The ruling on dealing with limited liability companies that, if they go bankrupt, are not liable for debts beyond their capital
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Regarding companies: The system is that in a limited liability company, the liability of the company owners or partners is limited to their share, and they are not asked about any debts exceeding that. So I do not know what its ruling is?The Shaykh: I do not know how this system works.
The questioner: The system is that partners gather, and each of them puts in twenty thousand, and they are five, so they establish a company with a capital of (one hundred thousand). Then the debt on the company becomes one hundred and fifty thousand riyals, and they are only liable for the debts up to one hundred thousand, while they are not asked about what exceeds that. This is a commercial system.
The Shaykh: How is that?The questioner: This is the system of some Saudi companies—for example, a limited liability company. Five individuals come, and each pays twenty thousand riyals to establish the company's capital. Then the company operates and loses two hundred thousand riyals, so they only guarantee one hundred thousand riyals, each according to his share, and they do not pay the rest, calling it a written-off debt.
The Shaykh: In any case, if the matter is as you have described it in this form, then it is an invalid condition. The partners are demanded to pay what they lost of people's money.
The questioner: I read the fatwa of the Islamic Fiqh Academy, and they permitted it, although I heard some scholars, even the doctor who teaches us, say: This is a mistake.
The Shaykh: Every condition that is not in the Book of Allah is invalid, even if there are a hundred conditions.Then the Messenger of Allah (peace and blessings be upon him) said: (Profit is tied to liability). Whoever has a gain has a loss. So if these people who established their company with one hundred thousand riyals make a profit of a million, the profit is theirs. So! The loss is upon them. For this reason, this is considered an invalid condition.
The questioner: This is a system that has been established, regardless of whether it conforms to the Shari'ah or contradicts it. It is supposed that the person who deals with a limited liability company knows that he should not deal with it except within the limits of its capital. So when he gives them goods, or lends to them, or deals with them in amounts exceeding the capital, he has violated the system,And we do not say: he has violated the Shari'ah, and by this he knows in advance that if this company goes bankrupt, then by virtue of this system, he will not receive what exceeds the limits of the company's liability?The Shaykh: Now, according to your statement,Its meaning is: that the merchant is forbidden from giving the company more than it owns.
The questioner: He is not forbidden in the sense that the government forbids him, but he is forbidden in the sense that he knows that this is a limited liability company, and if it loses, it will not compensate him except within the limits of its capital.
The Shaykh: This is a mistake; because it may buy more than its capital, hoping thereby for profit. It is possible that the market is active, and you know that you buy today for one hundred thousand or two hundred thousand, and tomorrow you profit more.
The questioner: This system was imported from Britain, O Shaykh; because all companies in Britain are limited liability companies, and they are absolutely committed to operating, trading, and moving according to their books, and they submit them to the state within the limits of their capital and liability, and they are monitored precisely, and they do not deviate from their status.For this reason, the entry of the partners says: I put in this money, and I am only liable up to my capital of twenty thousand, but nothing is taken from my personal items that did not enter into this company. This is the rule.
The Shaykh: Well—may Allah reward you—let us suppose that they did not buy except according to their capital, but they lost the capital. We bought for one hundred thousand and did not sell except for fifty thousand. Are we liable or not? We bought within the limits of what we own, only one hundred thousand, but the market collapsed and dropped, and we did not sell except for fifty thousand.
The questioner: If the company goes bankrupt, are the assets that it has given to the creditors?The Shaykh: Well! It was given to the creditors and did not suffice.
The questioner: The rest is recorded as a written-off debt.
The Shaykh: Are they not demanded for it?The questioner: They are not demanded for it; it is dropped. If the partners become wealthy afterwards, they are not demanded for it.
The Shaykh: In any case, the Shari'ah rule with us is that (Profit is tied to liability, and loss is tied to profit). This is the Shari'ah rule, so whatever contradicts it is invalid, even if there are a hundred conditions.
The questioner: The system is that partners gather, and each of them puts in twenty thousand, and they are five, so they establish a company with a capital of (one hundred thousand). Then the debt on the company becomes one hundred and fifty thousand riyals, and they are only liable for the debts up to one hundred thousand, while they are not asked about what exceeds that. This is a commercial system.
The Shaykh: How is that?The questioner: This is the system of some Saudi companies—for example, a limited liability company. Five individuals come, and each pays twenty thousand riyals to establish the company's capital. Then the company operates and loses two hundred thousand riyals, so they only guarantee one hundred thousand riyals, each according to his share, and they do not pay the rest, calling it a written-off debt.
The Shaykh: In any case, if the matter is as you have described it in this form, then it is an invalid condition. The partners are demanded to pay what they lost of people's money.
The questioner: I read the fatwa of the Islamic Fiqh Academy, and they permitted it, although I heard some scholars, even the doctor who teaches us, say: This is a mistake.
The Shaykh: Every condition that is not in the Book of Allah is invalid, even if there are a hundred conditions.Then the Messenger of Allah (peace and blessings be upon him) said: (Profit is tied to liability). Whoever has a gain has a loss. So if these people who established their company with one hundred thousand riyals make a profit of a million, the profit is theirs. So! The loss is upon them. For this reason, this is considered an invalid condition.
The questioner: This is a system that has been established, regardless of whether it conforms to the Shari'ah or contradicts it. It is supposed that the person who deals with a limited liability company knows that he should not deal with it except within the limits of its capital. So when he gives them goods, or lends to them, or deals with them in amounts exceeding the capital, he has violated the system,And we do not say: he has violated the Shari'ah, and by this he knows in advance that if this company goes bankrupt, then by virtue of this system, he will not receive what exceeds the limits of the company's liability?The Shaykh: Now, according to your statement,Its meaning is: that the merchant is forbidden from giving the company more than it owns.
The questioner: He is not forbidden in the sense that the government forbids him, but he is forbidden in the sense that he knows that this is a limited liability company, and if it loses, it will not compensate him except within the limits of its capital.
The Shaykh: This is a mistake; because it may buy more than its capital, hoping thereby for profit. It is possible that the market is active, and you know that you buy today for one hundred thousand or two hundred thousand, and tomorrow you profit more.
The questioner: This system was imported from Britain, O Shaykh; because all companies in Britain are limited liability companies, and they are absolutely committed to operating, trading, and moving according to their books, and they submit them to the state within the limits of their capital and liability, and they are monitored precisely, and they do not deviate from their status.For this reason, the entry of the partners says: I put in this money, and I am only liable up to my capital of twenty thousand, but nothing is taken from my personal items that did not enter into this company. This is the rule.
The Shaykh: Well—may Allah reward you—let us suppose that they did not buy except according to their capital, but they lost the capital. We bought for one hundred thousand and did not sell except for fifty thousand. Are we liable or not? We bought within the limits of what we own, only one hundred thousand, but the market collapsed and dropped, and we did not sell except for fifty thousand.
The questioner: If the company goes bankrupt, are the assets that it has given to the creditors?The Shaykh: Well! It was given to the creditors and did not suffice.
The questioner: The rest is recorded as a written-off debt.
The Shaykh: Are they not demanded for it?The questioner: They are not demanded for it; it is dropped. If the partners become wealthy afterwards, they are not demanded for it.
The Shaykh: In any case, the Shari'ah rule with us is that (Profit is tied to liability, and loss is tied to profit). This is the Shari'ah rule, so whatever contradicts it is invalid, even if there are a hundred conditions.