Q: Could you please explain to me the basic laws of a partnership and how will the profit sharing take place?
A: Contracting a shirkah (partnership) between two of more people is permissible provided each partner invests capital and the profit ratio is mutually agreed upon at the onset. It should be borne in mind that it is not a precondition for the validity of the shirkah (partnership) that the profit sharing be in proportion to the capital investment. Rather, if a partner’s total investment is 30% he can receive more or less (e.g. 50% or 20%) of the profits provided this is done with mutual agreement. In a running partnership, it is incorrect for any partner to independently contract a partnership (in the same company) with any outside party without the consent of the other partners. If all the partners invested capital but some are actively involved in the running of the business and some are sleeping partners, then it is a condition that the active partner’s share of the profit should not be less than his capital investment. It can be equal to his capital investment or more (in this case the partnership will follow the laws of a mudhaarabah partnership).
And Allah Ta’ala (الله تعالى) knows best.
Mufti Zakaria Makada
Checked & Approved:
Mufti Ebrahim Salejee (Isipingo Beach)