Silent Partnership: Settling Profits and Losses in a Year-End Investment Agreement

Practical Laws of Islam as per the teachings of Imam Khamenei

Silent Partnership: Settling Profits and Losses in a Year-End Investment Agreement

English:

Question #1886:

A person deposited a sum of money with another person to trade in it on the condition that he would receive a sum of money on account. At the end of the year they agreed to prepare the profit and loss account of the business. If the owner of the money and his partner agreed to settle the profit and loss, is this acceptable?

Answer #1886:

There is no harm in the payment of money to the person if it was based on a proper and shar‘ī silent partnership deal, and the owner of the money took from the working partner monthly a portion of the profits on account so that the exact amount would be calculated later. Nor is there any harm in the partners’ settling their dues at the end of each year. Yet, should it take the form of a loan on the condition that the borrower would pay a monthly share of the profit to the lender, then they would make a settlement at the end of the year of what each of them owes the other, this indeed is a ribā-bearing loan that is ḥarām. Accordingly, the provision contained therein is void, although the loan contract is correct. Moreover, it shall not become ḥalāl for them because they agreed to settle their respective dues. Therefore, the lender has no right to receive any profit, neither is he obliged to bear any loss.

-Imam Khamenei, Practical Laws of Islam, Importance and Conditions of Silent Partnership