Home » Hanafi Fiqh » ShariahBoard.org » Muhtarram Mufti Sahib, As salamu alaykum wa Rahmatullahi wa Barakatuhu, Does Islam accept the notion of “LIMITED LIABILITY” as envisaged under prevailing corporate structure of the global economy?

Muhtarram Mufti Sahib, As salamu alaykum wa Rahmatullahi wa Barakatuhu, Does Islam accept the notion of “LIMITED LIABILITY” as envisaged under prevailing corporate structure of the global economy?

Answered as per Hanafi Fiqh by ShariahBoard.org
Muhtarram Mufti Sahib, As salamu alaykum wa Rahmatullahi wa Barakatuhu, Does Islam accept the notion of “LIMITED LIABILITY” as envisaged under prevailing corporate structure of the global economy?

According to Justice Mufti Mohammad Taqi Usmani on a Pakistan-based Islamic Bank’s [ Meezan Bank ] website [http://www.meezanbank.com/knowledge-islamic-section-7-3.asp] Islam does accept the notion of “LIMITED LIABILITY”.

Muhtarram Mufti Sahib cites the examples of (i) WAQF, (ii) Baitul-Mal, (iii)Joint Stock, (iv) Inheritance under debt, & (v) Limited liability of master under Master-Slave business relationship to substantiate his views. Although, he does admit that these are only initial thoughts & he points out the need of further research on this specific issue. If Islam does accept the notion of “LIMITED LIABILITY” then what are the obligations of a person running a company. E.g. what would be the status of a person who is the Chief Executive Officer or Chairman of a private limited company, and he/she dies whilst his/her company is highly indebted. What if these debts are caused due to: (i) His/Her negligence & laziness & not taking interest in the business. (ii) Unforseen causes beyond his/ her control e.g. business slump? What if the person is only a member of the board of directors and is not the Chief Executive Officer or Chairman? Would they fall under the rubric of the warning of Rasullah Sallahu Alayhe Wasallam for a person who dies whilst in debt & no one is there to take care of his debts? Would the ruling be different if its a PUBLIC LIMITED COMPANY? What if the TOTAL ASSETS of the company he has left are significantly LESS than his company’s debts? According to Muhtarram Mufti Taqi Usmani sahib the creditors could ONLY claim UPTO the value of the company & nothing beyond, even if he/she has other assets independent of the indebted company. Would that imply that the person would be absolved of these debts in Aakhirah? If the company’s debts cannot be cleared by liquidating all the assets of the company only would the dependants be required to pay off company’s debts by forgoing their rights in the inheritance of the deceased? What if the liabilities cannot be paid off even if the “Wuraasaa” forgo all of their rights in inheritance? Jazak Allah Khair for your time & effort.

Muhtarram Mufti Sahib, As salamu alaykum wa Rahmatullahi wa Barakatuhu, Does Islam accept the notion of "LIMITED LIABILITY" as envisaged under prevailing corporate structure of the global economy?

A person is liable only for that amount which he has pledged for or the amount that someone deposited with him, or what he deposited with somebody else. This is why any thing that mufti Taqi Usmani Saab said regarding the issue of liability is accurate. He is among the most reliable and authentic scholars of our time he is also an expert in economics and finances. As far as the issue of this work being in its initial stages as you think, is not right and is due to your misunderstanding. The Islamic economic system has been in vogue for 1400 years it is obvious that it was in its true form through out the history except that just in the recent history some more new things have come in the market, which also have been thoroughly analyzed and studied. Therefore, the issue of finances, economics, and liabilities is not new.

If a person is indebted to someone and he dies. In this case, we would look at his estate and from that we would first pay off his debtors before distributing his estate among the heirs. For example, if a person has hundred thousand dollars in the form of a house, car, and a bank balance and he owes $50,000 that could also include the dowry of his wife then we would pay off the debt first then distribute the rest of the money among the heirs. Also, the debt, he incurred from his business and the expenses for his burial are also his own responsibility to pay off. But if his children, voluntarily take the responsibility to pay off these debts and expenses then it is their discretion. If after distributing the money to the debtors nothing is left for the heirs then the heirs would not get anything. Because the rights of people over the deceased are covering his entire estate in which case his estate would be used to pay off the debts and the rights of the people. If the deceased person has more debt than the estate he left behind then his heirs are not responsible for his debt. But if they pay off the debt voluntarily that would be fine. If a person dies, with his estate behind while still in debt then he would be liable on the Day of Judgment. Also, if his heirs distribute the money among themselves without paying off the debtors then they would also be liable on the Day of Judgment.

If a person dies, while in debt, but he had an intention to pay off his debt and he did not leave any thing before death then he would not be liable. Allah s.w. would create some means to forgive this person and grant the debtor his money through some other source and he would be pleased. Other than that, the rights of people have to be fulfilled.

The issues of inheritance and endowment, etc. are lengthy, if there’s something specific you want to ask then you should.
Otherwise, they are very lengthy to discuss now.

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This answer was collected from Shariahboard.org. It was established under the supervision of the eminent faqih of our era, Hazrat Shah Mufti Mohammed Navalur Rahman damat barakatuhum.

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