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Old 08-07-2012, 02:12 AM   #40
Leczyslaw

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Oct 2005
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647
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Jazaakallah for letting me know his thoughts are now finalised.



I would not be so arrogant as to claim that. Now that his thought's are finalised, and given his stature and prestige then yes it would be a valid difference of opinion.



I thank you for having referred me to the AAOIFI I will have a look at their opinion. It would be good to see a counter argument from respectable sources. As regards to the rabbul maal any loss made on his capital cannot be taken from the mudhaarib unless the mudhaarib was negligent or violated the terms. So liability is with the rabbul maal. As for a silent partner I do not know but I see no difference. If I am incorrect I would appreciate you correcting me, but with references please.



My main focus of your post is this, it is completely incorrect. While I am glad you have corrected me on Mufti Taqi Saheb's stance, you are as I mentioned, completely incorrect here. But before I move onto that, nowhere did I say a company can just be wound up, please quote me if I did. Secondly, I realise that directors can be sued for fraud or negligency but I don't see what the point of this is? My point was if the directors worked for the best interests, legally, and still failed as a result of which the company is wounder up, they are not personally responsible and their personal assets cannot be touched. I understand your point about shareholders being liable, I guess that is why you asked about a silent partner, but my main contention with shareholders isn't the liability but the attainment of dividends and capital from not owning a part of the company which will be shown Inshaa Allah.

Being entitled to dividends does not show ownership at all. To have deduced this is illogical. If I own a building, and in this building a man has a shop, if I then receive a percentage of this man's profits from his sale does that show I own the shop? No it does not. Just because I am being paid by the man from his profits from his shop does not mean I own the assets of the shop. Rather I own the building of the shop and I am being paid for allowing him to use my building in order to run his shop full of his assets.

In this example I have allowed the company (the shop) to use my building in order to house the goods to be sold (the assets). By getting a cut of the profits (dividends) does not imply I own the assets, or even the company because I am paid for neither of those reasons, I am paid because I am leasing the building.

So now we have ascertained being paid does not automatically point to aha he is being paid because of this, just exactly what is the shareholder being paid dividends for? I will answer this last. First, I want to show you another analogy to deal with your logic of appointing the directors etc.

There is an orphan child who has inherited some assets from his parents. The orphanage appoints certain people to look after the child as well as his wealth (like shareholders appoint directors to act in the interests of the company). These people act in the orphans best interests by using his assets in business in order to make profit. If they make a profit, a portion may go to them not because they owned the original assets, but because of the work they put in and thus achieving a profit. It is at the child's discretion how much of his profit he wants to give to those who did the work, namely the directors. But as he is too young and incapable, the guardians make the decision for him and decide how much money should go to the orphanage (shareholders) who appointed them, how much they take and how much should be left with the child (company). Just because the child or company is incapable of making its own decisions and thus others have to do it on its behalf does not imply that the assets now belong to them. Hence, just because shareholders appoint directors who control how the company is ran, the company is the one who owns all the assets and all the profits. As the company is unable to declare how much to 'pay' its directors who used its assets the directors do it and decide how much is paid in dividends and how much is left to the company working in its best interests.

To drive this home and make it more clear, here are a few legal texts on the issue. If you still do not believe that a company is totally separate from the directors and shareholders there is not much I can do other than suggest you speak to a lawyer. It is the company who owns it's assets not the shareholders.

"It should be abundantly clear now that the company is an independent person, totally separate from the shareholders and the directors. This has significant consequences, of which the major two are (a) Limited Liability and (b) Separate ownership of assets and responsibility of liabilities. While these outcomes have been demonstrated above, we nevertheless wish to accentuatethem with further references.

So how good is the stockholder ownership theory as a theory? Not very. It does not describe the law very well, nor does it do a very good job as a normative matter. Indeed, it does not even address many of the most important question that arise these days."

- Who owns the corporation and who cares? Richard A Booth, Chicago-Kent Law Review, Vol. 77 No. 147, 2001, Pg.150


"If A, B and C form a partnership, they are the owners of the partnership assets and arepersonally liable for its debts. If A, B and C form a company, the company, being a juristic person, has its own assets and liabilities; A, B and C, the shareholders, have certain claims against the company, but the company's property is not their property and the company's debts are nottheir debts.

It has an identity that is separate from its shareholders or members and it owns the assetsand incurs the obligations of the undertaking (the company or close corporation). If theundertaking (the company, close corporation, or whatever form the undertaking takes) becomesinsolvent (goes bankrupt), only the assets or property of the undertaking (respective company, etc) will be seized, and not the assets of any shareholder or member, because the undertaking is a separate entity."

"Historically, the company moved from a partnership to a new person, and the shareholdersrole moved from a partner to a capital rentier. In recognition of these changes, from around the mid 1830s the legislature and courts began to reconceptualise the legal nature of joint stock company membership, reconstituting shares as autonomous and freely transferable forms of property, relieved of any direct link to the assets of companies. Henceforth, the assets were deemed to be owned, in both law and equity, by the company itself, either in the form of a corporation or through trustees, while shareholders were deemed to be the owners of shares,quite separate pieces of property in the form of transferable rights to profit. In this process, all joint stock companies, incorporated and unincorporated, were, in effect, (re)constituted as autonomous, property-owning legal persons in the changing language of the statutes of the time, people no longer formed themselves into companies but formed companies, objects external to them. At the same time, shareholders gradually ceased being conceptualised as partners in the traditional sense and were reconstituted as rentiers external to the company and production,a process which continued (and was perfected) as the century progressed with the rise to dominance of the fully paid-up share, the elimination of residual liability, and the spread of diversified, risk-spreading, portfolio shareholding."

- Property and contract in contemporary corporate theory, P. Ireland (2003) 23 LEGAL STUDIES pg. 463

I just wanted to clear up this issue of shareholders owning a company. They receive dividends because they invested in the company, but what assets a company purchases with that capital belongs to the company not the shareholders.

I apologise if my post seems awkward to read. I didn't respond to your post chronologically so my own reply might be a bit misplaced but Inshaa Allah it is not.

To summarise:

1). If I am incorrect about the rabbul maal please correct me with sources, I apologise if I have misunderstood the concept. I was quiet on the silent partner issue as I was unsure, feel free to educate me there too Inshaa Allah
2). Shareholders do not own a company as I have proven through various legal texts. If you disagree, please provide opposing legal texts, not the type written for laymen.
3). Jazaakallah for correcting me about Mufti Taqi Saheb's final stance. I will look into it Inshaa Allah during Ramadhan but as the last 10 days are coming probably after.
Akhi, I think you maybe confusing two different things here. Limited companies by law are either private or publicly ltd. They are detached from a person, unlike a sole traders business. However, they can still be owned. The ownership structure (refered to as 'capital structure') is composed of shares/stock. If you own the common stock, you have voting rights and can change management, can force motions and affect the way the company is governed. Most giant corporations are dominated by Banks and big financial institutions who gang-up and let their prefered people run the company. If you think you have a chnace of competing with them, you'll need billions to buy out their stakes and have enough control to force through a motion.

A good family friend sold off his business a few years ago, he was the owner with some family members and they received the sum payment for it, noone else and certainley not an intangible being. They owned the common stock, they were the owners who exchanged contracts at the sale.

Allahu A'lam
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