MUSHARAKAH

Definition

Terminology: sharing in the context of business and trade, a joint enterprise in which all the partners share the profit or loss of the joint venture

Modern terminology: as partnership where profits are shared as shared as per a agreed ratio & losses Are shared in proportion to the capital/investment of each partner
Profit & Loss

Profit=Are shared as shared as per a agreed ratio.
Loss=Are shared in proportion to the capital/investment of each partner.

Elements of Musharakah

1. Partner & Share Holder
2. Capital=Ra’sul Mal
3. Business Venture/Project =‘Amal
4. Profit / Loss= Nisbah
5. Ijab Qobul (Sighat)=offer & Acceptance

Basic Rules

1.Distribution of Profit
• Proportion of profit-> agreed upon at the time of effecting the contract. If not =>not valid
• The ratio of profit-> determined in proportion to the actual profit accrued to the business => no to the capital invested by him
• Distribution of profit should not be fixed as a lump sum amount or any rate of profit tied up with his investment. However. If lump sum amount or a certain percentage has been agree, so, it must be expressly mentioned
• The correct , distribution would be an agreed percentage/ratio of the actual profit accrued in the business

2.Sharing of Loss
• All muslim jurist are unanimous on the point the each partner shall bear the loss exactly according to the ratio of is investment. E.g Invest 40% = 40% loss not more or less
• Complete consensus of jurist for famous legal maxim “Profit is based on the agreement of the parties, but loss is always subject to the ratio of investment”

3.Management of Musharaka
• All partner have the right to take part in its management and to work for it since all of them contributed the capital for such a enterprise. 2 Options:
a. they may agree upon 1 of them shall carry out the management & other is sleeping partner => the profit only to the extent of his investment and ratio of profit is not exceed the ratio of his investment
b. If all agree work together for joint venture => each one should be treated as agent of the other & any work shall be deemed to be authorised by all partner