Motor Vehicle Partnership

Answered according to Hanafi Fiqh by Askimam.org

 

I would like to know I buy and sell expensive motor vehicles.My customers are mainly car hire companies.The companies most of the time pay me after 80-90 days.

My expense on each car is R10 000-00.My net profit is R30 000-00

I have a certain person who would like to join me in the business,and put down a certain amount of capital.

My question is can I tell him after net profit you will get in the region of +-15k,would that be fine?or

Can I tell him after expense the net profit will be shared in the region of +-15% without a guarantee?

Please advise.

The next question is can I work out the profit with him according to his capital?

Please advise.If so can you put an example.

Answer

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

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

Please take note of the following points in relation to the appropriate distribution of profits in a partnership[1]:

1). The proportion of profit to be shared between the partners must be agreed upon at the time of effecting the contract of partnership. It is not a condition for the profit sharing to be proportionate to the investment, unless one of the partners is a sleeping partner.

For example: Persons A and B invest R50,000 each. Persons A and B may share the net profit on a 50/50 basis, or 40/60, or any other ratio they agree upon.

Second example: Persons A and B are partners. A has invested R60,000 and B has invested R40,000. However, B is a sleeping partner. Therefore, the profit may only be shared on a 60/40 basis, respectively.

2). As alluded above, the ratio of profit must be determined in proportion to the actual profits realized, and not in proportion to the capital invested.

For example: A and B are partners in motor car sales. A invested R20,000 and B invested R30,000. If it is agreed that A will receive 20% of his investment, the contract is invalid.

3). It is impermissible to fix a lump sum for any partner in the business.

For example: A and B invested in motor car sales. If it is agreed that A will receive R15,000 regardless of the amount of profit, or loss, the business accrues, the contract will be invalid.

4). Any loss in the business will only be distributed pro rata to the capital.

For example: A invests R40,000 and B invests R60,000. They agree to share the profits 50/50 (which is permissible, see point #1). However, if the business incurs any loss, the loss will be shared on a 40/60 basis and not 50/50.

5). It is permissible to tell the potential investor that his profit will (most probably) fluctuate within a certain region based on your experience in the business (as a mere speculation, not a profit sharing basis). As such, even if you are grossly wrong in your speculation, the profit will still be shared on the proportion which was agreed upon at the time of the contract.

For example: A is an experienced motor cars dealer and B wishes to invest with him. B is looking to make a profit of ~R15,000 a month. Based on his experience, A tells B that if B invests with him, he is looking at ~R15,000. A and B agree to share the net profit on a 70/30 basis, respectively. Unfortunately, motor car sales drop considerably this month. As such, a net profit of only R25,000 is realized this month. As such, A will receive R17,500 and B will receive R7,500. A’s speculation will not be considered.    

 

And Allah Ta’āla Knows Best

Hisham Dawood

Student Darul Iftaa
Chicago, USA

Checked and Approved by,
Mufti Ebrahim Desai.

 

 

 

 

 


[1] An Intoduction to Islamic Finance by Mufti Taqi Usmani

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