Date : 20-05-2018

Question :

Who should guarantee the company`s capital in case of loss?

The Answer :

All perfect praise be to Allah, The Lord of The Worlds, and may His peace and blessings be upon our Prophet Mohammad and upon all his family and companions.

If a partner (or partners) participates with money and the other with effort, then this is called "Mudara bah(Co-Partnership)." In this type of business, partners share the profits as agreed. For example, the owner of the capital gets a third, a quarter or a half and the rest goes to the other partner. In case of loss-God forbid-the capital owner loses his money and the other partner loses his effort in the work.

Muslim jurists have decided that it isn`t permissible for one of the partners to guarantee the capital. Rather, loss should be guaranteed by all partners; each according to his share in the capital. Commenting on partnership contract, Al-Imam An-Nawawi said, "Loss should be born in accordance with both amounts of money"{Minhaj At-Talibeen, 132}. In other words, each according to his share in the capital, and if loss was incurred due to negligence and misconduct on part of a certain partner then the latter should be liable for that loss.

In conclusion, if one of the partners guarantees the share of the other then the partnership is invalidated and each becomes entitled to his share in the capital and by then the partner who participated with his effort in the work becomes entitled to a fair rent from the money of his partner. And Allah knows best.