftaa
Cambridge, Ontario, Canada
Checked and Approved by,
Mufti Ebrahim Desai.
[i] نَهَى رَسُولُ اللهِ صَلَّى اللهُ عَلَيْهِ وَسَلَّمَ عَنْ صَفْقَتَيْنِ فِي صَفْقَةٍ وَاحِدَةٍ
Translation: “The Messenger of Allah (Salallahu Alayhi Wasallam) forbade two transactions in one”
[ii] احسن الفتاوى (ج:7 ص:328)
فتاوى دار العلوم زكريا (ج:5 ص:732)
فتاوى قاسمية (ج:20 ص:57)
امداد الفتاوى (ج:3 ص:518)
This answer was collected from Askimam.org, which is operated under the supervision of Mufti Ebrahim Desai from South Africa.