Gifting Shares In A Business During A Persons Lifetime

Question

We are 5 brothers and 2 sisters. Off this 3 brothers worked with my father in his businesses from inception. During his lifetime he put the businesses in these 3 brothers name willingly but without consulting the other children. They ran businesses and made all decisions. Was this correct of my father or not. Is it fair upon the other siblings to have excluded them? Whatever else he had was distributed accordingly and all the siblings were given their shares (the 3 brothers chose not to take a share of these assets) but the businesses were not part of his estate as they were in the brother’s names, was this correct?

Answer

It seems that the matter of concern here is the business that your father registered in the name of his three sons. We understand from your query that your father owned the business and then gifted the business to his 3 sons as they were assisting him in the business by registering it on their names.

By merely registering the business in the name of the three sons they do not become the owners of the business in terms of Shariah, although they are legally recognized as the owners of the business. The jurists have provided rules and regulations that need to be adhered to for the gifting process to be in order and recognized in Shariah, failing which the gifting process becomes invalid and the gift remains in the sole ownership of the donor.

Because your father was gifting the business to three sons, he was required to separate and demarcate the stock, fixture and fittings, etc. that he would be gifting to each son and thereafter hand over to each of them his respective share. On taking possession of their respective portion/s they would once again be required to assemble everything or put it together in order to resume trading as a joint company.  This is generally a difficult and complicated process hence we assume that this procedure was not adhered to which will then result in the gifting process being invalid and the store will now form part of the deceased estate.

The other option was that the father sells 33.33% of the business to each of his sons for a nominal amount of R20 or R50 etc. and the 3 brothers then enact a partnership and continue trading as equal partners in the business.

If neither of these two procedures were adhered to then the business will form part of the deceased estate and will have to be distributed amongst the heirs in accordance to the Shari’ee law of succession.

The law of Shariah in regards to gifting one’s children during one’s lifetime is that one should be equal to all children whether they are male or female. It is Makrooh (abhorrent) to give preference to a particular child and deprive another. However, if the parent gives extra to a particular child without the intention of depriving others on the basis of necessity, or Deen then there is no harm in doing so. Notwithstanding the above, if the parent gifts a particular child and deprives the rest then the gift will be valid and the child qualifies as the owner of the gift although such an act is considered Makrooh.

Also, it is not necessary for the parent/s to discuss with all their children if they wish to gift all their children or even a particular child in their lifetime. However, it is advisable but not obligatory to have witnesses to the gifting transaction to avoid disputes that could arise in the future.

In regards to the remaining assets, if a particular heir (such as any of the 3 brothers) merely states that he doesn’t want his/her share of those assets, then by his/her statement, the right of that heir doesn’t fall away. The heir reserves the right of claiming his/her share at a later stage. It is therefore advisable that the heir takes his/her portion of those assets and then gifts it to either the remaining heirs or a particular heir of his/her choice. Alternately, the heir that intends to relinquish his/her right in those assets may suffice on taking just one item such as a handkerchief or any other item and relinquish his/her right in the remainder of the assets.                                        

Checked and Approved By:

Mufti Muhammed Saeed Motara Saheb D.B.

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