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“SHARIAH COMPLIANT COMPANIES” AN APPRAISAL OF THE LEGAL

THEORIES OF BODY CORPORATE FOR SHARIAH COMPLIANT COMPANIES

Article · August 2018

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“SHARIAH COMPLIANT COMPANIES”

AN APPRAISAL OF THE LEGAL THEORIES OF BODY CORPORATE
FOR SHARIAH COMPLIANT COMPANIES

Zuhairah Ariff Abd Ghadas*(1), Hartinie Abd Aziz (2)

(1)
Faculty of Law and International Relations, University Sultan Zainal Abidin, Kampus Gong Badak, 21300 Kuala
Terengganu, Terengganu, Malaysia
(2)
Kolej Yayasan Pahang, Kompleks Yayasan Pahang, 26060 Tg Lumpur, Kuantan, Pahang, malaysia
*Corresponding author: *Zuhairah Ariff Abd Ghadas, zuhairahariff@unisza.edu.my

Abstract. In Malaysia, Shari‘ah compliance businesses are highly propagated. According to Securities
Commission of Malaysia Report, as of May 2015, there are 674 Shariah-compliant securities which constitute 75 per
cent of the total 903 listed securities on Bursa Malaysia. Some of these securities are issued by companies which
totally carried out Shari’ah complaint businesses. It is interesting to see that all Companies incorporated by the Islamic
Institutions or by businessmen who carried out Shari’ah complaint businesses are regulated under the Companies Act.
Due to the fact that the Malaysian Companies Act was modeled upon the English Companies Act and the Australian
Uniform Companies Act, there is a fundamental question on whether the common law principles on companies which
are unreservedly applicable under the Companies Act could be applied to the Shari’ah compliant companies. This
paper discusses the legal theories of corporate personality from both the common law and Shari‘ah perspectives to
identify whether the existing Companies Act is suitable or adequate to cater the Shari‘ah compliant companies or
whether there is a need for a specific Companies Act to cater for Shari’ah compliant companies.
Keyword: Corporate personality, Juristic Person, Shari‘ah Compliant Companies.

Introduction. Juristic person is a legal entity other than the human being created by law giving certain right
and liabilities just like a natural had. This doctrine had been established since the early Roman law1. This doctrine is
used widely especially in the corporation of the company as a business vehicles. A fundamental principle of
conventional company law is that a company is a creature by the provision of the law; it enjoys a distinct legal person,
separate from its shareholders. This characteristic applies irrespective of whether the company is a private limited
company or a public limited company. A company as a legal person, amongst others is capable of owning property,
being subjected to legal rights and obligations, suing and being sued.
However, many orientalists, among others Joseph Schacht, are of view that the Islamic Legal System does not
recognize the concept of ‘Juristic Person’ i.e. corporations, universities and organizations. The disagreement also made
by some classical jurist who denies the existence of this concept in Islamic law.
Thus, this paper will discuss the theories of juristic personality of a company under the common law and
Shari’ah. Whether, the doctrine of juristic person is recognized under the shariah law; and if it was recognized, whether
the existing application of this doctrine is consistent with shariah law. Findings of this paper is important to identify
whether the provisions of the Companies Act 2016 which are based upon the common law, could be applied to Islamic
companies in Malaysia.
Corporate Personality in Western Jurisprudence.
The doctrine of corporate personality established that a corporation, a non-human entity has rights as a legal
person. According to Salmond, who is a famous English jurist, under the legal theory, a person is any being whom the
law regards as capable of rights and duties and any being that is so capable is a person, whether a human being or not,
and no being that is not so capable is a person, even though he is a man 2. One of the most recognized person who is not
a human being is a company. Savigny, another famous English jurist stated that besides men and ‘natural persons’ the
law known as ‘subjects’ of proprietary rights certain fictitious, artificial or juristic persons, and as one species of this
class it knows the corporation3 .
The acceptance of the doctrine of corporate personality was based upon jurisprudential theories, which are
concentrated upon the philosophical explanation of the existence of personality in beings other than human individuals4.
Even though there are many theories which attempt to explain the nature of corporate personality, none of them is said
to be predominantly accepted. Nonetheless, there are five principal theories, which are used to explain corporate
personality, namely, the fiction theory, realist theory, the purpose theory, the bracket theory and the concession theory.
The Fiction Theory
This theory was propagated by Pope Innocent IV which basically emphasized that corporate bodies
are personae fictae directed at ecclesiastic bodies 5. According to this theory, the legal personality of entities
other than human beings is the result of a fiction. This theory established that ecclesiastic collegium or
universitas, or capitulum could not be liable or guilty of a delict because of the lega l maxim for nomina sunt

1
W.Friedman, Corporate Personality In Theory and Practice, Legal Theory (5th edn, 1967).
2 P. Fitzgeral, Salmond on Jurisprudence (London: Sweet and Maxwell 1966).
3 Maitland, Translator Introduction to Gierke’s Political Theories of the Middle Age (Cambridge: Cambridge University Press 1938).
4 Martin Wolff, ‘Nature of Legal Persons’ [1938] 54 Law Quarterly Review 497.
5 David P.Derham, Theories of Legal Personality, Legal Personality and Political Pluralism (Melbourne University Press 1958).

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juris et non personarum (they had neither a soul nor a body). Hence, not being a human being, corporation cannot be a
‘real person’ and cannot have any personality of its own. Fiction theory emphasized that rights and duties attached to
corporation as artificial person totally depend on how much the law imputes to it.
The Concession Theory
The concession theory is basically linked with the philosophy of the sovereign national state. Under the
concession theory, the state is considered to be in the same level as the human being and as such, it can bestow on or
withdraws legal personality from other groups and associations within its jurisdictions as an attribute of its sovereignty6.
Hence, a juristic person is merely a concession or creation of the state. Concession theory is often regarded as the
offspring of the fiction theory as it has similar assertion that the corporations within the state have no legal personality
except as it is conceded by the state. Exponents of the fiction theory, for example, Savigny, Dicey and Salmond are
found to support this theory. Nonetheless, it is obvious that while the fiction theory is ultimately a philosophical theory
that a corporation is merely a name and a thing of the intellect, the concession theory is indifferent as regards to the
question of the reality of a corporation in that it focus on the sources of which the legal power is derived. The
distinguished English jurist, Pollock, denied that English law applied the fiction theory but rather adopted the
concession theory in explaining the nature of corporate personality7.
The Purpose Theory
Similar to the fiction and concession theories, the purpose theory declares that only human beings can be a
person and have rights. Entities other human is regarded as an artificial person and merely function as a legal device for
protecting or giving effect to some real purpose. As corporations are not human, they can merely be regarded as juristic
or artificial person. Under this theory, juristic person is no person at all but merely as a ‘subjectless’ property destined
for a particular purpose and that there is ownership but no owner. This theory contends that the juristic person is not
constructed round a group of person but based on object and purpose. The property of the juristic person does not
belong to anybody but it may be dedicated and legally bound by certain objects. This theory rationalized the existence
of many charitable corporations or organizations, such as trade unions, which have been recognized as legal persons for
certain purposes and have continuing fund.
The Symbolist Theory
This theory is also known as the ‘bracket’ theory. Under this theory, the conception of corporate personality is
indispensable and merely an economic device by which simplify the task of coordinating legal relations. 8 Under this
theory, rights are not inherent attributes of the human will and that an individual is not a subject of right by reason that
he possesses a will. On the contrary, the will is at the service of law and it is the interest of man which the law protects.
The symbolist theory is often acknowledged for its availability to justify corporate personality from non-legal
facts but it has been repeatedly rejected by the courts in common law jurisdictions because it denies the law by deducing
that the only legal relation which is fixed and certain can be discovered by removing the ‘brackets’ of the corporation and
analyzing the relations of the human beings involved.
The Realist Theory
According to this theory, a legal person is a real personality in an extra juridical and pre-juridical sense of the
word. It assumes that the subjects of rights need not belong merely to human beings but to every being which possesses
a will and life of its own. As such, being a juristic person and as ‘alive’ as the human being, a corporation is also
subjected to rights. Under the realist theory, a corporation exists as an objectively real entity and the law merely
recognizes and gives effect to its existence.
Under this theory, the law is regarded as having no power to create an entity but merely having the right to
recognize or refuse to recognize an entity. A corporation is referred as a social organism while a human is regarded as a
physical organism. The realist theory contended that, action of the corporation is deem to be carried out on its own,
similar to the way of the normal person and not by its agents or representatives like those of the incapable, such as the
infant and insane. While human uses his bodily organ to do an act, the corporation uses men for that purpose. Some of
the Realist theory followers even claimed that similar to the human being, juristic person also has organs. For example
Nicholas of Cues, the great precursor of modern philosophy contended that as a juristic person, the State’s skeleton
comprises of the land, the people formed as the State’s flesh whilst the law acted as the nerves. This theory is found to
be favored more by sociologists rather than by lawyers.
While discussing the realism of the corporate personality, most of the realist jurists claim that the fiction theory
failed to identify the relation of law with the society in general. The main defect of the fiction theory according to the
realist jurist is the ignorance of sociological facts that evolved around law making process. Hence, by ignoring the ‘real
capacity and functions’ of corporation in the real world, the fiction jurists have failed to see the ‘live’ possessed by a
corporation. According to the realist jurist, lawyers have to acquire the habit to depart from the plain meaning of law
and go behind the scenes of the legal platform for the realization and justice which law is supposed to introduce to life.
The Islamic Law Approaches on Artificial Legal Person. Nyazee contended that a Ruler may assign a

6 Fitzgeral.
7 Frederick Pollock, ‘Has the Common Law Received the Fiction Theory of Corporations?’ [1911] Law Quarterky Review
219.
8 Wolff.

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restricted or limited dhimmah to a non-human on the following conditions:9

(i) A body corporate with a fictitious identity will not be expected to observe religious duties; for example, not to
be subject to the khitab of ibadat, and will not be liable for any religious duty or obligation that may arise from it.
(ii) A body corporate must be associated to some form of ‘aql; either individual or group of individual (e.g. board
of directors). This is because, in Islam, the ahliyat al-ada’ will always be associated with the source of ‘aql, and so will
the liability for such acts.
(iii) A concept of dual title of ownership must be associated with a body corporate. It entails, any property held by
the body corporate in its own name must be assumed to be held on behalf of the members of the body corporate as a
result of khalt or mingling of capitals. In addition, the body corporate may have the full right of disposal and transaction
in the property if so permitted by its members.
Referring to the guidelines, it is obvious that there are similarities between the common law scholars and the
contemporary Muslim jurists as regards to the status of the body corporate as a fictitious person and requirement for
natural persons to be the decision making organ (‘aql) of the company. However, there is a different view on rights of
the company to hold properties. According to Nyazee, 10properties owned by the company under its name are hold on
behalf of the members under certain agreement/arrangements whereas under the common law, properties acquired under
the company’s name belong to the company and members do not have any interest in them.
There are actually two different views among Muslim jurists or scholars on artificial person (al-saksiyah al-
maknawi). Firstly, according to the modern Muslim jurists, they had viewed that the principle of separate legal entity is
recognized in Islam as it has the similarity with other Islamic institutions such as mosque, baitul mal, waqf and the like.
On the other hand, the traditional Islamic jurists were of the opinion that this principle does not exactly exist in Islamic
ruling. This is because a company which is regarded as a person is only a fictitious person or artificial person as such,
has no capacity to engage in any commercial transaction.
The discussion of separate legal entity principle under Islamic law is derived from the views of the Muslim
Jurists on the entity of artificial person ( ‫) االعتبارية الشخصية‬. This entity has been discussed by many modern Muslim
scholars for instance Imran Ahsan Khan Nyazee, Mustafa Ahmad al-Zurqa, Muhammad Abu Zuhrah and others.
According to Imran, he made some comments with regard to this cooperate personality under Syariah law who quoted:
‘’There has been a prolonged debate about the existence of the concept of a fictitious person (shaksiyah i’itibariyah) in
Islamic law. Most modern scholars insist that this concept was known to Islamic law, while some are doubtful whether
Islamic law was aware of the concept, but they rejected it for the system they were dealing with. This does not mean
that the concept cannot be accepted in Islamic Law’’11
This shows that Islamic law does recognize this principle although it cannot be said to accept it blindly. This
can be seen in which he further said: ‘’Accepting cooperate personality within the fold of Islamic law does not mean
that all institutions based on this concept automatically become legal. The implementation based on the concept in
different forms needs separate analysis.’’
Thus, it is necessary for the jurists in adapting this principle to accord with the general principles of Islamic
law of contract. He further added: ‘’Such an implementation needs some minor changes to the existing structure of the
business corporation, but these changes will enable the corporation to issue securities that are free from riba, and it will
also meet most of the requirements of the general principles of the Islamic law of business organization.’’
According to Mustafa Ahmad al-Zarqa, a modern jurist in fiqh stated:‘ ’If these institutions which exist now
recognized fictitious personality existed in the early era of development in fiqh, it would be obvious that is would be
recognized by the fuqaha at that time through legal justifications which are similar to legal justifications of the
institution of Daulah, Bayt al-Mal, al-Waqf.’’12
The word ‘’these institutions’’ refers to Islamic institutions such as waqf, baitul mal, mosque and others which
are recognized by fuqaha as entity and therefore, the concept of fictitious person had been applied. Al-Zarqa and
Muhammad Abu Zuhrah are of the view that the theory which recognizes the entity other than human being as a legal
person can be justified through the theory of fiqh known as al-Dhimmah13.
The term of al-Dhimmah has been discussed by many Muslim jurists in various opinions. According to
Mazhab al-Syafie jurists, they defined al-dhimmah as an attribute of human being with duties (al-ilzam) and also
obligations (al-iltizam)14. This definition is similar to other three major Mazhab (Maliki, Hanafi and Hanbali) which
considered as the main definition15. Al-Sarakhsi defined it as a fixed attribute of a person accepting obligations and
duties. This concept relates to an obligation and capacity (al-ahliyyah) as well. The application of this concept as
discussed and applied by the jurists since the early era of the development of fiqh does not imply the same definition.

9 Imran Ahsan Khan Nyazee, ‘Corporation and Islamic Law Imran Ahsan Khan.pdf ’.
10 Nyazee, ‘Corporation and Islamic Law Imran Ahsan Khan.pdf ’.
11 Nyazee, ‘Corporation and Islamic Law Imran Ahsan Khan.pdf ’.
12 Mustafa Ahmad Al-Zurqa, Al-Madkhal Ila Nazariyyat Al-Iltizam Al-Ammah Fi Al-Fiqh Al-Islami (1964).
13 Nyazee, ‘Corporation and Islamic Law Imran Ahsan Khan.pdf ’.
14 Al-Makashifi Thoha Al-Kabashi, Al-Zimmah Wa Al-Haq Wa Al-Iltizam Wa Ta’thiruha Bi Al-Mawt Fi Al-Fiqh Al-Islami

(Dirasah muqaranah Riyadh: Maktabah al-Haramayn 1989).

15 Al-Buhuti, Kashshaf Al-Qina’ (Vol 3, 1947).

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Majority of the fuqaha have acknowledged the existence of other than human being which is entitled to some rights and
responsibilities. However, unlike English law, their discussion concerning the artificial person not only relies on the
entity itself but also whether it is subject to obligation and responsibilities as required under Islamic law.
According to al Makashifi Thoha al-Kabashi16, the fiqh of Islam does recognizes the existence an artificial
person (al-syakhsiyah al-I’tibariyyah) like hospitals, waqf, and syarikaat and does imposes it al-dhimmah as to have
certain rights and obligations even though it is not defined as similar as other names in civil law. He also added that this
artificial person enjoys the concept of al-ahliyyah al-kamilah as similar to human being with having certain rights and
obligations. Al-Imam Muhammad Abu Zuhrah defined the meaning of dhimmah as follows; “it is decided that dhimmah
is an artificial and assumed thing, it is assumed to become the place for obligations and rights which is to become
related with rights and obligations as human, and if it is an artificial thing, it is permissible to assume it in the situation
of death (dead person)”17.
Wahbah al-Zuhaili who is one of the famous contemporary Muslim jurists defined the meaning of al-dhimmah
as an artificial place existed into a person and such place bears debts or obligations18. He also explained some
characteristics of al-dhimmah and one of them is that al-dhimmah comes not only from a real human being but also
from a fictitious person like shirkah institutions, waqaf and mosque. In other words, it would appear that he
acknowledged and accepted that the concept of “legal entity” other than human being. Fauzi Muhammad Sami19, opined
that artificial person or as-syakhsiyah al-ma’nawiyyah which is also known as al-syakhsiyah al-I’tibariyyah is also
extended to partnership (shirkah). Shirkah is defined as a group of persons or properties which are collected to achieve
certain objectives.Abd al-Muhsin Fadhlullah al-Husni al-A’mili highlighted that dhimmah under al-syarikah can legally
exist in Islamic transaction. According to him, although dhimmah is an attribute of a person who is created by Allah, it
is for Allah to confer a dhimmah for non-living thing, such as waqf, mosque, baitul mal and other entities. By having the
dhimmah, these institutions have certain rights and recognized as an independent legal person to enter contracts with
third parties.20
By contrast, there are also some Islamic jurist who are doubtful whether Islam recognizes the doctrine of
artificial person. Z. Zainal A highlighted that the application of the principle of al-dhimmah to justify the recognition of
artificial entity under Shariah is heavily criticized because it is used to refer to anything which has attributes of human
being and shall have rights and obligations. Al-Bazdawi (483H) and al-Nawawi, (676H) take the view that al-dhimmah
is a dzat which is real and cannot be fictitious because the Shariah only imposed obligations and rights on human
being21. Al-Tahanawi highlighted that the term al-dhimmah is not applicable to interpretation of liability and obligation
because Allah created a mankind with aql and dhimmah until he becomes a member of possessing such rights and
obligations, he mentioned that if the existence of aql (mind) is presumed without dhimmah, there will be no rights
imposed to him. Consequently, the attribute is the reason for the existence of a person to have rights and obligations and
aql is the requisite for it22. Here, he tried to say that dhimmah is only obligatory to a human-self only in accordance with
his attribute as the meaning of dhimmah is synonymous to human’s attribute. In addition, according to al-Sarakhsi,
dhimmah is the trust that was offered to the mountains, but they refused; Man accepted it. Thus it is an attribute
conferred by the Law-giver. It is a trust resulting from a covenant (‘ahd). The fact that dhimmah is a covenant between
Lawgiver and the ‘abd (servant of Allah) means that it can be assigned to a natural person alone23. In other words,
unlike in western law, dhimmah is not applicable to an artificial person.
Abdul Aziz Ahmad al-Bukhari and al-Bazdawi emphasized that dhimmah is phrase of ‘ahd (covenant) as Allah
created a mankind as the place of amanah giving him aql and dhimmah until he becomes a member of possessing such
rights and obligations, enjoys the right of innocence (‘usmah), freedom and ownership and carries the duties as Allah’s
rights towards him24. In addition, he added that dhimmah is an attribute of a person as a member of having certain
obligations and rights based on the previous ‘ahd between the Lawgiver and His servant as Allah said: “And [mention]
when your Lord took from the children of Adam - from their loins - their descendants and made them testify of
themselves, [saying to them], "Am I not your Lord?" They said, "Yes, we have testified." [This] - Lest you should say
on the day of Resurrection, "Indeed, we were of this unaware." ( surah al-a’raf :172)
Be that as it may, Mustafa Muhammad al-Zurqa’s definition of dhimmah on the other hand, avoided all the
objections of the dhimmah’s definitions as mentioned by the scholars who are doubtful whether dhimmah is applicable
to a fictitious person as had been said by his student, Dr. Nuh Ali Salman. He explained that according to his

16 Al-Kabashi.
17 Muhammad Abu Zuhrah, Ahkam Al-Tirkat Wa Al-Mawaris (1996).
18 Wahbah Al-Zuhaili, Fiqh Dan Perundangan Islam IV (Dimashq: Dar al-Fikr 1996).
19 Dr Fauzi Muhammad Sami, Al-Syarikaat Al-Tijariyyah Al-Ahkam Al-Ammah Wa Al-Khassah.
20 Al-Husni Al-A’mili, Al-Syarikaat Baina Al-Syariah Al-Islamiyah Wa Al-Qanun Al-Madani.
21 Zainal a Zuryati, Ahmad N Azrae and Mohamed Yusoff, ‘Separate Legal Entity under Syariah Law and Its Application on

Islamic Banking in Malaysia : A Note’ (2009) 6 The International Journal of Banking and Finance 139.
22 Muhammad Ali Al-Tahanawi, Mausuah Kashshaf Istilah Al-Funun Wa Al-Ulum.
23 Imran Ahsan Khan Nyazee, Islamic Jurisprudence (The Other Press, International Institute of Islamic Thought Petaling Jaya

2003).
24 Abdul Aziz Al-Bukhari, Kashful Asrar an Usul Fakhri Al-Islam.

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understanding on his teacher’s definition of dhimmah, it is something assumed, its existence is deemed for human being
as such assumption is necessarily and consistently required to be logical with the rulings of Allah25.
Subsequently, the definition of dhimmah according to al-Zurqa is: a place of corporate body in a person
accompanied by such rights which are specified of it26 Dr. Nuh had briefly explained this definition starting from the
word “place of corporate body” which means a fictitious place as a sign of the solution of rights in dhimmah but it is
not a real place, but merely an assumed artificial one. Next, the word “in a person” refers to a statement to specialize
for the real persons as well as the artificial persons. However, animals do not have any dhimmah for them. At the same
time, the word ‘’accompanied by rights’’ means that the importance of this assumption of place as to have rights gained
by them regardless of whether such rights are from Allah or His servants. Lastly, the word ‘’specified of it’’ here
connotes whatever the reason of these rights is that each person will be having such rights specifically for him. Due to
this good definition, he is of the view that he agreed and used this definition as for his research and said it is much
correct than others27
Ahmad Mahmud al Khuli in discussing the concept of artificial person, defined the meaning of dhimmah as “a
legal or artificial or decreed meaning/order, assumed to be the place which attached with certain rights and obligations,
as a person”28. In other words, dhimmah is the legal place which is similar to humankind, as to have both rights and
obligations. This new definition of dhimmah has its own elaboration made by him in order to exclude from the dispute
between the fuqaha on the definition of dhimmah. The word “meaning or order” is changed from the word attribute as
it refers to the human’s attribute or capacity (ahliyyah). The word “legal” is used as it is approved by the Syarak.
Furthermore, the word “artificial or decreed” is to stress the understanding of the decree (taqdir) of dhimmah as it is left
with such a great disputes among scholars. The word “place” is used to differ from the capacity of human (ahliyyah) or
human‘s attribute itself (dhimmah). Next, the word “attached with certain rights and obligations” means that both
cannot be separated as some scholars who defined dhimmah as to have rights only without obligations or vice versa.
Lastly, the word person or individual is to exclude the requirement of mandate (al-taklif) from Allah as it is only for a
human kind. If the word al-taklif or human (al-insan) is used, its meaning will be much narrowed by referring only to
human being. Nonetheless, the word person (al-shakhsu) can still be used as for example artificial person (al-shakhsu
al-I’tibariyyu) so long it is referred to the meaning of dhimmah but not to the al-taklif29.
Abd al-Aziz Izzat Khayyat explained that the Muslim scholars were interested of the discussion of the
sharikah. Nevertheless, they did not elaborated more on the existence of an independent partnership from its partners.
Thus they did not recognize the concept of artificial person for partnership due to this theory was not well explained
until the period of the middle Muslims Era. Thus there two reasons which show the reluctance of this artificial person30.
Firstly, the nature of Islamic Fiqh is derived from the fixed relationship between human and his Lord, with numerous
rulings related to ibadah and getting closer to Allah. All of these rulings are imposed to a human being who has al-taklif
(mandate). Consequently, this mandate covers the capacity (ahliyyah) of human who will be attached with rights and
responsibilities such as ahliyyah wujub. Then, this capacity covers dhimmah and life, the humanity which refers to the
presence of human in this world. In addition, life and dhimmah will not be present except in a living human, as he has
the capacity of obligations as imposed by Allah. Thus, a non-living human has no dhimmah as imagined by other
Muslims and any partnerships, institutions and others will be having no dhimmah as an artificial person. Secondly, the
business and industry would not be developed in the Islamic world especially in Islamic countries as can be seen in
Europe and the western world in our current modern era. Nonetheless, from the development of the Islamic world scope
and the large community in it and the variety of works and labors, except for some people who participated in
contracting syarikat, and Muslim people did not know the large amount in establishing the syarikat and such large-
spread factories and works which need the large modals which are unable to collect them by individuals did not
happened but need them (modals) from the state or huge groups of people. Basically the fuqaha in their ijtihads made its
rulings to curb the reality of the issues. In other words, there are some problems which bring them deducing some
rulings for it. When there is no problem in the life reality, the scholars usually will not be able to burden themselves to
deduce the hukum by making an ijtihad.
However these two reasons do not mean he rejected the concept of shirkah as an artificial person. The
definition of dhimmah is defined and taken by him as it means: an attribute one of the recognitions of Shariah which
means giving it to be present is the ruling of absence, and the absence means the ruling of presence31.
From this definition of dhimmah, it is true an attribute of human attached with rights and obligations then what
makes to prevent this attribute to be changed to a non-living human if it is capable of being proper in receiving rights
and obligations of property. Thus we see that the scholars made this dhimmah for a non-living human and considered
such dhimmah as an independent legal person from individuals. He added that Sheikh Ali al-Khafif commented as

25 Nuh Salman, Ibra’ Al-Dhimmah Min Huquq Al-Ibad (Dar al-Fathi, Amman ,Jordan 2010).
26 Mustafa Muhammad Al-Zurqa, Nadhariyyah Al-Dhimmah Fi Al-Fiqh Al-Islami (1968).
27 Salman.
28 Ahmad Mahmud Al-Khuli, Nazdhoriyyat Al-Dhimmah (Al-Qahirah: Dar al-Salam 2003).
29 Al-Khuli.
30 Abd al-Aziz Izzat Khayyat, Al-Sharikat Fi Al-Shari’ah Al-Islamiyah Wa Al-Qanun Al-wad’I (Amman; Dar Al Bashir 1994).
31 Khayyat.

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follows32:“To sum up, the theory of dhimmah and what has been decided from it with some rulings is not (decided)
except with a doctrinal legislative arrangement, it no means except by modifying the rulings and their consistency, and
it is not an ijtihad thing which is permissible to change and develop in accordance with the necessities of transactions
and their development and their changes of rulings and types. If the interest and custom necessitated it, which cannot be
found in Quran, and in Sunnah whereas it (sunnah) prevents to assume dhimmah for non-living human, it can be
developed because it (sunnah) approved for syarikat, institutions, and general properties of what have been attached for
them with dhimmah, not of what has been attached for human with capacity.”
It is therefore clear that in approving the dhimmah for shirkah must be returned to the transaction and custom,
and response of the economic development and the common transactions between people in these current periods and
there is no great dispute which returns to the basic disputes among the scholars.
Khayyat said that as dhimmah is an attribute which relates with rights and obligations in ibadah or property as
its scope is wide in Islamic Fiqh. Meanwhile, dhimmah in civil law is restricted into the financial obligations. He then
conclude that, Islam recognized the doctrine of shaksiyah I’tibariah and this doctrine can be extend to sharikah and
consequently, it gives the sharikah certain right and attributes as artificial person.
After discussing the theory of dhimmah as to whether Islam recognizes such doctrine of corporate legal entity,
the next issue arises which is whether the principle of separate personality is present based on the practice of Islamic
institutions since the period of the Companions of Muhammad s.a.w. According to Taqi Usmani, the existence of the
principle of separate legal entity under shariah law is based on precedents of other Islamic institutions and practice like
waqf, masjid, baitul mal, joint stock and inheritance under debt 33 . He took the view that waqf is a legal and religious
institution wherein a person dedicates some of his properties for a religious or charitable purpose, creating a separate
legal entity. After being declared as waqf, the donor is no longer the owner of the property.
Next, mosque is another example given by him whereby any donation given to mosque belongs to it and does
not become part of waqf. Baitul mal is also an example to constitute as the separate legal entity in Islam. According to
him, Imam al-Sarakhsi stated that baitul mal has some rights and obligations which may possibly be undetermined. He
added that the head of an Islamic state can pay salaries of the staff from the sedaqah (zakat) department but the amount
so taken shall be deemed to be a debt on the kharaj department.
The principle of joint stock Company which is found in the fiqh of Imam al-Shafie also formed the basis of his
arguments on this principle of separate legal entity in Islam. When more than one person run their business in
partnership and the assets are mixed with each other the zakat will be levied on each of them individually. Nonetheless,
the zakat will be payable on their joint stock as a whole. Hence, it is treated by him as an entity distinct from the
partners. Be that as it may, all of these examples had been criticized by Majlis Ulama of South Africa in a book entitled
‘’the concept of limited liability-untenable in shariah’’34. The writers contended that for waqf, the assets purchased with
the income of a waqf do not become part of the original waqf property simply as for anything to become waqf there has
to be a waaqif who is person dedicates the asset in the path of Allah as waqf. If the waqf income becomes waqf
automatically, the very aim of the waqf will be defeated and devoid of utility.
As for the mosque, it is concurred that the ownership vests in Allah and He is not fictitious. Ownership of the
masjid in this context means ownership of the owner of the masjid. Allah who is the true owner of the masjid becomes
the owner of all assets made for the expenditure of the masjid and of all income generated by these waqf assets.
Baitul mal which is applied by Taqi Usmani as the basis for the recognition of separate legal entity is also
criticized by Majlis Ulama of South Africa. The different classes of wealth such as zakat and kharaj have to be
expanded in different avenues or for different purposes. If for example zakat money is used to construct a masjid the
obligation of zakat will be not discharged. If zakat money is thus spent in a category of expenditure, which does not
result in the discharge of the zakat obligation, it will have to made good by person who had used the funds for another
purpose. As for the joint-stock company, the Majlis Ulama highlighted that according to the Shafie madhab the stock of
a non-Muslim and the stock of a Muslim are combined, khultah has taken place. Obligation of zakat only applies to
Muslims. If the obligation of zakat devolves on the joint inanimate rice and barley, which were mixed or on any other
combined stock, it would follow that zakat will have to be paid regardless of one partner being a Muslim and one a non-
Muslim. Only the Muslim will pay zakat on his share of the mixture.
Actually, not all traditional Islamic scholars of fiqh or jurists had rejected these Islamic institutions as an
artificial person. However, they did not give any specific name with regards to this matter.According to al-Kabashi, he
explained that the concept of artificial person is not only referred to waqf, baitul mal, and masjid, but it is also extended
to a state and syarikaat as well35. Subsequently, he discussed and regarded both waqf and baitul mal as the fictitious
institutions and his opinion is supported by other traditional Muslim Scholars’ rulings.
Al-Kabashi said that waqf appears as an artificial person as it has certain rights and obligations. One of its
rights as determined by fuqaha is it holds the possession of waqf, inheritance (wasiyyat) and al-hibah as well. Thus, it is

32 Khayyat.
33 Halyani Hassan, Zuhairah Ariff Abd Ghadas, and Nasarudin Abdul Abd Rahman, ‘“ The Myth of Corporate
Personality ”: A Comparative Legal Analysis of the Doctrine of Corporate Personality of Malaysian and Islamic Laws’
(2012) 6 191.
34 Hassan, Abd Ghadas, and Abd Rahman.
35 Al-Kabashi.

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valid that masjid or others becomes mauqufan ‘alaih (persons who receives waqf) due to that it has dhimmah and
ahliyyah wujub, determined by them.
Similarly, as noted by Khulli, according to Muhammad bin Salim Bayusuf al-Bariki, he also mentioned that
although the Muslim Scholars do not name al-sharikah as a fictitious person, they attached it with certain rights like
other institutions. This is to say, all the rulings of these institutions will not be stand unless they have such independent
dhimmah upon them. Thus, dhimmah here is the same as ahliyyah al-wujub which they obligate them some rights and
obligations and finally, they attached them as an artificial person just like a modern term recently 36 .It is a good
justification made by both scholars in order to rebut the arguments of Majlis Ulama of South Africa as mentioned above
and to support the sayings of Taqi Usmani regarding to this principle on certain Islamic institutions.
Mustafa Zurqa had mentioned that the concept of artificial person (al-syakhsiyyah al-hukmiyyah/ al-
ma’nawiyyah/ al-I’tibariyyah) has long been discussed by the fuqaha. This concept can be seen in three Islamic
institutions37 as mentioned above which are; baitul mal, waqf, and al- daulat (the state). Firstly, in baitul mal, it
contains the treasures of the general state as Islam comes with the theory of separation of baitul mal from the property
of authority or ruler (sultan) as its own specific ownership. Allah considered baitul mal as the real strength independent
institution, representing the interests of ummah in a general properties and it possess certain rights and it is possessed by
others (obligations), deserves for isolated inheritances from wasiyyah and acts as a party in disputes and lawsuits.
The person who represents all of these matters as the trustee of baitul mal as the representative of the ruler or
authority is the caliph or any people at the same level. He further mentioned that there is no authority which has an
individual right over baitul mal unless for the capability of his work and there is no person who can deal with it except
for that he has rights over it in accordance with syara’.
After explaining the reason of those Muslim scholars, he then continued stating that such ruling of this
principle of separate legal entity must be made to accord with the Islamic law as he said: ‘’Nevertheless, the modern
world is organized around the concept of the corporation or the fictitious personality. Modern scholars will therefore,
have to work hard to accommodate this concept into the fold of Islamic law. This means that adjustments will have to
be made in the law wherever this concept clashes with it. The fictitious person may be deemed to have deficient
capacity that is not fit for the performance of religious duties, like the payment of zakat.’’38
Conclusion
Although there is a great distinct opinion between traditional and modern Muslim scholars, some of the
traditional scholars did not reject totally this doctrine of separate legal entity under Shariah Law. Indeed they
acknowledged it from the very beginning but they rejected it due to its system as developed in civil law as mentioned by
Imran. Their justification pertaining to this matter had been briefly written by Imran Ahsan Khan Nayzee in his book39
who mentioned as follows:‘’This does not mean that the jurists were not aware of the concept. They were aware of it,
but did not acknowledge it for Islamic law. The main reason appears to be that dhimmah is ‘ahd (covenant) with the
Lawgiver and the fictitious person cannot be expected to enter into such a covenant primarily because it cannot perform
religious duties. In other words, the law derived by the jurists does not need this concept and will reject it.’’
Referring to the guidelines proposed by Nyazee , it is obvious that in adopting the common law doctrine of
corporate personality , there should be some modifications to the obligations of the company as a legal entity and to the
board of directors and members who form the “aql” of the companies. Rather than having total independent and
separate legal entity from the directors and members, Nyazee highlighted that in the Shari’ah corporations; there should
be a dual ownership and liability structure. This is important because as an artificial person, the company could not in
reality own and manage properties and also cannot be physically arrested and make accountable for default with the
third parties. The best conclusion is derived from Nyazee, who clearly highlighted that the common law doctrine of
corporate legal personality as an artificial person could be accepted under Shari’ah but subject to certain modifications
and therefore shall not be a direct application.

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39 Islamic Jurisprudence by Imran Ahsan Khan, at page 117

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