Question
Two people invest in a company. They are 50/50 shareholders/owners. Both partners approach Zaid and tell him that you manage the company and we will give you 25 percent of the share. So he will be 25 percent shareholder in the business.
A) Is this permissible and what type of transaction is this in shariat?
B) In the case where the company goes in a loss how will we calculate the loss? Who will bare the loss? All 3 or only 2?
Answer
The two people that had invested in the company are the shareholders or the owners of the company as they had equally invested capital in establishing or purchasing the company. Now they require a person to manage their company for which they are prepared to give 25% of the profits. If they are offering a 25% share to make him a partner in their company then such a partnership will not be valid in terms of Shariah, as it is necessary for a person to purchase a share in the company to qualify as a shareholder, whereas in our scenario this person has not purchased a share or portion of the business.
This manager will be regarded as an employee of the business for which he will have to be paid a fixed and stipulated remuneration. If the remuneration is not fixed then the hiring contract between the employer and employee will be invalid (as in our scenario). By stating that he will receive 25% of the profits, the remuneration will not be regarded as fixed, as the turnover of the business fluctuates resulting in the net profit being inconsistent. This will result in the remuneration also fluctuating and remaining vague and inconsistent.
In such a situation where the salary was not fixed but the employee had already served the employer, the manager will receive Ujrat-e-Mithl (a salary which other managers in the same field of occupation earn). Therefore in the event of the company suffering losses, the losses will be borne by the two partners alone and not the employee/manager.
Checked and Approved By:
Mufti Muhammed Saeed Motara Saheb D.B.
References
وحكم الاول وهو الفاسد وجوب اجر المثل اي اجر شخص مماثل له فى ذلك العمل
(شامي ص٤٦ ج٦)