What are the conditions of a profit-sharing partnership with money?
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The questioner : May Allah reward you with good. What are the conditions of a profit-sharing partnership with money?
The Shaykh : The conditions of a profit-sharing partnership with money are: that the capital must be known, and that it must be from the two types of currency, meaning: from dirhams and dinars, or paper currency. This is because if it were merchandise, the value of the merchandise would vary; it might be worth a thousand at the time of the contract, and two thousand or five hundred at the time of settlement. Therefore, the jurists (may Allah have mercy on them) prohibited the capital from being anything other than the two types of currency. Based on their statement: if you gave a person cars and said, "This is a profit-sharing partnership," it would not be valid, because the price of the cars might be one hundred thousand at the time of the contract, and at the time of settlement—sit down, be quiet, be quiet, do you hear?—at the time of settlement, it might be eighty thousand or two hundred thousand.
Some scholars said: it is permissible for the capital of a profit-sharing partnership to be other than the two types of currency, but on the condition that its value is estimated at the time of the contract, so that the profit is known from the loss when the partnership is completed. This is the stronger position, and it is what is practiced now, as people give land for profit-sharing partnerships and give cars for profit-sharing partnerships. However, as you heard, it is necessary to estimate the value at the time of the contract.
The third condition: the worker’s share must be a common fraction of the profit. This means: if you give a worker one hundred thousand to trade with, you make his share of the profit one-third, one-quarter, or one-half, whatever you agree upon. If you give him a known amount by saying, "Take this money and trade with it, and you have one hundred riyals," then this is not valid. This is because he might not make any profit, or he might make much more than one hundred riyals. Therefore, his share must be a common fraction.
It must also be known. It is not valid to say: "Take this money and trade with it, and you have some of its profit." Rather, you must say: "You have half of the profit, a quarter, an eighth, a tenth, or the like."
Based on this, if you said: "Take this money and trade with it in cars, vessels, and fabrics, and you have the profit from the fabrics, and I have the profit from the cars and vessels," then this is not permissible. This is because the profit might be in one and not the other. For this reason, the Prophet (peace and blessings be upon him) prohibited in sharecropping for a person to partner with someone and say: "You have the crop of the east of the land, and I have the crop of the west of it," or "You have the crop of barley, and I have the crop of wheat, or the like." These are among the conditions of a profit-sharing partnership.
Likewise: if the trade incurs a loss, the loss is on the owner of the capital, and there is nothing on the worker. If he gave him one hundred thousand for a profit-sharing partnership and it was lost until it became ninety thousand, it is not permissible for the owner of the capital to burden the worker with anything. This is because the loss is on the capital, and the worker has no share of it.
The Shaykh : The conditions of a profit-sharing partnership with money are: that the capital must be known, and that it must be from the two types of currency, meaning: from dirhams and dinars, or paper currency. This is because if it were merchandise, the value of the merchandise would vary; it might be worth a thousand at the time of the contract, and two thousand or five hundred at the time of settlement. Therefore, the jurists (may Allah have mercy on them) prohibited the capital from being anything other than the two types of currency. Based on their statement: if you gave a person cars and said, "This is a profit-sharing partnership," it would not be valid, because the price of the cars might be one hundred thousand at the time of the contract, and at the time of settlement—sit down, be quiet, be quiet, do you hear?—at the time of settlement, it might be eighty thousand or two hundred thousand.
Some scholars said: it is permissible for the capital of a profit-sharing partnership to be other than the two types of currency, but on the condition that its value is estimated at the time of the contract, so that the profit is known from the loss when the partnership is completed. This is the stronger position, and it is what is practiced now, as people give land for profit-sharing partnerships and give cars for profit-sharing partnerships. However, as you heard, it is necessary to estimate the value at the time of the contract.
The third condition: the worker’s share must be a common fraction of the profit. This means: if you give a worker one hundred thousand to trade with, you make his share of the profit one-third, one-quarter, or one-half, whatever you agree upon. If you give him a known amount by saying, "Take this money and trade with it, and you have one hundred riyals," then this is not valid. This is because he might not make any profit, or he might make much more than one hundred riyals. Therefore, his share must be a common fraction.
It must also be known. It is not valid to say: "Take this money and trade with it, and you have some of its profit." Rather, you must say: "You have half of the profit, a quarter, an eighth, a tenth, or the like."
Based on this, if you said: "Take this money and trade with it in cars, vessels, and fabrics, and you have the profit from the fabrics, and I have the profit from the cars and vessels," then this is not permissible. This is because the profit might be in one and not the other. For this reason, the Prophet (peace and blessings be upon him) prohibited in sharecropping for a person to partner with someone and say: "You have the crop of the east of the land, and I have the crop of the west of it," or "You have the crop of barley, and I have the crop of wheat, or the like." These are among the conditions of a profit-sharing partnership.
Likewise: if the trade incurs a loss, the loss is on the owner of the capital, and there is nothing on the worker. If he gave him one hundred thousand for a profit-sharing partnership and it was lost until it became ninety thousand, it is not permissible for the owner of the capital to burden the worker with anything. This is because the loss is on the capital, and the worker has no share of it.