Fatwa: # 22874
Category: Financial Transactions
Country: Armenia
Date: 21st October 2012

Title

Question on fixing a higher percentage ratio in a partnership

Question

We are purchasing a property and a few of our business associates want a share in it. They are talking about 40% of the property broken up into 8 shares of 5% each, and we are talking about 60%. The projected return on the property is about 13%- 16% based on the current rental income. One of the 5% shareholders wanted to know if he can get a fixed return of 14% instead of the normal equal distribution. We don’t mind doing this for him. I need to know if this is allowed or is it considered interest?

Answer

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

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

In principle, it is permissible for an active partner (Shareek al-Aamil) to receive any mutually agreed percentage ratio.

However, it is necessary that the sleeping partner “Shareek al-Na’im”[1] does not receive a fixed percentage ratio more than his/her capital investment ratio.[2]

For example, Partner A (Sleeping Partner) invests 40% towards the Business Venture. Person A will only be entitled to 40% or less of the total profits. Person A will not be entitled to any percentage higher than 40%.

It is imperative that all the partners of the JV agree on percentage ratios, terms of reference, managerial duties, fiduciary matters, etc.

And Allah Ta’āla Knows Best                                       

Ismail Desai,
Student Darul Iftaa
Durban, South Africa

Checked and Concurred by,
Moulana Abdul Azeem Bin Abdul Rahmaan

Student Darul Iftaa


[1] The ruling of Shareek al-Na’im will only apply if it is stipulated that he/she will not work for the JV and will remain a Shareek al-Na’im throughout the tenure of the JV. (Introduction to Islamic Finance, Pg.37, Idara, 1999)

[2] Introduction to Islamic Finance( Page 35- 37, Idara, 1999)

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