Question
I have a question to ask you about sharing in business.
The situation goes as such:
Zaid invest the whole capital to Amr in a hardware and Zaid is looking for Islamic ways to work with Amr.
There are some forms that Zaid is thinking of, but does not know whether Islamic laws allow him to do so or not.
- Zaid pay for goods and tells Amr that you must pay me the amount on invoice of goods and 25 percent of whole amount on invoice for goods paid by me as my profit and whatever you make profit on top of 25 percent its yours.
- Zaid pays for goods and tells Amr that you will sell out the goods and you must pay me a fixed amount on monthly basis, does not matter you make profit or not.
- Zaid pays for goods and will be having agreement with Amr that whatever profit you make half is mine and half is yours, or 60-70% is mine and 40-30% is yours.
In all forms Zaid wants goods in hardware will remain as Zaid asset, when Amr leaves the shop, he will leave with nothing belongs to him.
Actually, Zaid is looking for an Islamic solution in which Zaid will invest, Amr will spend his labour and Zaid will give a percentage of the whole profit to Amr but end of the day all goods belongs to Zaid.
Please provide us easiest Islamic solution of the above business situation.
Answer
1. In the first scenario, Zaid purchases goods from a merchant, adds 25% percent profit on the goods and thereafter sells it to Khalid. On purchasing the goods from Zaid, Khalid becomes the owner and is free to sell it at any price that he is comfortable with. This is a not a partnership rather a normal sale agreement between Zaid (the seller) and Khalid (the purchaser) which is permissible and in accordance to Shariah.
2. The second scenario is where Zaid buys the goods and appoints Khalid to sell the goods on behalf of him. In other words, Zaid is hiring Khalid to sell the goods for him. In this case, it is necessary that both parties enter an agreement in which the description of the work, wage, times, etc. are stipulated without any form of ambiguity. To enter such an employment contract (because this is what it is tantamount to) is also correct and in accordance to Shariah.
Apart from his monthly salary, it will not be permissible for Zaid to claim an x-amount of additional money every month from Khalid, irrespective whether the business is profitable or not. In an employment contract of this nature, all profits and losses will be for Zaid (as he is the employer) and Khalid will be entitled only to his monthly salary (due to being an employee). The capital, stock, etc. will belong to Zaid.
3. The third scenario is a partnership agreement that is being considered by Zaid which is termed as ‘Mudhaarabah’ and in accordance to Shariah, where one partner lays out the capital, whilst the other partner contributes with labour. In this partnership, the profit is shared between the partners (i.e. the Rabbul Maal/investor and Mudhaarib/labourer) according to the profit sharing ratio agreed upon by both partners, and the capital belongs to the Rabbul Maal (the investor), which is returned to him at the end of the Mudharabah partnership agreement.
All the rules of Mudhaarabah will apply to this partnership. However, the profit sharing ratios between the partners should be fixed by stating each partner will receive half of the profits or that Zaid will be entitled to 30% of the profits and Khalid will be entitled to 70%, or Zaid will be entitled to 40% of the profits and Khalid will be entitled to 60%, etc. It is incorrect to state that Zaid will be entitled to 30%-40% (i.e. 30 to 40 percent) and Khalid 60%- 70% (60 to 70 percent) as this could lead to a dispute at a later stage due to the exact ratio being left vague and ambiguous.
If Zaid is prepared to share profits whilst retaining his original capital, then he should opt for the Mudhaarabah agreement which has been briefly explained in #3.
Checked and Approved By:
Mufti Muhammed Saeed Motara Saheb D.B.