Question:
Determining Share Percentage in an Islamic Partnership: In a traditional company or partnership, a partner’s share percentage is often determined by the ratio of their initial investment to the total investments of all partners. Is this principle applicable to Islamic partnerships as well? Does the Shariah consider the investment ratio as a valid criterion for profit-sharing in Islamic business structures? Reinvestment of Profits in a Family Business: Consider a scenario where a business is passed down from a father to his three children, each holding an equal partnership. If one partner decides to reinvest their share of profits into the same business, how does this impact the ownership distribution among partners? Is this reinvestment considered a loan to the business that must be repaid, or does it alter the ownership percentages of the other partners? For instance, if the profit for a given month was R10,000 and Partner A reinvests his R3,333, does this change the ownership percentages of the other 2 partners? Should future profits be distributed accordingly? Equal Time Commitment in Working Partnerships :In a business where partners initially commit to working roles, is there an Islamic requirement for each working partner to contribute an equal amount of time and work? If partners transition from active roles to becoming silent partners, does the responsibility of hiring someone to fill the vacant position fall on the silent partner, or should the business and all partners collectively bear this cost?
Answer:
1. Yes, generally the profit-sharing ratio of each investor is in accordance with his investment or capital. If he invested 10% then his profit-sharing ratio will also be 10%. However, if the partners negotiate the profit ratios due to some partners being active and others being inactive, then such an arrangement is in order.
2. If the reinvestment of profits (of one partner) was carried out with the consent of the remaining partners with the intention of increasing one’s shareholding, then it will be acceptable. However, if the funds were loaned to the business, then the shareholding of the creditor will not increase. The loan will have to be repaid to him.
3. The partnership will bear the cost of additional employees. The burden of employing additional staff will not be on the inactive partner, rather the partnership should decide whether additional staff will be employed or not. However, the remaining partners may negotiate the profit-sharing ratio with the inactive partner since he will no longer be assisting in the business.
ALLAH TA’ALA KNOWS BEST!!!
ANSWERED BY:
Mufti Mohamed Desai
Date:27 Shabaan 1445 / 09 March 2024
