What is the detailed explanation regarding what is called joint-stock companies in terms of their reality and ruling?
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The questioner : Regarding joint-stock companies, I asked you about them once before, and the answer was brief. We want the details: the joint-stock company, in the concept of current capital, is based on transactions and is not a company calculated for known individuals. I would like you to elaborate on this issue so that we may come out of it with correct knowledge.
The Shaykh : This question is properly investigated only when the company is established on legal principles that do not contradict the Shari'ah. Only then do we elaborate.
So, first, the question, as they say today, contradicts itself. Do joint-stock companies not deal with riba (usury or interest)? You will be the first to say: they deal with riba. So what is the motivation for the question?
The questioner : It is defective.
The Shaykh : Yes?
The questioner : It is defective.
The Shaykh : I did not understand.
The questioner : The company is defective.
The Shaykh : The company is defective; this is one point.
The second point: suppose that a company—perhaps we will find one existing one day—does not deal with riba. We would say that the shares offered are a company of the type of mudarabah (profit-sharing partnership) with money, meaning Zayd participates with ten shares and another with a thousand, and so on. But the issue also falls outside the legal rulings when these shares remain shares that have not yet been converted into any work. We know from reality that any institution or company intended to be established offers its shares in the market. For example, we have a thousand shares, one share at ten and one share at a hundred, and so on. These shares end and the company is filled with the value of all the shares offered, before these funds are converted, for example, into trade, a factory, or anything else offered in the market for sale. The share that was, for example, priced at ten is either sold for eleven or sold for nine. This is another legal violation, because it is the very essence of riba, an increase or a decrease. Also, I believe there is no company that observes this issue before the shares are converted into a tangible asset, trade, factory, or anything else.
Likewise, we continue with imagination and say, if we suppose that a company offered the shares and kept the money with itself and not in the bank, and began to buy the necessities for establishing the factory or the company, or so on, in this form there is absolutely no objection to it, contrary to what the Tahrir Party says. Because here there is a legal principle: These transactions are not acts of worship. The one who wants to prohibit them on the pretext that this was not a type of transaction in the past is, at the very least, narrow-minded, narrow in thinking, and has not yet understood the correct Islamic principles. It is true that this type of company was not customary, but what harm is there in these non-worship matters in which we do not prevent reason from intervening? As for transactions, the matter is broad as long as they do not contradict an explicit legal text. But if you know that joint-stock companies today cannot escape violation, then by this consideration it is said that they are not prescribed.
The questioner : To add to the clarification, the joint-stock company shares themselves have two values: a nominal value and an actual value. For example, the nominal value of its shares might be one million dinars, while the reality is that it is half a million.
The Shaykh : What do you mean?
The questioner : That is, they offer the shares and say, "We want to establish a company with one million dinars, one million shares." The one million dinars will not actually be one million; it will be half a million.
The Shaykh : Okay, why did they do this?
The questioner : This is also a violation.
The Shaykh : I understand you.
The questioner : They do this to collect the maximum amount of money under the name, a nominal value, meaning through it. We have today, and we do not have... they deceive people. It is a matter of illusion; there is a nominal value and an actual value. This is known; they write on the certificate: the nominal value of the share is one dinar and the actual value is half a dinar. So it is actually half a dinar, but you pay one dinar.
The Shaykh : But as long as... something else... he does not reveal his money.
The questioner : It is not a matter of... this is a custom with them.
The Shaykh : I understand. I am now asking why they do this. Your answer was to deceive people. Okay, how do they deceive people? What do they write?
The questioner : They deceive people with the large number, that it is one million dinars.
The Shaykh : Yes, but you are now saying that they write it on the paper.
The questioner : They write on the paper that the nominal value is, for example, one dinar, and the actual value is half a dinar.
The Shaykh : We understand, Professor. Why do they write it on the paper if the intention is deception, and deception means...
The questioner : Because the intention of the capital company, as I have learned, is that they collect the maximum amount of money...
The Shaykh : No problem.
The questioner : This goal is collecting money... you pay one dinar and they give you half a dinar.
The student: But... the share... one dinar.
The questioner : Huh?
The student: The share... one dinar.
The questioner : They write for you on the paper that the actual value is half a dinar.
The Shaykh : Why, Professor? We did not get the answer. Why do they write it this way and that way? The actual value is such and the nominal value is such. Why? There must be something hidden there.
The questioner : Yes.
The Shaykh : As for your explanation that today people...
The questioner : Because the goal, which I understood, the goal of this company is to collect the maximum possible amount of money and utilize it in work.
The Shaykh : Okay, this... the intrinsic value?
The questioner : Yes.
The Shaykh : There is only that.
The Shaykh : This question is properly investigated only when the company is established on legal principles that do not contradict the Shari'ah. Only then do we elaborate.
So, first, the question, as they say today, contradicts itself. Do joint-stock companies not deal with riba (usury or interest)? You will be the first to say: they deal with riba. So what is the motivation for the question?
The questioner : It is defective.
The Shaykh : Yes?
The questioner : It is defective.
The Shaykh : I did not understand.
The questioner : The company is defective.
The Shaykh : The company is defective; this is one point.
The second point: suppose that a company—perhaps we will find one existing one day—does not deal with riba. We would say that the shares offered are a company of the type of mudarabah (profit-sharing partnership) with money, meaning Zayd participates with ten shares and another with a thousand, and so on. But the issue also falls outside the legal rulings when these shares remain shares that have not yet been converted into any work. We know from reality that any institution or company intended to be established offers its shares in the market. For example, we have a thousand shares, one share at ten and one share at a hundred, and so on. These shares end and the company is filled with the value of all the shares offered, before these funds are converted, for example, into trade, a factory, or anything else offered in the market for sale. The share that was, for example, priced at ten is either sold for eleven or sold for nine. This is another legal violation, because it is the very essence of riba, an increase or a decrease. Also, I believe there is no company that observes this issue before the shares are converted into a tangible asset, trade, factory, or anything else.
Likewise, we continue with imagination and say, if we suppose that a company offered the shares and kept the money with itself and not in the bank, and began to buy the necessities for establishing the factory or the company, or so on, in this form there is absolutely no objection to it, contrary to what the Tahrir Party says. Because here there is a legal principle:
The original ruling in matters of worship is prohibition except with evidence, and the original ruling in customary matters is permissibility except with evidence.
الأصل في التعبديات المنع إلا بدليل، والأصل في العاديات الإباحة إلا بدليلThe questioner : To add to the clarification, the joint-stock company shares themselves have two values: a nominal value and an actual value. For example, the nominal value of its shares might be one million dinars, while the reality is that it is half a million.
The Shaykh : What do you mean?
The questioner : That is, they offer the shares and say, "We want to establish a company with one million dinars, one million shares." The one million dinars will not actually be one million; it will be half a million.
The Shaykh : Okay, why did they do this?
The questioner : This is also a violation.
The Shaykh : I understand you.
The questioner : They do this to collect the maximum amount of money under the name, a nominal value, meaning through it. We have today, and we do not have... they deceive people. It is a matter of illusion; there is a nominal value and an actual value. This is known; they write on the certificate: the nominal value of the share is one dinar and the actual value is half a dinar. So it is actually half a dinar, but you pay one dinar.
The Shaykh : But as long as... something else... he does not reveal his money.
The questioner : It is not a matter of... this is a custom with them.
The Shaykh : I understand. I am now asking why they do this. Your answer was to deceive people. Okay, how do they deceive people? What do they write?
The questioner : They deceive people with the large number, that it is one million dinars.
The Shaykh : Yes, but you are now saying that they write it on the paper.
The questioner : They write on the paper that the nominal value is, for example, one dinar, and the actual value is half a dinar.
The Shaykh : We understand, Professor. Why do they write it on the paper if the intention is deception, and deception means...
The questioner : Because the intention of the capital company, as I have learned, is that they collect the maximum amount of money...
The Shaykh : No problem.
The questioner : This goal is collecting money... you pay one dinar and they give you half a dinar.
The student: But... the share... one dinar.
The questioner : Huh?
The student: The share... one dinar.
The questioner : They write for you on the paper that the actual value is half a dinar.
The Shaykh : Why, Professor? We did not get the answer. Why do they write it this way and that way? The actual value is such and the nominal value is such. Why? There must be something hidden there.
The questioner : Yes.
The Shaykh : As for your explanation that today people...
The questioner : Because the goal, which I understood, the goal of this company is to collect the maximum possible amount of money and utilize it in work.
The Shaykh : Okay, this... the intrinsic value?
The questioner : Yes.
The Shaykh : There is only that.