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Shirkah, Musharkah and types of Shirkah

Introduct ion : Allah Subhan-o-Tallah has declared that He will become a partner in a business between two Mushariks until they indulge in cheating or breach of trust (Khayanah). In light of the Islamic teachings on this subject, partnerships have been a prevalent business practice in the very earliest eras of Islamic history. Several instances of business partnerships among the Sahabah (companions) of Prophet Muhammad (sallallahualayhi-wasallam) have been cited in history texts. Shirkah Or Musharkah (partnership): 1. Literally means 2. A Term used in business and trade.

1. It literally means in Arabic sharing. The sharing may be of money, labor, or anything else. The prophet (SAW) said, “People are partners in three [things]: water, herbage, and fire.” 2. In the context of business and trade it means a joint enterprise in which all the partners share the profit or loss of the joint venture. It is also called Musharkah.

Dif ference between sh i rkah and m usharakah:
The root of the word "Musharakah" in Arabic is Shirkah which means sharing. The term “Shirkah” has a much wider sense than the term “Musharakah” as is being used today. The latter is limited to the “Shirkat-ul-amwal” only, while the former includes all types of joint ownership and those of the partnership. So it is almost analogous to “shirkat-ulamwal”,

Types of sh irkah: There are two basic types of musharaka:. 1. Shirkah -Al-Milk 2. Shirkah al-Uqood

1. Shirkah -Al-Milk non-contractual) ( It involves co-ownership and form when two or more persons get joint-ownership of some asset without a formal partnership agreement. Example  Two persons receiving an inheritance or a gift of property which may or may not be divisible.  Partners have to share property or its income in accordance with their share until they decide to divide.

Shirkah al-MilkIkhtiyariyyah (Optional): If the property is divisible and partners still decide to stick together, It is Shirkah al-Milk Ikhtiyariyyah (voluntary). Shirkah al-Milk Jabriyyah (involuntary).: If it is indivisible and they are forced to stay together it is characterized as Jabriyyah (involuntary). Note: There are two more types of Shirkat-ul-Milk.
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Shirkat-ul-Ain Shirkat-ul-Dain

A property in shirkat-ul-milk is jointly owned but not divided yet, is called Musha. In Shirkat-ul-milk undivided shares or other assets can be used in the following manner a) M ushtar ik Int i fa:’ Mutually or jointly using an asset by taking turns under circumstances where the partners or joint owners are on good terms.

b) Muhaya: Under this arrangement the owners will set turns in days for example one may use the product for 15 days and then the other may use it for the rest of the month. c) Taqseem: Referring to division of the jointly owned asset. This may be applied for property where the asset that is owned can be divided permanently for example jointly taking a 2,000 sq. yards plot and making a house on 1000 yards by each of the 2 owners. d) Under a situation where the partners are not satisfied with Muhaya arrangement, the property or asset jointly held can be sold off and proceeds divided between the partners.

2.

Shirkah al-Uqood (contractual partnership)

 The agreement need not necessarily be formal and written; it could be informal and oral.  The profits can be shared in any equitably agreed proportion.  Losses must, however, be shared in proportion to the capital contribution. Type of Shirkah al-Uqood : In Fiqh Shirkah al-Uqood divided into four kinds:  Al-Mufawadah (full authority & obligation)  Al-Inan (restricted authority & obligation)  Al-Abdan (labor, skill and management)

 Al-Wujuh (goodwill, credit-worthiness

Shirkah al Mufawadah  In Mufawadah partners are adults,  equal in their capital contribution,  Their ability to undertake responsibility and their share of profits and losses.  They have full authority to act on behalf of the others  Jointly and severally responsible for the liabilities of their partnership business, provided that such liabilities have been incurred in the ordinary course of business.  Each partner can act as an agent (Wakil) for the partnership business and stand as surety or guarantor (Kafil) for the other partners Shirkah al Inan  Inan involve all partners need not be adults or have an equal share in the capital.  They are not equally responsible for the management of the business.  Their share in profits may be unequal, but this must be clearly specified in the partnership contract.  Their share in losses would be in accordance with their capital contributions.  Shirkah Al-Inan the partners act as agents but not as sureties for their colleagues. Note: Both of Sharikat al Mufawadah and Sharikat al Inan has further three types. 1. Shirkat - ul - a wal where all the partners invest some capital into a m commercialinterprise. 2. Shirkat - ul - A’malwhere all the partners jointly undertake to render some services for their customers, and the fee charged from them is distributed among them according to an agreed ratio. For example, if two

persons agree to undertake tailoring services for their customers on the condition that the wages so earned will go to a joint pool which shall be distributed between them irrespective of the size of the work each partner has actually done, this partnership will be a shirkatul- a’mal which is also called Shirkat-ul-taqabbul or Shirkat-ul-sana’i’ or Shirkatul- abdaan. 3. Shirkat-ul-wujooh where the partners have no investment at all. All they do is that they purchase the commodities on a deferred price and sell them at spot. The profit so earned is distributed between them at an agreed ratio.

Shirkah Al - Abdan  Shirkah al-Abdan is where the partners contribute their skills and efforts to the management of the business without contributing to the capital.  They use their expertise, experience and goodwill that give confidence and strength to the venture either on profit or wages.. Shirkah Al -W ujuh  Partners use their goodwill, their credit-worthiness and their contacts for promoting their business without contributing to the capital.  Both these forms for partnership, where the partners do not contribute any capital, would remain confined essentially to small-scale businesses only.