[Forex Trading Software]

I always thought the ulama of Deoband allowed trading in stocks and shares. I am glad to hear I was mistaken if that is what you are saying. Anyway what is the role of the director in a company and why is this what makes it haram? And ameen to your dua insha-Allah.

I know a multimillionaire Muslim, his 22 year old son and heir has turned out to be a disappointment to the father...and when the father advises his son to fast or pray salah he says to his father...you have done so many haram things in your business who are you to tell me to pray salah!!! Seriously this is causing so much pain to the father...but it must be because of doing the haram...baraka is gone...May Allah Forgive them and us ameen.

JZK

They did. Mufti Ebrahim Desai stated in the discussion that they had issued a fatwa allowing trade in the stock market. However, due to certain information they received they had good grounds to doubt the validity of their own fatwa. It was said in the discussion that depending on the outcome, if the issues they raised were not sufficiently dealt with then they would retract their fatwa on its permissibility. As the issues where not dealt with at all, I assume that is just what they did.

I will attempt to summarise greatly what was said, I urge anyone interested to read the 25 page write up if they are more interested.

The first thing is the limited liability, as said in this thread already, a limited liability company frees up the shareholders and indeed all the members including the directors from any financial liability. In other words, if the company has to be wound up, any creditors can only receive their money back from the assets of the company which is a separate entity. If the assets of the company are insufficient to pay back the creditors, it is tough luck. The creditors cannot touch the directors of the company or the shareholders other than the money the shareholders invested in the first place (i.e. the capital they invested which went into buying the assets of the company for example etc). This heavily reduces the risk on directors and shareholders allowing them to take bigger risks with the company without being liable to face the consequences. This is against Shariah as the Prophet SAW has stated that profit without risk is Haraam. Elsewhere he SAW stated that profit is in proportion to the risk. In the case of a limited company the potential of profit is not capped while that of risk is capped with the maximum loss being losing the capital put into the company by buying shares. As a result, creditors are often cheated from receiving their money.

Hence, even if buying shares was permissible, it would still be impermissible because you are investing in a company whose very foundations are Haraam in that it is run on Haraam principles. It is like owning a business is permissible, but if it's a bank it is not due to riba. However, even buying shares itself is impermissible.

This is because a share is not a portion of the company, despite what the word 'share' seems to suggest. Originally, a share was a share in the company, much like a partner, but in 1855 an act was passed which recognised the company as a separate entity entirely, known in law as a juristic person. Although the company is not a physical being like a human, it posessed rights similar to that of a human being such as the right to buy and sell, incur debts and possess assets etc. As a result, any debt a company takes out is the debt of the company not a debt of the shareholders. Hence why shareholders personal assets cannot be seized to pay the creditors. It would be similar to seizing your assets to pay off my loan where I am the company.

Therefore what is a share? It seems difficult to define what a share now is by law as it is no longer a share of the company. A good definition found in Borland's trustee v Steel Brothers & Co. Ltd by Farwell J is:

'A share is the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second ... A share is not a sum of money... but is an interest measured by a sum of money and made up of various rights...'

Now it is proven that the share is not a physical share in the company it is merely an interest in the company which also gives it a few rights, we can see it does not fall into any of the three ways of making profit which are:

1). buying a good and selling it for a higher price.
2). a mudharaba where a person gives his own goods to another person to deal with. If the other person makes a profit the profit is shared in a pre-determined percentage split. The risk of making a loss is on the person who provided the capital and cannot be retrieved from the person who dealt with the commodity thus making it not riba.
3). Profit from an associated risk. For example I as a tailor agree to make you a suit for £100, I then get another tailor to make it for £80 making £20. As the risk of providing the goods in question with quality etc was associated with me I can make a profit from this sort of transaction.

When purchasing and benefiting from a share it does not fall into any of these three categories as it is not a physical share of the company to be bought and sold for a higher price. It is just a measure of interest in the company along with a few rights. (It was said by the Mufti that as a result the fluctuation in share price is considered gambling. This is one area I need to brush up on as it is the only hole someone like my family member could poke as they could argue it is not gamling for reasons which I cannot argue against unless I know what constitutes gambling islamically). For the same reasons it is not the second type either. And finally, the only risk associated with shares is losing what you put in which is a partial risk. It does not include the risk of the failure of the company as a result of which the shareholder is not liable and the creditor suffers. The entire risk must be on your shoulders or shared equally between partners just like in the tailor example. If I failed to deliver the suit, I bear the entire risk not a partial one, or a risk in proportion to my share of the partnership.

Hope I made sense. That was just a brief summary of a total of 138 pages. We can see that buying and selling shares is not permissible, even if it was, limited liability companies are not permissible, thus profiting from them is not either.

I request your du'aas once again.

EDIT: I just noticed your post on directors. Directors act on behalf of the company in its best interests. This is like a mother who acts on behalf of her child in his/her best interests because the child is incapable of doing it him/herself. This is the same with a company (as it is considered a person by law). This in and of itself isn't impermissible. What is impermissible is the fact that this is coupled with the fact that if a company incurs a debt, even if the directors were the ones who agreed to get the loan in the first place and signed it, the debt is that of the company and not the directors.

The point I was making about the directors wasn't that having them was Haraam, rather that an ulema who issued a fatwa of permissibility did not know what the role of a director is in a company. He assumed the directors were the owners of a company which is not the case as a company is a separate person which is not owned by anyone just as a child is not owned by anyone but is under the care of his parents.