What is the ruling on dealing with limited liability companies within the limits of the partners' shares?
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The questioner : There is an issue regarding companies; the regulation states that a limited liability company...
The Shaykh : How?
The questioner : A limited liability company.
The Shaykh : What is a company?
The questioner : A limited liability company means that the liability of the company owners or partners is limited to their shares, and they are not asked about any debts exceeding that. I do not know.
The Shaykh : I do not know this regulation.
The questioner : But for example, if it existed...
The Shaykh : I say I do not know the regulation. How is the regulation?
The questioner : The regulation is that the partners, for example, each put in twenty thousand, and there are five of them, so they established a company with a capital of one hundred thousand. Then a debt of one hundred and fifty thousand arose on the company. They are only liable for the debts up to one hundred thousand. As for what exceeds that, they are not asked about it. They are not asked about it.
Another questioner: This regulation, O Shaykh, is in the Ministry of Commerce.
The Shaykh : How is that?
The questioner : This is a regulation called the Saudi Companies Regulation, which includes a limited liability company.
The Shaykh : Meaning?
The questioner : Five individuals come and each pays twenty thousand riyals to establish the capital of this company. Then the company operates and loses two hundred thousand riyals, so they do not guarantee more than one hundred thousand riyals, each according to his share.
The Shaykh : And the rest...
The questioner : And the rest, they do not pay it.
The Shaykh : Who guarantees it?
The questioner : I do not know. They have no liability.
The Shaykh : Who has no liability?
The questioner : The company.
The Shaykh : I say: Who has no liability?
The questioner : O Shaykh, this is an issue called a limited liability company.
The Shaykh : Okay, I partnered with four of my uncles, each one twenty thousand, the total one hundred thousand.
The questioner : Five made one hundred thousand.
The Shaykh : Yes, okay, we traded with it.
The questioner : The company lost. I dealt with this company and the company suffered a loss, so I started demanding one hundred and fifty from it.
The Shaykh : I, I, and you, we partnered.
The questioner : We lost, the partners, we.
The Shaykh : We lost.
The questioner : And so-and-so demands from us, for example, one hundred and fifty thousand.
The Shaykh : Fine.
The questioner : If he goes to court, they will rule for him only the amount of the company's capital, one hundred thousand only. If the creditors are five, six, or seven, they only take the amount of the partners' shares, meaning.
The Shaykh : And the rest is lost.
The questioner : They say he is not asked about the rest of his wealth that he did not invest in the company.
The Shaykh : Who guarantees for the sellers?
The questioner : They say it is a legal entity that stands in the place of a natural person.
The Shaykh : Now, for example.
The questioner : It may not profit, it may not profit.
The Shaykh : Minute by minute, now I partnered with four others with one hundred thousand, with one hundred thousand, and we bought goods from a merchant.
The questioner : Yes.
The Shaykh : With one hundred thousand, understood.
The questioner : Yes.
The Shaykh : Then we lost fifty thousand in it, even though only fifty thousand remained with us. The merchant from whom we bought has one hundred thousand in our debt.
The questioner : Yes.
The Shaykh : You say we do not give him but fifty?
The questioner : No, no.
The Shaykh : Yes.
The questioner : The company should have guarantees such that the capital is preserved in amount, and so on, a reserve, meaning there are certain guarantees, but my point is that they are not asked for more than their shares.
The Shaykh : Now, now, this example that I mentioned.
The questioner : He is not ruled for one hundred thousand.
Another questioner: This is not the example you mentioned.
Another questioner: One hundred thousand equals the capital.
Another questioner: Wait, O Shaykh.
The Shaykh : O people, let the question be.
The questioner : O Shaykh, there is a case with the people of economic accounting; they say: if a person loses and only fifty thousand remains with him, the excess debts are called extinguished debts. That is it, they are dropped from the account. The company is no longer demanded. The company lost, it went bankrupt. The other company, the creditor, puts in its account that this excess debt is considered extinguished. Extinguished debts, it is no longer demanded, the claim is dropped.
The Shaykh : First, we five partnered with one hundred thousand.
The questioner : Yes.
The Shaykh : Each one took twenty thousand and we bought a commodity from a merchant with one hundred thousand.
The questioner : Yes.
The Shaykh : Then we lost fifty thousand.
The questioner : Yes.
The Shaykh : Does that mean we are only obligated to the merchant for fifty thousand?
The questioner : This falls under another issue, O Shaykh.
The Shaykh : But tell me with this, because...
The questioner : Yes, they do not bear more than fifty thousand only.
The Shaykh : This is one thing.
The questioner : Yes.
The Shaykh : The second: we partnered with one hundred thousand and we bought from the merchant with two hundred thousand.
The questioner : Fine.
The Shaykh : Meaning, we added one hundred thousand of debt on ourselves from the man.
The questioner : Yes.
The Shaykh : So we lost one hundred thousand. Does that mean we do not deliver to the man but one hundred thousand?
The questioner : This falls under another issue. Yes, they are not liable except...
The Shaykh : This is what I understood from your question.
The questioner : Yes, they are not liable beyond the limit of their share if the company goes bankrupt or the person goes bankrupt.
The Shaykh : Yes.
The questioner : It is not demanded from his personal debt. Then it is not called extinguished debts, these.
The Shaykh : In any case, if the matter is as I told you, as you have described now, this description of ours, then it is a void condition, not permissible.
The questioner : Meaning the partners are demanded from their personal wealth.
The Shaykh : The partners are demanded for what they lost of people's wealth.
The questioner : Because, O Shaykh, the Islamic Fiqh Academy, I read their fatwa, and they permitted it, even though I heard, meaning the scholars, even the doctor who teaches us said: This is a mistake.
The Shaykh : Every condition that is not in the Book of Allah is void, even if it were a hundred conditions.
Then the Messenger of Allah (peace and blessings be upon him) said: meaning whoever has the profit has the loss. So if these people who established their company with one hundred thousand riyals profit a million, to whom is the profit? To them. So the loss is upon them. Therefore, this is considered a void condition. And I wish you would write this down for me so it can be studied by the scholars, because this is undoubtedly void, void.
The questioner : It will be researched. One of the students will research it among the researches.
The Shaykh : Ah.
The questioner : There is a point here, O Shaykh. Now, of course, this is something established as a regulation, regardless of whether it is contrary to the Shari'ah or in accordance with 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.
The Shaykh : Yes.
The questioner : So when he gives them goods or lends to them or deals with them in what exceeds the capital, he has violated the regulation. Let us say: he violated the Shari'ah, he violated the regulation. And by this, he knows in advance that if this company goes bankrupt, then by virtue of this regulation, he will not take what exceeds the limits of the company's liability?
The Shaykh : Okay, now, according to your words, it means it is forbidden for the merchant to give the company more than it owns.
The questioner : It is supposed to be like this. Wait, wait. It is not forbidden in the sense that the government forbids it, but it is forbidden from the side that he knows that this is a limited liability company. If it loses, it does not compensate him except within the limits of its capital only.
Another questioner: It does not force him by virtue of the regulation, O Shaykh.
The Shaykh : But this is a mistake, because it may buy more than its capital, hoping for profit. It may be that the market is active and it knows that it buys today with one hundred thousand or two hundred thousand and tomorrow profits more.
The questioner : This regulation is imported from Britain, O Shaykh, because all companies in Britain are limited, limited liability companies, and they are absolutely committed to the limits of their capital in their work. Yes, and they are absolutely committed to working, trading, and moving with their books and submitting 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. Therefore, the entry of the partners says: I enter with this capital, and I am liable only within the limits of my capital of twenty thousand, but nothing is taken from my personal things that I did not put into this company. This is the rule.
The Shaykh : Okay, may Allah reward you. Let us assume they did not buy except the amount of their capital, understood.
The questioner : Yes, yes.
The Shaykh : But the capital was lost. We bought with one hundred thousand and did not sell except for fifty thousand.
The questioner : Yes.
The Shaykh : Are we liable?
The questioner : It is supposed from the Shari'ah perspective.
The Shaykh : Let me, even the regulation, are we liable or not? But we bought within the limits of what we own, one hundred thousand only, but the market collapsed and dropped, and we did not sell except for fifty.
The questioner : Are you a company?
The Shaykh : A company, yes.
The questioner : The company is for immediate bankruptcy.
The Shaykh : It does not violate. We went bankrupt, we went bankrupt.
The questioner : ... .
Another questioner: It is quoted from the French regulation, and joint-stock companies exist in the British regulation, then immediately the company is exposed to bankruptcy, and what it has of assets is given to the creditors.
The Shaykh : Okay, it was given to the creditors and did not satisfy.
The questioner : Only fifty thousand, that is it.
The Shaykh : It did not satisfy.
The questioner : The rest is recorded as extinguished debts, meaning there is no treasury with them.
The Shaykh : But as extinguished debts, is it demanded or not?
The questioner : It is no longer demanded. It is dropped. If the partners become wealthy afterwards, they are no longer demanded.
Another questioner: According to the European or British regulation, they must increase their capital every year or something like that.
The Shaykh : In any case, the legal principle with us is that "the risk is with the guarantee" and "the loss is with the profit". This is the legal principle, so anything that contradicts it is invalid, even if it consists of a hundred conditions. And with this, this session ends. Peace be upon you, and the mercy of Allah and His blessings.
The questioner : May Allah bless you and reward you with good.
The Shaykh : How?
The questioner : A limited liability company.
The Shaykh : What is a company?
The questioner : A limited liability company means that the liability of the company owners or partners is limited to their shares, and they are not asked about any debts exceeding that. I do not know.
The Shaykh : I do not know this regulation.
The questioner : But for example, if it existed...
The Shaykh : I say I do not know the regulation. How is the regulation?
The questioner : The regulation is that the partners, for example, each put in twenty thousand, and there are five of them, so they established a company with a capital of one hundred thousand. Then a debt of one hundred and fifty thousand arose on the company. They are only liable for the debts up to one hundred thousand. As for what exceeds that, they are not asked about it. They are not asked about it.
Another questioner: This regulation, O Shaykh, is in the Ministry of Commerce.
The Shaykh : How is that?
The questioner : This is a regulation called the Saudi Companies Regulation, which includes a limited liability company.
The Shaykh : Meaning?
The questioner : Five individuals come and each pays twenty thousand riyals to establish the capital of this company. Then the company operates and loses two hundred thousand riyals, so they do not guarantee more than one hundred thousand riyals, each according to his share.
The Shaykh : And the rest...
The questioner : And the rest, they do not pay it.
The Shaykh : Who guarantees it?
The questioner : I do not know. They have no liability.
The Shaykh : Who has no liability?
The questioner : The company.
The Shaykh : I say: Who has no liability?
The questioner : O Shaykh, this is an issue called a limited liability company.
The Shaykh : Okay, I partnered with four of my uncles, each one twenty thousand, the total one hundred thousand.
The questioner : Five made one hundred thousand.
The Shaykh : Yes, okay, we traded with it.
The questioner : The company lost. I dealt with this company and the company suffered a loss, so I started demanding one hundred and fifty from it.
The Shaykh : I, I, and you, we partnered.
The questioner : We lost, the partners, we.
The Shaykh : We lost.
The questioner : And so-and-so demands from us, for example, one hundred and fifty thousand.
The Shaykh : Fine.
The questioner : If he goes to court, they will rule for him only the amount of the company's capital, one hundred thousand only. If the creditors are five, six, or seven, they only take the amount of the partners' shares, meaning.
The Shaykh : And the rest is lost.
The questioner : They say he is not asked about the rest of his wealth that he did not invest in the company.
The Shaykh : Who guarantees for the sellers?
The questioner : They say it is a legal entity that stands in the place of a natural person.
The Shaykh : Now, for example.
The questioner : It may not profit, it may not profit.
The Shaykh : Minute by minute, now I partnered with four others with one hundred thousand, with one hundred thousand, and we bought goods from a merchant.
The questioner : Yes.
The Shaykh : With one hundred thousand, understood.
The questioner : Yes.
The Shaykh : Then we lost fifty thousand in it, even though only fifty thousand remained with us. The merchant from whom we bought has one hundred thousand in our debt.
The questioner : Yes.
The Shaykh : You say we do not give him but fifty?
The questioner : No, no.
The Shaykh : Yes.
The questioner : The company should have guarantees such that the capital is preserved in amount, and so on, a reserve, meaning there are certain guarantees, but my point is that they are not asked for more than their shares.
The Shaykh : Now, now, this example that I mentioned.
The questioner : He is not ruled for one hundred thousand.
Another questioner: This is not the example you mentioned.
Another questioner: One hundred thousand equals the capital.
Another questioner: Wait, O Shaykh.
The Shaykh : O people, let the question be.
The questioner : O Shaykh, there is a case with the people of economic accounting; they say: if a person loses and only fifty thousand remains with him, the excess debts are called extinguished debts. That is it, they are dropped from the account. The company is no longer demanded. The company lost, it went bankrupt. The other company, the creditor, puts in its account that this excess debt is considered extinguished. Extinguished debts, it is no longer demanded, the claim is dropped.
The Shaykh : First, we five partnered with one hundred thousand.
The questioner : Yes.
The Shaykh : Each one took twenty thousand and we bought a commodity from a merchant with one hundred thousand.
The questioner : Yes.
The Shaykh : Then we lost fifty thousand.
The questioner : Yes.
The Shaykh : Does that mean we are only obligated to the merchant for fifty thousand?
The questioner : This falls under another issue, O Shaykh.
The Shaykh : But tell me with this, because...
The questioner : Yes, they do not bear more than fifty thousand only.
The Shaykh : This is one thing.
The questioner : Yes.
The Shaykh : The second: we partnered with one hundred thousand and we bought from the merchant with two hundred thousand.
The questioner : Fine.
The Shaykh : Meaning, we added one hundred thousand of debt on ourselves from the man.
The questioner : Yes.
The Shaykh : So we lost one hundred thousand. Does that mean we do not deliver to the man but one hundred thousand?
The questioner : This falls under another issue. Yes, they are not liable except...
The Shaykh : This is what I understood from your question.
The questioner : Yes, they are not liable beyond the limit of their share if the company goes bankrupt or the person goes bankrupt.
The Shaykh : Yes.
The questioner : It is not demanded from his personal debt. Then it is not called extinguished debts, these.
The Shaykh : In any case, if the matter is as I told you, as you have described now, this description of ours, then it is a void condition, not permissible.
The questioner : Meaning the partners are demanded from their personal wealth.
The Shaykh : The partners are demanded for what they lost of people's wealth.
The questioner : Because, O Shaykh, the Islamic Fiqh Academy, I read their fatwa, and they permitted it, even though I heard, meaning the scholars, even the doctor who teaches us said: This is a mistake.
The Shaykh : Every condition that is not in the Book of Allah is void, even if it were a hundred conditions.
Then the Messenger of Allah (peace and blessings be upon him) said:
The risk is with the guarantee
الخراج بالضمانThe questioner : It will be researched. One of the students will research it among the researches.
The Shaykh : Ah.
The questioner : There is a point here, O Shaykh. Now, of course, this is something established as a regulation, regardless of whether it is contrary to the Shari'ah or in accordance with 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.
The Shaykh : Yes.
The questioner : So when he gives them goods or lends to them or deals with them in what exceeds the capital, he has violated the regulation. Let us say: he violated the Shari'ah, he violated the regulation. And by this, he knows in advance that if this company goes bankrupt, then by virtue of this regulation, he will not take what exceeds the limits of the company's liability?
The Shaykh : Okay, now, according to your words, it means it is forbidden for the merchant to give the company more than it owns.
The questioner : It is supposed to be like this. Wait, wait. It is not forbidden in the sense that the government forbids it, but it is forbidden from the side that he knows that this is a limited liability company. If it loses, it does not compensate him except within the limits of its capital only.
Another questioner: It does not force him by virtue of the regulation, O Shaykh.
The Shaykh : But this is a mistake, because it may buy more than its capital, hoping for profit. It may be that the market is active and it knows that it buys today with one hundred thousand or two hundred thousand and tomorrow profits more.
The questioner : This regulation is imported from Britain, O Shaykh, because all companies in Britain are limited, limited liability companies, and they are absolutely committed to the limits of their capital in their work. Yes, and they are absolutely committed to working, trading, and moving with their books and submitting 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. Therefore, the entry of the partners says: I enter with this capital, and I am liable only within the limits of my capital of twenty thousand, but nothing is taken from my personal things that I did not put into this company. This is the rule.
The Shaykh : Okay, may Allah reward you. Let us assume they did not buy except the amount of their capital, understood.
The questioner : Yes, yes.
The Shaykh : But the capital was lost. We bought with one hundred thousand and did not sell except for fifty thousand.
The questioner : Yes.
The Shaykh : Are we liable?
The questioner : It is supposed from the Shari'ah perspective.
The Shaykh : Let me, even the regulation, are we liable or not? But we bought within the limits of what we own, one hundred thousand only, but the market collapsed and dropped, and we did not sell except for fifty.
The questioner : Are you a company?
The Shaykh : A company, yes.
The questioner : The company is for immediate bankruptcy.
The Shaykh : It does not violate. We went bankrupt, we went bankrupt.
The questioner : ... .
Another questioner: It is quoted from the French regulation, and joint-stock companies exist in the British regulation, then immediately the company is exposed to bankruptcy, and what it has of assets is given to the creditors.
The Shaykh : Okay, it was given to the creditors and did not satisfy.
The questioner : Only fifty thousand, that is it.
The Shaykh : It did not satisfy.
The questioner : The rest is recorded as extinguished debts, meaning there is no treasury with them.
The Shaykh : But as extinguished debts, is it demanded or not?
The questioner : It is no longer demanded. It is dropped. If the partners become wealthy afterwards, they are no longer demanded.
Another questioner: According to the European or British regulation, they must increase their capital every year or something like that.
The Shaykh : In any case, the legal principle with us is that "the risk is with the guarantee" and "the loss is with the profit". This is the legal principle, so anything that contradicts it is invalid, even if it consists of a hundred conditions. And with this, this session ends. Peace be upon you, and the mercy of Allah and His blessings.
The questioner : May Allah bless you and reward you with good.