Whether a Partner in Business Partnership is Entitled to Salary?

Source: https://www.islamweb.net/emainpage/PrintFatwa.php?lang=E&Id=335446

Question:
Assalaamu alaykum.
‘A’ brought a business concept and requested me to invest. Me and two friends agreed to invest. ‘A’ agreed to manage the business. ‘B’ is a finance professional and agreed to look after the finance management. ‘C’ is a marketing professional and agreed to support marketing.

  1. Who is the owner of the business?; only ‘A’, or all partners? Is ‘A’ allowed to take a monthly amount as salary;
  2. How do we consider the role of ‘B’ and ‘C’? Are they entitled to any payment?;
  3. How should their role be considered while sharing the profit?

I kindly accept your feedback. May Allah bless you.

Answer:
All perfect praise be to Allah, The Lord of the worlds. I testify that there is none worthy of worship except Allah and that Muhammad, sallallaahu ‘alayhi wa sallam, is His slave and Messenger

Your question included several points, and we will answer them in the order in which you mentioned them:

The first question: Who is the owner of the business? Is it person (A) alone, or all partners? The answer is: the business is a joint venture (partnership) between the three if (A) will invest the money of (B) and (C) and will work with the money against a percentage from the profit that will be agreed upon in the contract. He does not have a salary. The partnership, in this case, will be called Mudhaarabah [as underlined in fatawa 5160 and 276166]: (A) with his effort and the two others, (B) and (C), with their money and their work.

However, if (A) will be given a specific salary for his effort and his investment of the money, then he is a hired person (employee) and not a partner; the business, in this case, is between (B) and (C), who are partners with their money and their work.

The second question: Is it permissible for the person (A) to take a sum of money each month as a monthly salary? The answer to this is that if (A) is a partner, then it is not valid that he will be given a specific salary; rather, he takes a percentage from the profit only, if there is any profit, in return for his work.

Ibn al-Munthir said, “All the scholars that we know of unanimously agreed upon the invalidity of profit-sharing if one or both parties stipulate a designated number of dirhams for themselves.”

However, if he only works and has nothing to do with the partnership, then he is given a known salary.

The third question: How do we consider the role of (B) and (C)? Are they entitled to any payment? How should their role be considered while sharing the profit? The answer is that (B) and (C) are partners in the business and the profit of each of them is according to what was agreed upon (between them) in the contract. If the company is a Mudhaarabah, in a way that (A) will work with them as a partner against a percentage from the profit, then the profit is divided between the three according to what was agreed upon in the contract. Since both (B) and (C) are participating with capital and they both work as well, then each of them is entitled to ask for a salary in return for his work or request an increase in their share from the profit. The author of Ar-Rawdh (a Hanbali book) wrote, “Or that one of them works with his money and he gets a profit more than the profit of.…his money [i.e. the profit he is entitled to according to his share from his money]”.

If the third (A) works as an employee with a salary, then the partnership is between (B) and (C) only and the profit is divided between them according to what they agree upon. If one of them works more than the other, then he may request an additional share from the profit in return for that. In any case, what should be taken into account depends on what they agree upon.

Al-Khiraqi said in his Mukhtasar, “If two persons have a partnership in their effort and the capital of one of them, or two persons in their effort and the money of others, or one person in his effort and the capital of another, or the capital of both of them and the effort of one of them, or the capital and effort of both of them – whether the capital is contributed equally or not – then all of this is permissible, and the profit is divided according to what is agreed upon between them.”

Allah knows best.


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Zakat on Salaries

Question:
I want to ask about zakat on the fixed income. Should I pay zakat on my monthly salary?

Answer:
All praise and thanks are due to Allah, and peace and blessings are upon His Messenger.

In his response to the question, Dr. Monzer Kahf, a prominent economist and counselor, states:

“According to the majority of Muslim scholars salaries are not subject to zakat, because the passage of one full lunar year from the day one acquires a nisab is a necessary condition for the obligation of zakat.

Dr. Yusuf Al-Qaradawi believes that salaries are subject to zakat because that condition is not on all forms of what one owns and he also quotes some incidences from the time of the Companions of the Prophet that may indicate taking zakat on earned income (salaries and professional income).

This view of Dr. Al-Qaradawi is supported by the point that richness is not only manifested by how much one owns but also by how much one earns, and zakat is on the rich. I (Dr. Monzer Kahf) go along with this view. However, according to Al-Qaradawi, there are conditions for this obligation of zakat on salaries:

  1. Deducing personal and family expenses. These include any other expenses even for leisure and Shari’ah permissible entertainment.
  2. What remains after the above expenses should accumulate to a nisab for a whole lunar year.

The difference between the two views is not really big. This may be a surprise to some; but if we look closely, we will find that according to both whatever is saved is subject to zakat.

The second opinion requires zakat to be paid in the first year during the accumulation of savings while the first opinion only requires zakat in the second year that begins on the day when a nisab is reached.”

Refer this link to calculate your zakat on Salaries (in the Malay language): https://www.zakat2u.com.my/kiraan/zakat/pendapatan

And Allah Almighty knows best.

Sources: Fatwas of Muslim Minorities Series (1): Islamic Finance (Q&A)