Combining a Partnership and Employment Contract

 

Question:

Assalamualaykum
Mufti Saab

Masla about tijarat:

Scenario 1. Assume  zaid used his own money to buy the entire inventory for a business and to rent a storefront, while Khalid did all the work in running the business. Is it allowed for khalid to receive a salary according to a fixed hourly basis (e.g. $20/hour) PLUS a predetermined percentage (e.g. 3%) of the profits ?

Scenario 2. Assume  zaid used his own money to buy the entire inventory for a business and to rent a storefront, while Khalid did all the work in running the business. Is it allowed for Zaid to receive a fixed payment every month (e.g. $3,000) from Khalid, and Khalid keeps rest; regardless of the amount of profit or loss that occured in the business?

Ajeebu wa tujaru

Answer:

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

  1. In principle, when capital is invested into a business by one party, and the other party manages and works for the business, such a set-up may be classified as one of the following two agreements:

 

  1. Partnership Agreement

 

  1. Employment Agreement

 

If it is a partnership agreement (Mudharabah), then the working partner is eligible to only receive a pre-determined percentage of the profits as a partner. He may not receive a fixed salary as an employee. However, the pre-determined percentage of the profits may be increased in consideration of the management and work.

 

If it is an Employment agreement, then the worker is eligible to receive a salary only. He may not receive a pre-determined percentage of the profits since he is not a partner.

 

It is not permissible to combine the Mudharabah agreement and Employment agreement in one contract.[1]

 

  1. The scenario mentioned in the query is a Mudharabah Contract. In a Mudharabah agreement, it is not permissible to give any partner a fixed payment. Each one is only entitled to a pre-determined percentage of the actual profit.[2] Hence, it is not permissible for Zaid to receive a fixed payment every month.

 

And Allah Ta’āla Knows Best

(Mufti) Abdul Azeem bin Abdur Rahman

 

Disclaimer:

 

The Shar’a ruling herein given is based specifically on the question posed and should be read in conjunction with the question.

 

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[1]  فتاوي عثماني، ج 3، ص 35-36، مكتبه معارف القران كراتشي

[2]  an Introduction to Islamic Finance, page 33 (Mufti Taqi Usmani Saheb Damat Barakatuhum)

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