Ruling 2152. If two people form an agreement to trade with property jointly owned by them and to divide the profits between them, and they say a formula (ṣīghah) for establishing a partnership – in Arabic or any other language – or they do something that makes it understood that they want to be each other’s partner (sharīk), their partnership will be valid (ṣaḥīḥ).

Ruling 2153. If some people form a partnership with respect to the wages they receive for their work – for example, some masseurs agree to divide whatever wages they earn between them – their partnership is not valid. However, if they reach a settlement (muṣālahah) that, for example, half of each of their wages will belong to the other for a specified period in return for half of the other’s wages, then the settlement is valid and each of them will be a partner in the wages of the other.

Ruling 2154. If two people form a partnership and [make an agreement that] each of them will purchase a commodity with his own credit, and that person will be responsible for paying off the debt for it, but they will share the profits arising from the commodities each one has purchased, such an agreement is not valid. However, if each one makes the other his agent (wakīl) to be his partner in whatever he purchases on credit (nasīʾah) – i.e. he purchases a commodity for himself and for his partner with both of them being responsible for paying off the debt – then both of them become partners in the commodity.

Ruling 2155. Individuals who become partners of each other by means of a partnership contract must be of the age of legal responsibility (bāligh) and sane (ʿāqil). They must also have an intention (qaṣd) to enter into the partnership and enter it of their own volition (ikhtiyār). Furthermore, they must be able to have disposal over their own property. Therefore, if a person who is foolish with finances (safīh) – i.e. someone who spends his wealth in futile ways – enters into a partnership, then because he does not have right of disposal over his own property, the partnership is not valid.

Ruling 2156. If in the partnership contract the partners stipulate a condition that the one who does the work, or who does more work than the other partners, or whose work is of greater importance than that of the others, will take a greater share of the profits, then they must give him whatever they stipulated. Similarly, if they stipulate a condition that the one who does not do any work, or who does not work more than the others, or whose work is not of greater importance than that of the others, will take a greater share of the profits, again the condition is valid and they must give him whatever they stipulated.

Ruling 2157. If the partners agree that one person will take all the profits or that one of them will bear all the losses, the validity of such a partnership is problematic (maḥall al‑ishkāl) [i.e. based on obligatory precaution (al‑iḥtiyāṭ al‑wājib), it is not valid].[1]

Ruling 2158. If the partners do not stipulate a condition that one of the partners will take a larger share of the profits, in the event that the capital invested by each partner is the same amount, they must enjoy the profits and bear the losses equally. But if the capital invested by each of them is not the same amount, they must divide the profits and losses in proportion to their capital. For example, if two people form a partnership and the capital invested by one is twice that of the other, his share of the profits and losses will also be twice that of the other’s, regardless of whether they both work equally or one works less than the other or one does not do any work at all.

Ruling 2159. If in the partnership contract the partners stipulate a condition that both will buy and sell together, or each one of them on their own will conduct transactions (muʿāmalāt), or only one of them will conduct transactions, or a third party will be hired to conduct transactions, then in such cases, they must act according to the contract.

Ruling 2160. A partnership can be of two types: [i] a permission-based partnership (al‑shirkah al‑idhniyyah); in this type, before the partnership conducts a transaction (muʿāmalah), the trade property is owned by the partners (shurakāʾ) in the form of joint ownership (mushāʿ). And [ii] exchange-based partnership (al‑shirkah al‑muʿāwaḍiyyah); in this type, each partner presents his own property to the partnership, and as a result, each of them exchanges half of their own property with half of the other’s property. Therefore, if they do not specify which one of them will buy and sell with the capital, then, if it is a permission-based partnership, none of them can conduct a transaction with the capital without the consent of the others. However, if it is an exchange-based partnership, each partner can conduct a transaction in a way that does not harm the partnership.

Ruling 2161. A partner who has been vested with the right of discretion over the capital must act according to the partnership contract. For example, if it has been agreed with him that he will buy on credit or sell by immediate payment or buy the commodity from a particular place, he must act according to these agreements. However, if no agreement has been made with him, he must conduct transactions in a normal manner and do business in a way that will not harm the partnership.

Ruling 2162. If the partner who conducts transactions with the partnership capital buys and sells in a manner that is contrary to the contract made with him, or if no contract was made with him and he conducts transactions in a manner that is not normal, then in these two cases, even though the transaction is valid based on a stronger opinion (aqwā),[2] if the transaction is detrimental to the partnership or part of the partnership’s property perishes, the partner who acted contrary to the contract or acted in a manner that was not normal is responsible (ḍāmin).

Ruling 2163. If the partner who conducts transactions with the partnership capital is neither excessive nor negligent in safeguarding the capital, but it so happens that part of the capital or all of it perishes, he is not responsible.

Ruling 2164. If the partner who conducts transactions with the partnership capital says that the capital has perished, in the event that he is trusted by the other partners, they must accept his word. But if this is not the case, they can complain against him to a fully qualified jurist (al‑ḥākim al‑sharʿī) for the dispute to be settled in accordance with adjudication standards.

Ruling 2165. In a permission-based partnership [as defined in Ruling 2160], if all the partners withdraw the consent they gave each other for them to have disposal over their property, then none of them can have disposal over the partnership property. If one of them withdraws his consent, then the other partners do not have right of disposal. However, the one who withdraws his consent can have disposal over the partnership property. In each case, their partnership with respect to the capital remains in place.

Ruling 2166.* In an exchange-based partnership, a period must be specified, and it is necessary that the partnership continue until the end of the period. If the partnership is a permission-based one, it is not necessary that a period be specified, and whenever one of the partners requests that the partnership capital be divided, the others must accept his request even if a period has been specified for the partnership unless dividing it would require some of the partners to spend money, or it would result in a significant loss for the partners.

Ruling 2167. If one of the partners of a permission-based partnership dies or becomes insane or unconscious, the other partners cannot have disposal over the property. The same applies if one of them becomes foolish with finances, i.e. he spends his wealth in futile ways.

Ruling 2168. If a partner buys something on credit for himself, then any profit or loss resulting from this is his. However, if he buys it for the partnership and the partnership agreement allows for credit transactions, then any resulting profit or loss is his and theirs.

Ruling 2169. If one of the partners conducts a transaction with the partnership capital and later realises that the partnership was invalid, in the event that permission for the transaction was not contingent on the validity of the partnership in the sense that had they known that the partnership was not valid they would still have consented for the others to have disposal over the property, the transaction is valid. In such a case, whatever is acquired from the transaction belongs to all of them. However, if it was not such [i.e. permission for the transaction was contingent on the validity of the partnership], then, if those who did not consent for the others to have disposal say, ‘We consent to the transaction’, the transaction is valid; otherwise, it is void. In each case, whoever from among them worked for the partnership and did so without an intention to work for free can take wages for his efforts at the standard rate, taking into consideration the shares of the other partners. However, in the event that the standard rate is more than the amount of profit he would take on the assumption that the partnership was valid, then he can only take that amount of the profit.