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Dissolving A Business Venture

Question

I need your assistance in dissolving a side line business that my cousin and I decided to go into.

Some brief facts of our agreement:

I was to provide the start up capital (R6,400-00 worth of Equipment and Tools was bought). I was also supposed to pay for labour and the cost of materials to produce the product. Basically, my cousin had the know how and he would over see the work and I would finance the operation and the agreement was we would split the profit 50/50.

We wanted to build up some production, then get others to sell for us. My cousin did make a few sales and the arrangement was all the sales money would be deposited into a nominated bank account which was on my name, so all the cost was paid out of the same bank account as well, that would make it easy to reconcile.

I did print an agreement from the Darul Iftaa website and hand over to my cousin (I think it was a Muraba contract but it was never signed and I also never followed up on it either).  When I gave him the agreement around that time he mentioned that if the business does not work out, I must give him the first option to buy the Equipment as he can use the equipment in his main line business.

After about 2 months there was a big sale that he concluded for about R5,000-00 which my cousin had good intentions of depositing into the account but he was waiting for me to pay some cost first and because it was Ramadan if I remembered correctly I delayed the payment  by a few days and Allah knows best but he never deposited the 5k.  From then on all operations stopped. I did not put any pressure on him because I did not want this to ruin our relationship.  In ___ ____I asked him to please sort out the money and he then told me that he is in a bit of financial pressure and that I must give him some time. So Alhumdulillah, I did agree and like that over 2 years have passed, no production and no sales. 

Recently he told me that his new side line business with his wife is picking up and doing really well.

So I sent him a message  highlighting that we need to dissolve the business as it does not look like there is any hope in our little business starting up again.

According to me there were 3 major discussion points:

1) He owed the business about R5,000-00.

2) The equipment and tools worth about R6,400 was still in his possession

3) He had 2 units in stock by him. Estimated value about R700.

Once the R5,000-00 is deposited into the bank, we will be both entitled to a profit share of +- R2,100-00 each.

He contacted me telephonically said we need to meet to discuss and I agreed but then I asked him if we can discuss telephonically since to me it was quite simple to dissolve. It was then that he mentioned that around  ___ ____, his equipment was stolen, and part of the stolen equipment was the equipment purchased for our business to the value of +- R4,100-00. That leaves only one piece of equipment to the value of +-R2,300-00 in his possession.

I need to know Islamically what is correct?

Also, a point to be noted when I inquired about the use of the equipment during these past 2 years as there was no action in our business, he said he used it as back up equipment for his own private business ie. When his equipment broke or needed attention, he would use our business equipment to continue with his operations.

So in summary again,

1) He is owing the business R5,000

2) Once the R5,000 is paid, we are both entitled to a profit share of R2,100 each

3). There is stolen equipment and tools to the value of R4,100.  Who bares the loss of this?  Do we share this equally? Do I bare all of it?

4) There is one piece of equipment which he his willing to pay for and he wants it, not sure how much should be charged as that equipment is worth more today brand new.  This equipment was used for a very short while for our business and it was always in his possession up till today.

5) There is stock that could have been sold for about R700 /R1,000 which he used some it for his private use.

Please assist us in dissolving this correctly according to Shariah.

Answer

From the particulars furnished by you, this was a Mudharabah contract between you and your cousin, where you provided the capital and he, the work and effort. After studying the details, we suggest that you implement the following procedure:- 

Your cousin first and foremost has to deposit R5000, then he must sell the two units of stock (hat he still has) and add it to the total sum, if he had used some of it then he is liable to pay back the value of that amount which he used. Whatever is left of the equipment he must sell it and also add it to the total sum.

Once this is done you will calculate how much money you have made. After this you will take from this total sum however much capital you invested in to this business (meaning whatever your startup capital was and whatever you paid for in terms of labour and material costs). Whatever is now left will be classified as net profit. For the equipment that was stolen, the value of it (+-R4100) will be deducted from the net profit which was made. Once this is done, whatever is now left of the net profit will be split between you and him 50/50. If the value of the stolen equipment goes beyond the profit margin and in to the capital, then your cousin will not be held liable.

 

Checked and Approved By:

Mufti Muhammed Saeed Motara Saheb D.B.

References

(مادة ١٤٢٤) اذا عزل رب المال…..لكن اذا كان في يده اموال غير النقود فيجوز له ان يبيعها و يبدلها بالنقد (المجلة ص٢٧٥)

الاصل أَن قسْمَة الرِّبْح قبل قبض رب المَال رَأس مَاله مَوْقُوفَة، إِن قبض رَأس المَال صحت الْقِسْمَة، وَإِن لم يقبض بطلت كَذَا فِي مُحِيط السَّرخسِيّ (الهندية ٤/٣٢١)

(ماءة ١٤٢٧) اذا تلف مقدار من مال الممضاربة فيحسب في اول الامر من الربح و لا يسري الی راس المال فلا يضمنه المضارب سواء كانت المضاربة صحيحة او فاسدة (المجلة ص٢٧٥)

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