PARTNERSHIP IN ISLAM. Imran Ahsan Khan Nyazee. Advanced Legal Studies Institute

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1 PARTNERSHIP IN ISLAM Imran Ahsan Khan Nyazee

2 Contents 1 Introduction TheImportanceoftheStudy TheGoalsoftheStudy Some Difficultieson the Way StructureoftheStudy I The Nature of Partnership in Fiqh and Law 13 2 Definition of Partnership in Fiqh and Law Definition in Fiqh The literal meaning of sharikah The technical meaning of sharikah DefinitionofPartnershipinLaw ComparisonandImplications The Formation of a Sharikah TheOralAgreement WritingDowntheContract PartnershipbyActoftheParties Types of Partnership Co-ownership (Sharikat al-milk) Theconditionsofco-ownership DistinctionBetweenSharikat al-milk and Sharikat al- Aqd i

3 ii Partnerships in Islam Contents 4.3 Types of Partnership (Sharikat al- Aqd)in Fiqh Types of contract partnership according tothemajority Types of contract partnership according to the Ḥanafīs Classification preferred for this study Typesofpartnershipinlaw Fundamental Concepts I: The Firm and its Different Notions TheEconomistandtheFirm TheAccountingNotionoftheFirm TheLawyer snotionofthefirm The Mercantile Notion of the Firm and Islamic Law TheMercantileNotionoftheFirmandCorporatePersonality Fundamental Concepts II: Contracts Underlying Partnerships The Effects of Underlying Contracts in a Single ContractofPartnership The contract of amānah (trust) The contract of wakālah (agency) The contract of kafālah (surety) The contract of ijārah (hire) The EffectsofSharikah inconjunctionwiththe UnderlyingContracts Two Partnerships in One and the Rules of Istidānah Contracts Underlying Partnerships and CorporationsinModernLaw Fundamental Concepts III: The Bases for Entitlement to Profit Entitlement to Profit (Istiḥqāq al-ribḥ) according to the Ḥanafīs and Ḥanbalīs

4 Contents Partnerships in Islam iii 7.2 Entitlement to Profit and the MālikīView Entitlement to Profit and the Shāfi īview IsLandaBasisforEntitlementtoProfit? Bases for Entitlement to Profit in Modern Law Fundamental Concepts IV: Ownership of the Capital of the Firm Ownership, muḍārib andborrower Fundamental Concepts V: Liability of Partners for Debts Liability of Partners in Fiqh Liability of partners and requirements of muṭālabah in sharikat al- inān and muḍārabah? LiabilityofpartnersintheḤanafī mufāwaḍah Liability of partners in the inān partnership based on kafālah LiabilityinModernLaw Liabilityofpartnersinlaw Liability of shareholders in joint stock companiesandcorporations II The First Category of Partnerships in Fiqh: ḤanafīSchool Ḥanafī School: General Conditions of Inān The Meaning of Inān and its Legal Validity The definition of inān Legal justification of inān The Rukn of Inān and itsformation When the ṣīghah isrestrictedby duration tawqīt Formation of Inān by Conversionof Mufāwaḍah The implication of the term inān Stipulating Additional Conditions, Like Kafālah, in Inān

5 iv Partnerships in Islam Contents 10.6 The Implications of Including Kafālah in Inān Types of Sharikat al- Inān ContractualCapacityofPartners The Minor as a Partner in Fiqh andlaw Partnership among family members The Vitiation and Termination of the Partnership Vitiation (fasād) of the partnership The effects of a fāsid partnership Termination of the inān partnership Ḥanafī School: Special Conditions of Inān Sharikat al- Inān: When the Subject-Matter is Wealth (Māl) The concept of māl with respect to the sharikah The capital contributed must be present Partnership concluded with currency is effective after transactions in the currency Sharing of Profit and Loss in Sharikat al- Inān Based on Māl Conditions pertaining to profit sharing mustbeexpresslystipulated Conditions of profit that are permissible Thestipulationofloss Stipulation of Work in Inān Based Upon Wealth Powers of the Partners in a Sharikat al- Inān BasedUponWealth Liability of Inān PartnersforDebts Liability when the inān is based upon wakālah as well as kafālah Conclusion about liability of partners Sharikat al- Inān When the Subject-matter is Work Work for which this partnership is not permitted

6 Contents Partnerships in Islam v Partnership is valid in the benefits of propertyandimplements Similarity of profession is not necessary Conditions for acceptance and performanceofwork Conditions for sharing profit and loss Legal capacity, relatives as partners, and durationofpartnership Durationofthepartnership Sharikat al- Inān with Credit-Worthiness (Wajāhah) Conditions for sharing profit and loss Liability of partners in this partnership Ḥanafī School: The Mufāwaḍah Partnership The Meaning of Mufāwaḍah and its Legal Justification The meaning of mufāwaḍah Legaljustification The Implication of the Absolute Term Mufāwaḍah Does the mufāwaḍah have to be for tradeingeneral? Expanded types of mufāwaḍah ContractualCapacityofPartners The Conditions of Mufāwaḍah according to Subject-matter Stipulations When the Subject-matter iswealth Stipulations when the subject-matter of mufāwaḍah islabour Stipulations when the subject-matter of mufāwaḍah iscredit-worthiness The Termination of the Mufāwaḍah Partnership The Importance of Mufāwaḍah and its Utility.. 223

7 vi Partnerships in Islam Contents III The First Category of Partnerships in Fiqh: Majority Schools Mālikī School: First Category of Partnerships Sharikat al- Inān in the MālikīSchool The meaning of inān according to the Mālikīs The implication of the absolute term inān Profits are Proportional to Capital The Mālikī Mufāwaḍah The meaning of mufāwaḍah according to the Mālikīs The implication of the mufāwaḍah contract Comparison Between the Mālikī Mufāwaḍah and the Ḥanafī Inān Mālikī School: Sharikat al-a māl and Sharikat al-wujūh Sharikat al-a māl (or abdān) according to the Mālikīs Sharikat al-wujūh and Sharikat al-dhimam Shāfi ī School: First Category of Partnerships The Concept of Inān According to the Shāfi īs The meaning of inān The contract of sharikat al- inān Formation of the partnership and stipulationforsharingprofits Thepowersofapartner Views of the Shāfi īs about the Illegality of Other FormsofPartnerhsip The Rejection of the mufāwaḍah Al-Shāfi īs views about the illegality of the sharikat al-abdān The illegality of sharikat al-wujūh

8 Contents Partnerships in Islam vii 15 Ḥanbalī School: First Category of Partnerhsips The Inān Partnership according to the Ḥanbalīs The meaning of inān according to the Ḥanbalīs The implication of the absolute term inān andpowersofpartners Sale and purchase on credit and liability ofpartners The Ḥanbalī Sharikat al-wujūh Sharikat al-abdān according to the Ḥanbalīs Types of sharikat al-abdān The use of implements and property Vitiation of sharikat al-abdān The Contract of Mufāwaḍah according to the Ḥanbalīs Comparison Between the Schools The Forms of Partnership Approved by the Schools Classification according to the Ḥanafī school Classification according to the Shāfi ī school Classification according to the Mālikī school IV The Second Category of Partnerships in Fiqh Muḍārabah or Qirāḍ Definition of Muḍārabah and its Legal Validity Definition of muḍārabah Legal justification of muḍārabah The rukn (element) of the contract of muḍārabah

9 viii Partnerships in Islam Contents 17.2 Types of Muḍārabah and the Implications ofits UnqualifiedContract The implications of the contract of muḍārabah Types of muḍārabah The Conditions of Muḍārabah Partiestothecontract Thecapitalinvested Theconditionsofprofit The authority of the muḍārib or the conditions of taṣarruf The Restricted Muḍārabah Liability of the Partners for the Debts of the Muḍārabah Liability of the investor and the worker for the debts of the muḍārabah before istidānah and before commencement of transactions Liability after purchase, but before wilāyat al-istidānah When the muḍārib purchases on credit beyond the capital limit without lawful authority Liability of the rabb al-māl and the muḍārib for debts after lawful istidānah No liability for the rabb al-māl in qarḍ Termination of the Muḍārabah Shortcomings of the Muḍārabah Contract Muzāra ah and Musāqāh Muzāra ah (Share-cropping) The meaning of muzāra ah Legal justification of muzāra ah Rukn andtypes Conditions of Muzāra ah The aḥkām (legal effects) of muzāra ah. 369

10 Contents Partnerships in Islam ix Rescission of the muzāra ah Musāqāh or Mu āmalah The meaning of musāqāh Legal justification of musāqāh The rukn (element) of musāqāh The conditions of musāqāh The aḥkām (legal effects) of the contract Rescissionofthecontract V Islamic Form of Partnerships for the Modern World Basic Issues in Corporate Law and Finance for Islamic Law CorporationSpecificIssues The Concept of the Modern Corporation The Model of the Islamic Corporation Corporate Governance and Control PartnershipSpecificIssues CommonIssues IssuesDealtWithinThisStudy Partnerships Without Legal Personality: Existing Law Partnerships With Legal Personality: New Proposals CorporatePersonalityandIslamicLaw TheNatureoftheLimitedPartnership Designing the Islamic Limited Partnership The guiding principles for the new Islamiclimitedpartership The foundations on which the limited partnershipiserected An Identical Provision in the Company Law Select Bibliography 421

11 x Partnerships in Islam Contents 23 Glossary 427

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