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f:1122 -    Starting a partnership business
Country : Bangalore, India,
Name : Fuzail Khan
Question:     I and my friend have decided to start a business in partnership.  We have decided that I will invest the money and my friend will handle the business and we will share equally in profit and loss.  Is such an arrangement correct?  We have made all preparations for the business and will start within a month.
Answer:     If one person invests money and another person invests time and effort, in the terminology of the Shariah, such an arrangement is called “Mudhaaribat”.  In this arrangement, the profit will be shared as per the agreement and the loss will be borne only by the person who is investing money.  The person investing his/her time and effort will not get what is due to him.  Burdening the person who is investing time and effort to share in the losses as well is not correct as per the Shariah.

However, if one faces losses after gaining some profits, then first the losses will be squared off with the profits.  If the loss still remains, then only the one investing the money will bear the losses.

As per the aforementioned details, your condition of sharing equally in the losses as well is inadmissible.  Other than this, your agreement is correct.  The losses will be squared off with both your profits first.  Even if the loss is more than the profit, then bearing it is your responsibility.

As given in Hidayah, Vol. 3, Pg. No. 266 and in Radd Ul Muhtaar.

And Allah The Most Merciful and The Most Benevolent knows best

Mufti Syed Ziauddin Naqshbandi

[Professor, Islamic Law, Jamia Nizamia,
Founder-Director, Abul Hasanaat Islamic Research Center]
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