PARTNERSHIP

IN
ISLAM

Imran Ahsan Khan Nyazee

Advanced Legal Studies Institute

Contents
1

Introduction
1.1 The Importance of the Study
1.2 The Goals of the Study . . .
1.3 Some Diculties on the Way
1.4 Structure of the Study . . .

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1
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8
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The Nature of Partnership in Fiqh and Law

13

Definition of Partnership in Fiqh and Law

2.1 Definition in Fiqh . . . . . . . . . . . . . .
2.1.1
The literal meaning of sharikah . .
2.1.2
The technical meaning of sharikah
2.2 Definition of Partnership in Law . . . . . .
2.3 Comparison and Implications . . . . . . .

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The Formation of a Sharikah

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3.1 The Oral Agreement . . . . . . . . . . . . . . . 38
3.2 Writing Down the Contract . . . . . . . . . . . 40
3.3 Partnership by Act of the Parties . . . . . . . . . 44

Types of Partnership
4.1 Co-ownership (Sharikat al-Milk) . . . . . . . . .
4.1.1
The conditions of co-ownership . . . . .
4.2 Distinction Between Sharikat al-Milk and Sharikat
al-Aqd . . . . . . . . . . . . . . . . . . . . . . .

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Partnerships in Islam
4.3

Contents

Types of Partnership (Sharikat al-Aqd) in Fiqh

4.3.1
Types of contract partnership according
to the majority . . . . . . . . . . . . .
4.3.2 Types of contract partnership according
to the H
. anafs . . . . . . . . . . . . .
4.3.3 Classification preferred for this study .
4.3.4 Types of partnership in law . . . . . .

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Fundamental Concepts I: The Firm and its Dierent

Notions
5.1 The Economist and the Firm . . . . . . . . . . .
5.2 The Accounting Notion of the Firm . . . . . . .
5.3 The Lawyers Notion of the Firm . . . . . . . . .
5.4 The Mercantile Notion of the Firm and Islamic
Law . . . . . . . . . . . . . . . . . . . . . . . .
5.5 The Mercantile Notion of the Firm and Corporate Personality . . . . . . . . . . . . . . . . . .
Fundamental Concepts II: Contracts Underlying Partnerships
6.1 The Eects of Underlying Contracts in a Single
Contract of Partnership . . . . . . . . . . . . . .
6.1.1
The contract of amanah (trust) . . . . .
6.1.2 The contract of wakalah (agency) . . . .
6.1.3 The contract of kafalah (surety) . . . . .
6.1.4 The contract of ijarah (hire) . . . . . . .
6.2 The Eects of Sharikah in Conjunction with the
Underlying Contracts . . . . . . . . . . . . . . .
6.3 Two Partnerships in One and the Rules of Istidanah . . . . . . . . . . . . . . . . . . . . . .
6.4 Contracts Underlying Partnerships and Corporations in Modern Law . . . . . . . . . . . . . .

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Fundamental Concepts III: The Bases for Entitlement

to Profit
87
7.1 Entitlement to Profit (Istih.qaq al-Ribh.) according to the H
. anafs and H
. anbals . . . . . . . . . 88

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Contents
7.2
7.3
7.4
7.5

Partnerships in Islam

Entitlement to Profit and the Malik View . . .

Entitlement to Profit and the Shafi View . . .
Is Land a Basis for Entitlement to Profit? . . . .
Bases for Entitlement to Profit in Modern Law

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Fundamental Concepts IV: Ownership of the Capital of

the Firm
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8.1 Ownership, mud.a rib and borrower . . . . . . . 101

Fundamental Concepts V: Liability of Partners for Debts 103

9.1 Liability of Partners in Fiqh . . . . . . . . . . . . 104
9.1.1
Liability of partners and requirements
of mut.a labah in sharikat al-inan and
mud.a rabah? . . . . . . . . . . . . . . . 105
9.1.2 Liability of partners in the H
. anaf mufawad.ah 111
9.1.3
Liability of partners in the inan partnership based on kafalah . . . . . . . . . 112
9.2 Liability in Modern Law . . . . . . . . . . . . . 113
9.2.1 Liability of partners in law . . . . . . . . 113
9.2.2 Liability of shareholders in joint stock
companies and corporations . . . . . . . 115

II

The First Category of Partnerships in Fiqh:

H
121
. anaf School

10 H.anaf School: General Conditions of Inan

127
10.1 The Meaning of Inan and its Legal Validity . . . 128
10.1.1 The definition of inan . . . . . . . . . . 130
10.1.2 Legal justification of inan . . . . . . . . 133
10.2 The Rukn of Inan and its Formation . . . . . . . 134
10.2.1 When the s.ghah is restricted by duration
tawqt . . . . . . . . . . . . . . . . . . . 136
10.3 Formation of Inan by Conversion of Mufawad.ah 136
10.4 The implication of the term inan . . . . . . . . 140
10.5 Stipulating Additional Conditions, Like Kafalah,
in Inan . . . . . . . . . . . . . . . . . . . . . . 141
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Partnerships in Islam
10.6
10.7
10.8
10.9

Contents

The Implications of Including Kafalah in Inan .

Types of Sharikat al-Inan . . . . . . . . . . . .
Contractual Capacity of Partners . . . . . . . . .
The Minor as a Partner in Fiqh and Law . . . . .
10.9.1 Partnership among family members . . .
10.10 The Vitiation and Termination of the Partnership
10.10.1 Vitiation (fasad) of the partnership . . .
10.10.2 The eects of a fasid partnership . . . . .
10.10.3 Termination of the inan partnership . .

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11 H.anaf School: Special Conditions of Inan

161
11.1 Sharikat al-Inan: When the Subject-Matter is
Wealth (Mal) . . . . . . . . . . . . . . . . . . . 164
11.1.1 The concept of mal with respect to the
sharikah . . . . . . . . . . . . . . . . . 165
11.1.2 The capital contributed must be present 173
11.1.3 Partnership concluded with currency is
eective after transactions in the currency 174
11.2 Sharing of Profit and Loss in Sharikat al-Inan
Based on Mal . . . . . . . . . . . . . . . . . . . 177
11.2.1 Conditions pertaining to profit sharing
must be expressly stipulated . . . . . . . 177
11.2.2 Conditions of profit that are permissible 178
11.2.3 The stipulation of loss . . . . . . . . . . 180
11.3 Stipulation of Work in Inan Based Upon Wealth 180
11.4 Powers of the Partners in a Sharikat al-Inan
Based Upon Wealth . . . . . . . . . . . . . . . . 181
11.5 Liability of Inan Partners for Debts . . . . . . . 185
11.5.1 Liability when the inan is based upon
wakalah as well as kafalah . . . . . . . . 188
11.5.2 Conclusion about liability of partners . . 188
11.6 Sharikat al-Inan When the Subject-matter is
Work . . . . . . . . . . . . . . . . . . . . . . . 189
11.6.1 Work for which this partnership is not
permitted . . . . . . . . . . . . . . . . . 190

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Partnerships in Islam

11.6.2

Partnership is valid in the benefits of

property and implements . . . . . . .
11.6.3 Similarity of profession is not necessary
11.6.4 Conditions for acceptance and performance of work . . . . . . . . . . . . .
11.6.5 Conditions for sharing profit and loss .
11.6.6 Legal capacity, relatives as partners, and
duration of partnership . . . . . . . .
11.6.7 Duration of the partnership . . . . . .
11.7 Sharikat al-Inan with Credit-Worthiness
(Wajahah) . . . . . . . . . . . . . . . . . . . .
11.7.1 Conditions for sharing profit and loss .
11.7.2 Liability of partners in this partnership

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12 H.anaf School: The Mufawad.ah Partnership

203
12.1 The Meaning of Mufawad.ah and its Legal Justification . . . . . . . . . . . . . . . . . . . . . . 205
12.1.1 The meaning of mufawad.ah . . . . . . . 205
12.1.2 Legal justification . . . . . . . . . . . . 206
12.2 The Implication of the Absolute Term Mufawad.ah 208
12.2.1 Does the mufawad.ah have to be for
trade in general? . . . . . . . . . . . . . 209
12.2.2 Expanded types of mufawad.ah . . . . . 210
12.3 Contractual Capacity of Partners . . . . . . . . . 211
12.4 The Conditions of Mufawad.ah according to
Subject-matter . . . . . . . . . . . . . . . . . . 213
12.4.1 Stipulations When the Subject-matter
is Wealth . . . . . . . . . . . . . . . . . 213
12.4.2 Stipulations when the subject-matter of
mufawad.ah is labour . . . . . . . . . . . 218
12.4.3 Stipulations when the subject-matter of
mufawad.ah is credit-worthiness . . . . . 221
12.5 The Termination of the Mufawad.ah Partnership 222
12.6 The Importance of Mufawad.ah and its Utility . . 223

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III

Partnerships in Islam

Contents

The First Category of Partnerships in Fiqh:

Majority Schools
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13 Malik School: First Category of Partnerships

233
13.1 Sharikat al-Inan in the Malik School . . . . . . 235
13.1.1 The meaning of inan according to the
Maliks . . . . . . . . . . . . . . . . . . 236
13.1.2 The implication of the absolute term inan 237
13.1.3 Profits are Proportional to Capital . . . . 239
13.2 The Malik Mufawad.ah . . . . . . . . . . . . . . 241
13.2.1 The meaning of mufawad.ah according
to the Maliks . . . . . . . . . . . . . . . 241
13.2.2 The implication of the mufawad.ah contract . . . . . . . . . . . . . . . . . . . . 242
13.3 Comparison Between the Malik Mufawad.ah
and the H
. anaf Inan . . . . . . . . . . . . . . . 251
13.4 Malik School: Sharikat al-Amal and Sharikat
al-Wujuh . . . . . . . . . . . . . . . . . . . . . 253
13.4.1 Sharikat al-amal (or abdan) according
to the Maliks . . . . . . . . . . . . . . . 254
13.5 Sharikat al-Wujuh and Sharikat al-Dhimam . . . 258
14 Shafi School: First Category of Partnerships
14.1 The Concept of Inan According to the Shafis
14.1.1 The meaning of inan . . . . . . . . .
14.1.2 The contract of sharikat al-inan . . . .
14.1.3 Formation of the partnership and stipulation for sharing profits . . . . . . .
14.1.4 The powers of a partner . . . . . . . .
14.2 Views of the Shafis about the Illegality of Other
Forms of Partnerhsip . . . . . . . . . . . . . .
14.2.1 The Rejection of the mufawad.ah . . . .
14.2.2 Al-Shafis views about the illegality of
the sharikat al-abdan . . . . . . . . . .
14.2.3 The illegality of sharikat al-wujuh . . .

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Partnerships in Islam

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15 H.anbal School: First Category of Partnerhsips

15.1 The Inan Partnership according to the H
. anbals
15.1.1 The meaning of inan according to the
H.anbals . . . . . . . . . . . . . . . . .
15.1.2 The implication of the absolute term
inan and powers of partners . . . . . . .
15.1.3 Sale and purchase on credit and liability
of partners . . . . . . . . . . . . . . . .
15.2 The H
. anbal Sharikat al-Wujuh . . . . . . . . .
15.3 Sharikat al-Abdan according to the H.anbals . .
15.3.1 Types of sharikat al-abdan . . . . . . . .
15.3.2 The use of implements and property . .
15.3.3 Vitiation of sharikat al-abdan . . . . . .
15.4 The Contract of Mufawad.ah according to the
H
. anbals . . . . . . . . . . . . . . . . . . . . . .

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16 Comparison Between the Schools

16.1 The Forms of Partnership Approved by the
Schools . . . . . . . . . . . . . . . . . . . . .
16.1.1 Classification according to the H.anaf
school . . . . . . . . . . . . . . . . . .
16.1.2 Classification according to the Shafi
school . . . . . . . . . . . . . . . . . .
16.1.3 Classification according to the Malik
school . . . . . . . . . . . . . . . . . .

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IV

The Second Category of Partnerships

in Fiqh

17 Mud.a rabah or Qirad.

17.1 Definition of Mud.a rabah and its Legal Validity
17.1.1 Definition of mud.a rabah . . . . . . . .
17.1.2 Legal justification of mud.a rabah . . . .
17.1.3 The rukn (element) of the contract of
mud.a rabah . . . . . . . . . . . . . . .

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17.2 Types of Mud.a rabah and the Implications of its

Unqualified Contract . . . . . . . . . . . . . . .
17.2.1 The implications of the contract of mud.a rabah . . . . . . . . . . . . . . . . . .
17.2.2 Types of mud.a rabah . . . . . . . . . . .
17.3 The Conditions of Mud.a rabah . . . . . . . . . .
17.3.1 Parties to the contract . . . . . . . . . .
17.3.2 The capital invested . . . . . . . . . . .
17.3.3 The conditions of profit . . . . . . . . .
17.3.4 The authority of the mud.a rib or the
conditions of tas.arruf . . . . . . . . . .
17.3.5 The Restricted Mud.a rabah . . . . . . . .
17.4 Liability of the Partners for the Debts of the
Mud.a rabah . . . . . . . . . . . . . . . . . . . .
17.4.1 Liability of the investor and the worker
for the debts of the mud.a rabah before
istidanah and before commencement of
transactions . . . . . . . . . . . . . . .
17.4.2 Liability after purchase, but before wilayat
al-istidanah . . . . . . . . . . . . . . . .
17.4.3 When the mud.a rib purchases on credit
beyond the capital limit without lawful
authority . . . . . . . . . . . . . . . . .
17.4.4 Liability of the rabb al-mal and the
mud.a rib for debts after lawful istidanah .
17.4.5 No liability for the rabb al-mal in qard. .
17.5 Termination of the Mud.a rabah . . . . . . . . . .
17.6 Shortcomings of the Mud.a rabah Contract . . . .
18 Muzaraah and Musaqah
18.1 Muzaraah (Share-cropping) . . . . . . . . . .
18.1.1 The meaning of muzaraah . . . . . . .
18.1.2 Legal justification of muzaraah . . . .
18.1.3 Rukn and Types . . . . . . . . . . . .
18.1.4 Conditions of Muzaraah . . . . . . . .
18.1.5 The ah.kam (legal eects) of muzaraah
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18.1.6 Rescission of the muzaraah . . . . . . .

18.2 Musaqah or Muamalah . . . . . . . . . . . . .
18.2.1 The meaning of musaqah . . . . . . . .
18.2.2 Legal justification of musaqah . . . . . .
18.2.3 The rukn (element) of musaqah . . . . .
18.2.4 The conditions of musaqah . . . . . . .
18.2.5 The ah.kam (legal eects) of the contract
18.2.6 Rescission of the contract . . . . . . . .

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V Islamic Form of Partnerships for the Modern

World
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19 Basic Issues in Corporate Law and Finance for Islamic
Law
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19.1 Corporation Specific Issues . . . . . . . . . . . . 385
19.1.1 The Concept of the Modern Corporation 386
19.1.2 The Model of the Islamic Corporation . 386
19.1.3 Corporate Governance and Control . . . 387
19.2 Partnership Specific Issues . . . . . . . . . . . . 387
19.3 Common Issues . . . . . . . . . . . . . . . . . . 388
19.4 Issues Dealt With in This Study . . . . . . . . . 389
20 Partnerships Without Legal Personality: Existing Law 391
21 Partnerships With Legal Personality: New Proposals
21.1 Corporate Personality and Islamic Law . . . .
21.2 The Nature of the Limited Partnership . . . . .
21.3 Designing the Islamic Limited Partnership . . .
21.3.1 The guiding principles for the new Islamic limited partership . . . . . . . .
21.3.2 The foundations on which the limited
partnership is erected . . . . . . . . .
21.4 An Identical Provision in the Company Law . .
22 Select Bibliography

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