Profit-sharing

When a party gives some property to another to use as business capital and the profits are divided in halves or thirds etc. such a deal is called MUDARABAH.

THE FOLLOWING MATTERS MUST EXIST IN SUCH DEALS:

(a) There must be an offer followed by acceptance of the other party, which can be formalized by means of words or deeds or some other indications; it is not necessary to use Arabic words or the past grammatical tense only. (b) The parties must be mature, free from mental illness and free from compulsion and duress. Freedom from being forbidden to use one's property, by a court order because of suffering from mental illness or bankruptcy is required only on the part of the owner not the worker.

(c) The share of each party must be specified on the basis of certain ratios like halves, or one third etc., unless there is a common practice which serves as specifying each party's rights and responsibilities, in case the contract is free from condition and limiting factor.

(d) Only the parties must be the recipients of profits, thus, it is not valid if a condition is set which requires them to give some of the profits to a third party, unless, he also is required to do some work of the business.

(e) The worker must be able to do business in case personal work on his part is required; thus, if he is not able to do business work the contract is void. This is when personally working for the business on the part of the worker is a restrictively agreed-upon factor (qayd) in the contract, but if the requirement of working personally for the business is a condition, the partnership is valid but the owner has the right to annul the contract when a condition is not observed. If the Worker is not able to work with or without help the deal is not valid. It does not matter, whether inability takes place at the start or later. Mudarabah is revoked whenever it takes place.

CR (563) According to a strong reason partnership of this nature is valid even in the case of the properties other than gold and silver currencies like other currency notes etc. However, validity of such contract in the case of profits is objectionable and in case of property as payable loan is not valid.

CR (564) In Mudarabah it is not necessary for the worker to have the money or property in his hand even if the owner has the money or property in his hand and the worker undertakes the business work, still the contract is valid.

CR (565) The nature of the contract of Mudarabah requires sharing of the profits, thus, the owner and worker each gets the share assigned to him, if for some reason the contract becomes void the worker has to receive fair market value payment for his work and the profit belongs to owner.

CR (566) It is necessary for the agent or worker not to go beyond the limits set for him or the activities for which he is authorized, if he is told to sell only at a certain place, or for a certain price or deal with certain kinds of goods, it is not lawful for him to do things without authority. If he did his deals will not be effective and it requires owners approval.

CR (567) In Mudarabah it is not necessary for the property to be of specifically known qualitatively or quantitatively, even if it is unspecified, like if the owner presents two kinds of properties and says to the worker, I give one of these properties for a Mudarabah deal the contract is valid although it is a precautionary way that the property be specifically known in all of the above respects.

CR (568) The worker is not responsible for any loss unless it is due to his neglect. If the owner sets a condition in the contract which says the loss must also be shared, apparently, such condition is void. However, if a condition requires the worker to pay the loss from his own pocket, if it may take place such condition is valid.

CR (569) If a person may have some property with some one to be kept as safe deposit etc., and forms a contract of Mudarabah with him the contract is valid.

CR (570) If one has in his possession what he has usurped or is simply another one's property in a manner that makes him responsible for it and with such property he forms a Mudarabah contract with the real owner, does this relieve him of the responsibility of having the property in his possession or not? There are two views about it the first view is more strong because the contract of Mudarabah basically does not require the owner to agree to the other party's having the property in his possession as it was mentioned earlier that it is not necessary for the validity of the contract that the executive manager have the property in his possession although, forming a contract with the owner itself is an indication, according to common practice of the owner's consent to manager's having the property in his possession and using it. However, if there is no indication of the owner's consent the party is not relieved of his responsibility.

CR (571) A Mudarabah contract from the Sharia point of view, is allowable not binding, thus, it is lawful for both parties to revoke it, regardless, its before the start of work or after, before making any profits or after, whether the contract is unlimited or has certain time limitations.

CR (572) The worker, the manager - or call him the director - is not permitted to mix the capital with other property belonging to him or others without the permission of the owner (principal) in a general or specified way, if he does mix without his permission he is held responsible for what may get destroyed in his possession out of that property, but this does not affect the validity of Mudarabah and profits belong to the parties according to the proportion stated in the contract.

CR (573) In case, the Mudarabah contract is absolute and free from all restrictions and conditions the workers or director can use the money or property the way he considers proper in terms of buyers, sellers and the kinds of goods, however, he cannot travel with it without the permission of the owner, unless there is a common practice that helps unrestricted and absolute contract to cover such situation, otherwise, he

is responsible for the loss in the case of traveling. And the same rule applies to all uses and works out of the limits of the contract.

CR (574) In case, the contract is absolute and free of conditions, it is lawful to buy for cash or payable later on if the latter case is commonly practiced in the market that could be covered by the absolute nature of the contract, but if there is no such practice, it is not lawful without proper permission.

CR (575) If the agent sells some thing without the permission of the owner and the payment is agreed to be made later on, if such payment is received before the owner learns all about it, it will not be a problem but if the owner learns about it before payment is received, if he approves it, the deal is valid, if not it is void.

CR (576) The absolute nature of the contract does not require one to sell the properties for cash, in fact, it is lawful to sell one kind of goods for another kind of goods, but if it is a kind that no one wants, in such a case, it is not lawful to sell certain kind of goods for such undesirable kind, because the absolute nature of the contract does not .

CR (577) The agent must do all that he is required, thus, he manages and works if it is fit for him, employs and hires all that is needed for the business as attorneys, brokers and common workers. Thus, if he hires someone for a work that according to common practice one himself must do, the payment for such work must also be paid out of his pocket not from the property commonly owned. On the other hand if he does himself and according to common practice is done by the employees, it is lawful for him to have such payable amounts for himself, if he has not done it for free.

CR (578) The travel expenses of the agent, like food, accommodation, clothes, transportation etc., is paid from the capital, if the journey is with the permission of owner, and no condition requires the worker to pay. And the same rule applies to whatever is spent to help the business; however, spending unrelated to business is paid by the agent. The limit of expenses is calculated with a view to the agent's standard of living conditions; if he spends extra it is deducted from his accounts, however,

If he cuts his normal expenses or is a guest of some one else, such cuts are not counted for him.

CR (579) If one works for two or more principals, or works for himself and others, the expense will be shared on the basis of the sizes of work according to clear reason not proportionate to the size of the capitals.

CR (580) The payable expenses of the worker does not depend upon profit-making, he is paid from the capital, however, if profits are made afterwards, the expenses will be paid thereby and owner's whole capital is returned to him and then the profits are divided among the parties.

CR (581) If the agent becomes ill on a journey if this does not prevent him from work he gets paid for his expenses, but he cannot get medical expenses; if the illness prevents him from work he can not receive any thing for his expenses.

CR (582) If the agent on a journey revokes the contract or the contract is revoked; he bears his expenses when coming home.

CR (583) If the principal and agent dispute, on matters like, that the contract is void or that it was a loan and there is no proof in favor of any of the parties; the dispute can take place because the agent claims it to be a loan so that he can have the profits and the principal claims it to be a Mudarabah so that he would pay nothing but the fair market value payment for his work, in such case, the principal is required to take an oath after which the profits are given to him and fair market wages to the agent or the director etc.. Sometimes it is because the owner or the principal claims it to be a loan so that he would not be liable for the losses and he would not be held responsible for any thing towards the agent and the worker or agent, claims it to be an invalid Mudarabah so that after oath-taking the owner is held responsible for the losses, and no responsibility on the part of the worker. This is when the dispute is either because it was a void Mudarabah or it was loan, but if their dispute is because it was a void Mudarabah, profit goes to owner after his taking oath and the worker does not deserve any fair market value payment for his work.

CR (584) It is lawful in Mudarabah to have one owner and several agents, regardless, of the capital being one or several or that all the agents have equal or different tasks. In the same way there can be several owners and one worker.

CR (585) If the capital belongs to two people who loan one party and agree to give him one half and set a condition requiring to pay, despite the capital being equally owned, more profit to one and less to the other or pay equal profits while the capital is not equally owned, apparently, such Mudarabah is void if the extra payment to one party is not in exchange for some work. However, if such differences are settled on the basis of the amount of payment each one is making to the worker like 'A' gets more profit and pays more to worker and 'B' gets less profit and pays less to worker etc., and thus, all parties end up with responsibilities and benefits, the Mudarabah contract is valid.

CR (586) Mudarabah becomes void because of the death of both parties; in the case of the owner it is void because the property goes to heirs and leaving in the possession of worker requires a new Mudarabah, and in the case of the death of the worker it is void because permission is limited with him.

CR (587) The agent is not allowed to appoint his own agent for the work he is required to do or hire some one without the permission of owner as well as forming a new Mudarabah contract with someone without owner's permission and if he does so and the property is destroyed, he is held responsible for it. However, he may hire or appoint some one for some preliminary tasks to the limits permissible according to common practice and the generality of the meaning of the contract.

CR (588) It is lawful for both the owner and agent to set a condition during forming the contract that requires one of them to pay or do some thing to or for the other party besides the normal procedures of the contract like agreeing on some other contract appointing an agent or giving some loan etc., and it is necessary to meet such condition, regardless, any profit is made in Mudarabah or not or that making no profit is because of some obstacles or that the agent has stopped the work.

CR (589) The Mudarabah contract requires that the agent becomes owner of his share from the time any profit is made and it does not depend on dividing of profits. However, if after such time any losses take place they are compensated from the profit until his - worker's - net profit is determined. For a final ownership, is one required to divide the whole profit alone without revoking the contract? There are two views about it; apparently, dividing profits is enough because it is practically revoking. Thus, property's getting destroyed after dividing is not compensated from profits.

CR (590) When profit is made and it is saved and one of them asks to divide it if the other party agrees the matter is settled if not and if he is the worker, apparently, he can force him to divide but not vice verse.

CR (591) If after dividing the loss some profit is made and if profits are more than or equal to the losses, it will be paid out of the profits but if such profits are less than the losses, it is necessary for the worker or the agent to pay whichever of his share of loss or profit is less.

CR (592) If the worker sells or gives to someone as gift his share of the profit and then some loss takes place in the capital of Mudharabah, it is necessary for the worker to pay whichever amount of the price of the profit and loss is less. A loss that takes place on a date later does not retrospectively invalidate the contract of sale or gift etc.; in fact, it is as if a loss has taken place.

CR (593) It does not matter in paying off the loss out of the profit whether such loss may have taken place before or after the profits as long as the contract stands valid, in fact, apparently, paying the loss out of profits is proper even if the loss takes place during the journey for the business or even at home before the journey starts. This is about partial loss but if the whole property of Mudharabah is lost before trading starts, apparently, it causes the contract to become void. Also this is about a loss caused by some heavenly reason but if the loss is because of the worker or a third party not associated with business, the contract stands valid if the person causing the loss pays for it.

CR (594) Revoking the Mudharabah contract or its getting void, sometimes takes place before the start of businesses or after it before any profit is made, in both cases the owner owes nothing or demand anything and the same is true of the worker, regardless, it is because of worker or owner.

CR (595) If revoking the contract is caused from the side of the worker after the start of journey for business with the permission of the owner and has already spent some money from the capital for his expenses, it precautionary is required to achieve owner's consent.

CR (596) If revocation of the contract or its getting void takes place after some profit is made if both parties agree to divide the profits the matter is settled, otherwise, the disagreeing party is forced to do so.

CR (597) If there is some credit for the property of Mudharabah, is it necessary or not for the worker to get them back after the contract is revoked or is made void, there are two views; the necessity of getting them back if not based on a strong reason is certainly based on a precaution.

CR (598) After revoking the contract all the worker has to do is to make the property available to the owner, but delivery to him is not necessary unless the property is taken to another place, in such a case, apparently, delivery to owner's place is necessary.

CR (599) If dispute takes place between the owner and the worker about the quantity of the capital given to worker, the owner claims it to be a greater amount while the worker denies it, the words of the worker are accepted on oath, if the owner has no qualified testimony against it, regardless, the capital property is existing or is lost with the worker being responsible for it.

CR (600) If there is a dispute between the parties about the amount of the share of the worker, and the owner claims it to be a lesser quantity while the party claims it to be a larger quantity, the words of the owner are accepted.

CR (601) If the owner accuses the worker of dishonesty and negligence the words of worker are accepted.

CR (602) If the owner claims that there was a condition in the contract that required the worker to buy only certain goods, or not to buy from certain party etc., and the worker denies it, the words of the owner are accepted because the doubt is traced back to whether the owner authorized to do or not; the principal says, 'no'.

CR (603) If the worker claims that the property is destroyed and the owner denies it the words of the worker are accepted, the same rule applies if the worker claims that certain loss has taken place or no profit is made; that certain credit is not received, supposing that he was authorized to deal with certain bargains of loan.

CR (604) In the above cases wherein the words of the worker are accepted it does not matter whether the claims are made before or after revoking the Mudharabah contract, in fact, apparently, his words are accepted even if after revocation of contract he claims the property was destroyed after revoking the contract.

CR (605) If the worker dies when he had the capital of Mudharabah in his possession, if the substance of such property is known the matter is settled if it is known that the property exists in the legacy but if it can not be distinguished, the owner receives an amount equal to his property from the legacy and he will not share a certain ratio with the heirs, according to a more clear and strong reason.

CR (606) If the capital belongs to two people as partners and they form a Mudharabah contract with another party and only one of the partners cancels the contract; apparently, the Mudharabah contract proportionate to the share of the other partner stands valid.

CR (607) If the worker takes charge of the capital for Mudharabah and does not use it in business for a little or long time the owner cannot demand anything more than the capital, although the worker has committed an offense for keeping someone property idle.