Shariah Rulings on Modern Companies: Holding and Other Companies
In the Name of Allāh,
the Entirely Merciful, the Especially Merciful
Praise is due to Allāh, Lord of the worlds, may the blessings and peace be upon our master Muḥammad, the last of prophets, on his family, and all his companions.
Resolution No. 130 (4/14) Shariah Rulings on Modern Companies:
Holding and Other Companies
The Council of the International Islamic Fiqh Academy of the Organization of the Islamic Conference, holding its 14th session in Doha, State of Qatar,on 7–13 Dhū al-Qi’dah 1423h (11–16 January 2003),
Having examined the research papers submitted to the Academy concerning
Shariah Rulings on Modern Companies: Holding and Other Companies, Having listened to the discussions on the subject,
First: Definition of Modern Companies
- Capital Association Companies
They are companies that depend, in their establishment and formation, on the capital funds of the partners, regardless of the independent per- sonality of each of them. These types of companies, which have tradable shares, include the following:
- Joint Stock Company: a company with its capital divided into equal tradable shares, and the liability of each of its partners is limited to his share in the capital.
- Limited Shares Company: a company with its capital in the form of tradable shares, and its partners of two types: (1) Joint partners who have full liability towards the debts of the company, and (2) Limited (silent) partners whose liability is limited to their respective shares in
- Limited Liability Company: a company with its capital owned by a limited number of partners (number varies under different laws), each has a liability commensurate with his shares in the capital. The shares of this type of company are not tradable.
- Personal Association Companies
They are companies that are established on the basis of the persons who form them. That is to say, consideration here goes to the persons who all know each other and have confidence in each other.
This type of company includes the following:
- Joint Liability Company: a company established between two persons or more for business purposes. The partners share capital contribution and assume, personally, joint liability towards the company’s debtors even in their personal properties. This type of company is based on personal acquaintance among partners.
- Limited Partnership Company: a company formed between one joint partner or more and one dormant partner or more. The joint partners assume liability towards the company’s debtors, and the dormant partners, known as limited partners, are kept away from management; the latter’s liability is limited to their respective shares in the capital.
- Particular Partnership Company: is a hiding company with no legal personality and is formed between two persons or more; each has a well-defined share in the capital. The partners agree to share the profits and losses resulting from the business transactions they perform jointly or in the name of only one of them. When one partner performs a business on behalf of the others, his liability towards debtors remains limited to his person (and other partners remain non-liable toward debtors.
- Holding Company
A company that owns stocks or shares in other independent companies’ capital at a ratio that enables it to dominate its management and control its business plans.
- Multinational Company
A company that comprises a group of subsidiary companies and has a principal center located in one country, while its subsidiaries are located in different countries, usually carrying their respective nationalities. The principal center of the multinational company and its subsidiaries are linked together through a comprehensive business strategy that aims at achieving specific investment objectives.
Second: In principle, companies are permissible as long as they do not per- form Shariah-banned activities. However, if the main line of business is prohib- ited, such as usury-based banks or companies that entirely or partially deal in
prohibited things such as narcotics, pornography, or pigs, these are prohibited companies, and it is prohibited to own or trade their shares. Furthermore, the activities of companies should also be free from gharar (uncertainty), un-know- ability that could lead to dispute, and any other reasons that cause the com- pany’ establishing agreement to be considered null and void from the Shariah perspective.
Third: It is prohibited for the company to issue jouissance shares, preference shares, or bonds.
Fourth: In case of capital loss, each partner should bear in proportion to his capital share.
Fifth: The shareholder in the company owns a common share in its assets in proportion to his capital share and remains as the owner of that share until ownership title is shifted to someone else through an exit or any other form of ownership transfer.
Sixth: As regards the collection of Zakāh on company shares, in cases of holding and multinational companies, refer to resolution no. 28 (3/4) of the 4th Session, and resolution no. 121 (3/13) of the 13th Session of the Academy.
Indeed, Allāh is All-Knowing.