Combining a Partnership and Employment Contract
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
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
- 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:
- Partnership Agreement
- 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.
- 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. 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
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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 فتاوي عثماني، ج 3، ص 35-36، مكتبه معارف القران كراتشي
 an Introduction to Islamic Finance, page 33 (Mufti Taqi Usmani Saheb Damat Barakatuhum)