Goodwill

Question

Zaid sold his shop with all the stock and goodwill to Amar. Is this correct?

Answer

In terms of its dictionary meaning, Goodwill has been defined as follows: –

a) The excess of the purchase price of a company over its book value which represents the value of goodwill as an intangible asset.
b) An intangible asset taken into account in assessing the value of an enterprise and reflecting its commercial reputation, customer connections, etc. (The Collins Softback English Dictionary).
c) The favour or advantage in the way of custom that a business has acquired beyond the mere value of what it sells whether due to the personality of those conducting it, the nature of its location , its reputation for skill or promptitude, or any other circumstance incidental to the business and tending to make it permanent. (pg. 979 Websters Third New International Dictionary)
From the above it is evident that goodwill, (also referred to as loyalty or royalty) is an intangible asset which represents the amount of value that a company’s name, good reputation, reliability etc. adds to its overall value. 

In terms of Shariah, goodwill will be classified as Huqooq-e-Mujarradah i.e. a mere right which is intangible hence it has no perceivable existence whereby it may be seen or touched. It is not permissible to sell a right or an intangible asset in terms of Shar’i law, hence the sale of goodwill is not permissible. 

However, if Zaid wishes, then he may set a higher price for the stock etc. than its actual value. In this way he will be receiving more money without having to sell the established name of the shop or its goodwill.

Checked and Approved By:

Mufti Muhammed Saeed Motara Saheb D.B.

References

Fataawa Mahmoodiyyah 206/24

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