I will be starting a business with a colleague. We have both invested 50% equally into the business. We have agreed that he will be running the business on a daily basis and I will assist over the weekend etc. until such time that, Insha Allah, the business is well established and has grown. The concern I have and am I correct in saying:
- It is not permissible to stipulate a monthly salary for a partner in addition to his profit-share although he will be the one working full time in the business?
- If the profits are distributed equally on a monthly basis and my share is put back into the business would that be making a mockery of the Shariah?
- Can the profit for one partner be given on a monthly basis and the other partner’s taken out annually?
- How should the profit be distributed according to the Shariah?
May Allah Ta’ala grant you barkat in your business venture. Rasoolullah (Sallallahu alaihi wa sallam) said that the honest and trustworthy businessman will be with the Ambiya, Shuhada (Holy Martyrs) and Siddeeqeen (the highest category of the Awliya) on the Day of Qiyaamah.
The answers to your questions are as follows:
- Yes, it is not permissible to stipulate a monthly salary for a partner in a business enterprise whose share has been predetermined. However, the partnership can adequately accommodate and reward the full time working partner. The solution is merely to increase the profit ratio of the partner who will run the business daily.
- It will not be a mockery of the Shariah if you put your share back into the business after the profits are distributed equally. In this case your capital investment will increase, but of no benefit to you if the profits are shared equally.
- It is not permissible to stipulate that one partner can withdraw his share of the profit on a monthly basis and the other only on an annual basis. Distribution of the profits at any time applies equally to both partners. It is permissible to distribute the profit on a monthly basis.
- The percentage profit could be increased for the working partner or the one who has to do most of the work, even if his capital investment happens to be less.