[Patgaepx]

Brother, hope it goes well for you. But I would urge you again to refrain from investing. You cannot learn how to invest in stock markets buy reading books. It will give you a picture of what to lookout for and an idea of the different financial instruments out there. But unless you have an expertise on a particular sector or are involved in this sector yourself, the 'odds' are stacked against you/us.

Its not neceassarily the share that matters, its the the business and the structure of the business behind it which the share represents. How many shares are in issue - how many are on loan - how many are there fully subscribed? What are the clauses in place, largely hidden away to smallprint in some cases, that could trigger the full subscription (and dilute your holding making it worth less after exercize of warrants). What classes of share and what other liabilities are sitting somewhere dressed-up in jargon?

The amount of stuff they were doing back in the arly 00's was rather shocking (experience with a few like-minded friends), I can only imagine the web is even more tangled now. Judging by the the key players (banks, investment banks, finacial services firms) they are much more sophisticated at their deception now.

Allahu A'lam

السلام عليكم و رحمة الله و بركاته و مغفرته

I disagree strongly with some points and agree with others. But alhamdulillah there is no use in debating how tough the meat of a pig is to chew when eating a pig is Haraam. I have finished reading through the 25 page write up by Mufti Yusuf bin Yaqub and also the huge 113 page discussion between Mufti Vawda Saheb & Mufti Ebrahim Desai against Mufti Ashraf. The impermissibility of trading in the stock market has been so clearly laid out it is undeniable. It is a great testimony to the truth, professionalism and scholarship of Deoband that they managed to build up a case from the bottom up so strong that I cannot see how personally, I can continue to go down this route. The counter arguments were nowhere near as strong, often illogical and lacked any credible references. It's a shame that many scholars are so quiet on this issue whether due to fear of repercussions or lack of knowledge. In fact, in many cases it was shocking how Ulema (with all due respect) were issuing fatwa's on the permissibility of shares when they did not even understand what the role of a director is in a company.

My only concern now is a family member who is planning on an entire career on investing in companies. I will need to convince them, I request du'aas that the arguments laid out by these Mufti's can come into my mind with proper understanding and be made manifest on my tongue with eloquence and proper adhab such that I can convince others of its impermissibility.

[Eltabaco]

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

السلام عليكم و رحمة الله و بركاته و مغفرته

I disagree strongly with some points and agree with others. But alhamdulillah there is no use in debating how tough the meat of a pig is to chew when eating a pig is Haraam. I have finished reading through the 25 page write up by Mufti Yusuf bin Yaqub and also the huge 113 page discussion between Mufti Vawda Saheb & Mufti Ebrahim Desai against Mufti Ashraf. The impermissibility of trading in the stock market has been so clearly laid out it is undeniable. It is a great testimony to the truth, professionalism and scholarship of Deoband that they managed to build up a case from the bottom up so strong that I cannot see how personally, I can continue to go down this route. The counter arguments were nowhere near as strong, often illogical and lacked any credible references. It's a shame that many scholars are so quiet on this issue whether due to fear of repercussions or lack of knowledge. In fact, in many cases it was shocking how Ulema (with all due respect) were issuing fatwa's on the permissibility of shares when they did not even understand what the role of a director is in a company.

My only concern now is a family member who is planning on an entire career on investing in companies. I will need to convince them, I request du'aas that the arguments laid out by these Mufti's can come into my mind with proper understanding and be made manifest on my tongue with eloquence and proper adhab such that I can convince others of its impermissibility.

[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.

[creewespock]

[QUOTE=تفويض;801591]

Jazakallah for taking the time to type out an answer and a good summary.

I was always disheartened with the allowance given in this and I am pleased that they have changed their view on this. Limited liability and the legal personality of the corporation are un-islamic. I did read some of the write up and concluded after a few pages that they were saying limited liability is not Islamic because no one is responsible to the creditors except 'a company' which is not a real person!

[tramadolwithall]

Fractional reserve banking, corporations as persons, limited liability, stock market speculation...the financial system is so unIslamic and at such a fundamental level. Yet I know Muslims who proudly work for the very "financial institutions" that engineer and profit from these things. If you try to explain to them, they don't want to hear it. All they see are dollar signs. Such a shame.

In my opinion, bankers are the worst people on the face of the planet. Maybe my imagination is too vivid, but it would be awesome if some former spec ops guys saw the light and started going after these people.

[inownsuipsy]

What is spec ops?


The hadith say that (bankers) people who do riba in the Akhira will be drowning in rivers of blood, every time they swim ashore a huge rock hits them and knocks them back to the middle of the river of blood.

This kind of takes away the false pleasure in making dollars through haraam. I am quite shocked at how little the ulama speak about this subject...it is almost 'acceptable' to Muslims including the ulama.

Fractional reserve banking, corporations as persons, limited liability, stock market speculation...the financial system is so unIslamic and at such a fundamental level. Yet I know Muslims who proudly work for the very "financial institutions" that engineer and profit from these things. If you try to explain to them, they don't want to hear it. All they see are dollar signs. Such a shame.

In my opinion, bankers are the worst people on the face of the planet. Maybe my imagination is too vivid, but it would be awesome if some former spec ops guys saw the light and started going after these people.

[tipokot]

I am quite shocked at how little the ulama speak about this subject...it is almost 'acceptable' to Muslims including the ulama.

This hurt me deeply. In the first email in the discussion and also in subsequent emails, both Mufti's repeatedly emphasised the efforts they had made to contact various different ulema's and institutions regarding their concerns only to be met by total silence. Only one of them responded (Mufti Ashraf). Many ulema permit it because they lack understanding, others permit it based on previous fatwa's when shares were actually a physical share in a company thus halaal (not the case now however hence such fatwas are now obsolete) and the one that really is a hard pill to swallow is some recognise the issues but hide under a difference of opinion. Mufti Ebrahim Desai commented on this issue that people say there is a valid difference of opinion, our opinion is it is halaal and you must respect that opinion. Alhamdulillah the Mufti takes apart that claim and shows how it is not a difference of opinion if one side provides no answers or evidences for their claim (like with madh-habs) thus upgrading it to an issue of Haq and Baatil.

I will make a conscious effort to take to some ulema in my locality Inshaa Allah after Ramadhan about this issue. I feel it is deeply important as many people invest in shares either as a career or as a plan for retirement.

I would like to point out that apart from the last category of ulema I listed, the others cannot be blamed as such so we should be careful not to fall into that trap. As I mentioned, many of our ulema may be relying on fataawa based on the old definition of shares, or in laymen dictionaries which do not present a true picture due to the nature of the layman. Finally, our ulema are primarily versed in Shariah and are not experts in law. If they slip up (they are human like us) they should be corrected but still respected. This was my disclaimer to the ulema we have who are innocent of knowingly evading the issue.

[CHyLmxDr]

What is spec ops?

I am quite shocked at how little the ulama speak about this subject...it is almost 'acceptable' to Muslims including the ulama.

spec ops = "special operations"

[russmodel]

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.

Interesting you note about 'share' and its meaning. They used to denote the simple 'capital structure' of the company - meaning the ownership. In the last hundred years, things have changed so much. There are many different classes of shares now (which is also part of the problem with them). One of the reasons shares are not directly attributed to certain assets in a company is due to the fact some assets are intangible (think of company logo's and trademarked catchphrases and sector reputation etc). The use of shares would enact a ownership structure that would comprehensively round all the various types of assets in a company together into the ownership pool, easily liquid and saleable.

Al hamdlillah, maybe you could encourage your relative to start his own business as a sole trader etc. He will take all the risk/reward and loss aswell. There are few options available, however that is probably the best option in western Europe and North America. There is also the possibility of unincorporated businesses in UK and US. Due to their very nature, there are no caps in place to restrict profit or loss.

If worst comes to worst akhi, and they do not take your advice, try to direct them to investments or trading in what are known as 'blue-chip' stocks that have their main business in something which is not considered unethical or outright haram by Islamic standards (for instance offlimits would be Banks, Insurance and associated financial institutions, Alcoholic beverages, Multi-Media, - with Energy, natural resources, engineering, Agri-culture, Medicine etc being acceptable).

Allahu A'lam

[sallythetolly]

I sincerely hope it won't come to that. Investing in blue chip companies would still be Haraam. As he will contribute to the house I am living in in terms of food, bills etc this distresses me greatly that the money is not halaal. The problem is he got his degree in business with the sole intention of investing. Nevertheless I will be adamant on this issue as it affects the entire family. I don't want haraam food in our stomach. It's difficult enough to know our house is mortaged let alone deal with our food, gas, electrics also being paid by haraam income. If need be I will involve my parents as they have the ability to enforce it. I'd rather it not get to that stage however. Forcing rarely works out well.

Request for Du'aas once again.

[markphata]

I sincerely hope it won't come to that. Investing in blue chip companies would still be Haraam. As he will contribute to the house I am living in in terms of food, bills etc this distresses me greatly that the money is not halaal. The problem is he got his degree in business with the sole intention of investing. Nevertheless I will be adamant on this issue as it affects the entire family. I don't want haraam food in our stomach. It's difficult enough to know our house is mortaged let alone deal with our food, gas, electrics also being paid by haraam income. If need be I will involve my parents as they have the ability to enforce it. I'd rather it not get to that stage however. Forcing rarely works out well.

Request for Du'aas once again.

Assalamu alaikum,

I have read arguments from both sides and personally I am not convinced at all by the arguments made by Mufti Ebrahim Deai saheb. The arguments put forward by Mufti Taqi and his father Mufti Shafi', I find are much more reasonable, both of who permit investing in shares of limited liability corporations.

Needless to say there are two camps on this issue, and those who prohibit investing in shares is clearly the minority. I do not think there is any point in actually discussing the merits of the arguments of the two parties as I am sure the ulema on both camps have considered the arguments. The intention of this post is merely to bring to the attention of the members of the forum that as far as I know majority of the scholars and the majority of the Deobandi scholars permit investing in the shares of limited liability corporations.

It is however important to note that one must abide by the conditions of investing in shares which are highlighted in the AAOIFI standards. Apart from obvious impermissibilities such as not investing in a haram company, etc., one has to ensure that the company's debt to asset ratio is below 30% and haram income in the company is below 5%.

[riverakathy]

Majority of charities in the UK including those Muslim owned such as MUSLIM AID, ISLAM HELP ect are also corporations by limited liability

however I think it all depends on how they structured their Memorandum and Articles of Association so you cant have a blanket rule on all as haram

just a thought

[juyrett]

Assalamu alaikum,

I have read arguments from both sides and personally I am not convinced at all by the arguments made by Mufti Ebrahim Deai saheb. The arguments put forward by Mufti Taqi and his father Mufti Shafi', I find are much more reasonable, both of who permit investing in shares of limited liability corporations.

و عليكم السلام و رحمة الله و بركاته و مغفرته

بسم الله الرمن الرحيم

Mufti Ebrahim Desai said that the arguments provided by Mufti Taqi were incomplete and by Mufti Taqi's own words further research is necessary on this topic, therefore it is clear that it was not a fatwa detailing it's permissibility and more research was needed before a conclusion could be drawn. Nevertheless, I am intrigued. I am not an alim, so I won't even attempt to debate, but for my own curiosity I would like to ask a few questions and maybe the aalim's of this forum can contribute or I can go ask someone else.

1) How is the concept of a limited liability corporation legal in Shariah? It clearly contradicts many hadeeths by the Prophet SAW which clearly state that profit without risk is Haraam, and profit is in proportion to risk. The risk of a shareholder is capped at their investment into the company, whereas their profit is unlimited. Hence, if the company is to be wound up, the shareholders can walk away without any of their assets being touched. As a result the shareholders have a partial risk and do not bear the full force of the risk. Neither do the directors. This results in bigger risks being undertaken without care for the consequences and results in creditors being extremely vulnerable.

2). How is a share entitled to dividends in a company despite that fact that it owns none of the company? Or despite that a shareholder does no work for the company? Or the fact that a member of a company does not bear the full risk? It violates all the ways halaal profit can be made.

Needless to say there are two camps on this issue, and those who prohibit investing in shares is clearly the minority. I do not think there is any point in actually discussing the merits of the arguments of the two parties as I am sure the ulema on both camps have considered the arguments. The intention of this post is merely to bring to the attention of the members of the forum that as far as I know majority of the scholars and the majority of the Deobandi scholars permit investing in the shares of limited liability corporations. With all due respect, that entire paragraph is meaningless. The entire world could be on baatil but that does not make the baatil haq nor the haq baatil. For example, the majority of the world is not Muslim, that does not make them correct.

Regarding a difference of opinion, I think I wrote about that somewhere in the previous page. You have talked about Mufti Taqi and his respected father. If they provide good evidence for permitting shares then I guess we can say there is a valid difference. But until then merely saying there is a difference of opinion is not enough. This was also discussed in the discussion. I assume you have just forgotten as these points you raised in this paragraph were dealt with in much detail. Until valid evidence can be provided it is not enough to say there is a difference of opinion.

Again I am not a scholar. I am merely interested in why you disagree with the impermissibility of shares. I look forward to your reply and will try and research into the matter.

[Toscoropreark]

Majority of charities in the UK including those Muslim owned such as MUSLIM AID, ISLAM HELP ect are also corporations by limited liability

however I think it all depends on how they structured their Memorandum and Articles of Association so you cant have a blanket rule on all as haram

just a thought

Even if Muslims Corporations are LL that does not indicate it's permissibility. But your last point is important. Being a charity, it is possible the rules are a little different and thus are structured differently. Charities can be Trusts, in which case from what I know that is completely fine. As regards to being LL though, allahu a'lam, all I know is the LL of charities is not the same as the LL of other corporations, therefore I couldn't even begin to comment on them and even if I did it wouldn't mean anything as my opinion doesn't really count as I am not qualified.

[Anaedilla]

و عليكم السلام و رحمة الله و بركاته و مغفرته

بسم الله الرمن الرحيم

Mufti Ebrahim Desai said that the arguments provided by Mufti Taqi were incomplete and by Mufti Taqi's own words further research is necessary on this topic, therefore it is clear that it was not a fatwa detailing it's permissibility and more research was needed before a conclusion could be drawn. Nevertheless, I am intrigued. I am not an alim, so I won't even attempt to debate, but for my own curiosity I would like to ask a few questions and maybe the aalim's of this forum can contribute or I can go ask someone else.

1) How is the concept of a limited liability corporation legal in Shariah? It clearly contradicts many hadeeths by the Prophet SAW which clearly state that profit without risk is Haraam, and profit is in proportion to risk. The risk of a shareholder is capped at their investment into the company, whereas their profit is unlimited. Hence, if the company is to be wound up, the shareholders can walk away without any of their assets being touched. As a result the shareholders have a partial risk and do not bear the full force of the risk. Neither do the directors. This results in bigger risks being undertaken without care for the consequences and results in creditors being extremely vulnerable.

2). How is a share entitled to dividends in a company despite that fact that it owns none of the company? Or despite that a shareholder does no work for the company? Or the fact that a member of a company does not bear the full risk? It violates all the ways halaal profit can be made.



With all due respect, that entire paragraph is meaningless. The entire world could be on baatil but that does not make the baatil haq nor the haq baatil. For example, the majority of the world is not Muslim, that does not make them correct.

Regarding a difference of opinion, I think I wrote about that somewhere in the previous page. You have talked about Mufti Taqi and his respected father. If they provide good evidence for permitting shares then I guess we can say there is a valid difference. But until then merely saying there is a difference of opinion is not enough. This was also discussed in the discussion. I assume you have just forgotten as these points you raised in this paragraph were dealt with in much detail. Until valid evidence can be provided it is not enough to say there is a difference of opinion.

Again I am not a scholar. I am merely interested in why you disagree with the impermissibility of shares. I look forward to your reply and will try and research into the matter.

I do not have time to respond to your shallow arguments but I to let you know how much information you are missing I will say a little bit:

1) Mufti Taqi Usmani said more research is needed in the book Introduction to Islamic Finance. This was one of his earlier works and does not have the full research - agreed. However his opinions on this matter were finalized over time and he chaired the AAOIFI board, and the his opinions have now been formalized with conditions for the permissibility of investing in stocks. So Mufti Ebrahim Desai saheb cannot quote him on that. Moulana Taha Karaan told a ulema gathering in Toronto not to rely heavily on Islamic Finance book because this was his earlier book. Many ulema have given their final opinions that it is permissible.

2) Mufti Taqi saheb is a mujaddid and a mujtahid. I dare you to say his opinion will not constitute a "valid" difference of opinion.

3) I want to ask you - in Islam - does a silent partner have full liability or limited liability? The rabbul maal in mudarabah - does he have full liability or limited liability?

Your writing is so contradictory. You are saying how can a share be eligible for dividends when it owns none of the company. You fail to realize that because it is entitled to dividends it shows ownership. Because a share can appoint the board of directors which can direct and control the corporation's assets, that shows ownership. Contrary to your belief that a company can just wind up and leave - in that case the board of directors can be sued - where it can be proven they were negligent or acted fraudulently. The CEO and other executives of Enron and other multinational corporations are in jail and there is class action lawsuit against them to recover money which was not recovered from the corporation.

It is unfathomable to think that millions of shareholders who are not involved in the day to day operations of the company can be sued for their personal assets for the actions of managers of the corporation.

Mufti Taqi and the AAOIFI board has provided valid opinions. These scholars are not on baatil just because you disagree with them. If you want to know their opinion read the AAOIFI standards or contact them. I respect Mufti Ebrahim Desai's opinion but I disagree with him and I find Mufti Taqi's opinion much more reasonable.

Brother I am not going to spend my time debating and discussing with every single person. There are answers all over the internet if you are interested.

[Emapymosy]

Organized charities like these can do more harm than good. They prevent the development and selection of a Muslim khalifah. Economically sending old clothes and things to an area, may make the local clothes producers go out of business.

Majority of charities in the UK including those Muslim owned such as MUSLIM AID, ISLAM HELP ect are also corporations by limited liability

however I think it all depends on how they structured their Memorandum and Articles of Association so you cant have a blanket rule on all as haram

just a thought

[viagra-kaufen]

I do not have time to respond to your shallow arguments but I to let you know how much information you are missing I will say a little bit:

1) Mufti Taqi Usmani said more research is needed in the book Introduction to Islamic Finance. This was one of his earlier works and does not have the full research - agreed. However his opinions on this matter were finalized over time and he chaired the AAOIFI board, and the his opinions have now been formalized with conditions for the permissibility of investing in stocks. So Mufti Ebrahim Desai saheb cannot quote him on that. Moulana Taha Karaan told a ulema gathering in Toronto not to rely heavily on Islamic Finance book because this was his earlier book. Many ulema have given their final opinions that it is permissible.

Jazaakallah for letting me know his thoughts are now finalised.

2) Mufti Taqi saheb is a mujaddid and a mujtahid. I dare you to say his opinion will not constitute a "valid" difference of opinion. 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.

3) I want to ask you - in Islam - does a silent partner have full liability or limited liability? The rabbul maal in mudarabah - does he have full liability or limited liability?

It is unfathomable to think that millions of shareholders who are not involved in the day to day operations of the company can be sued for their personal assets for the actions of managers of the corporation.

Mufti Taqi and the AAOIFI board has provided valid opinions. These scholars are not on baatil just because you disagree with them. If you want to know their opinion read the AAOIFI standards or contact them. I respect Mufti Ebrahim Desai's opinion but I disagree with him and I find Mufti Taqi's opinion much more reasonable.

Brother I am not going to spend my time debating and discussing with every single person. There are answers all over the internet if you are interested. 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.

Your writing is so contradictory. You are saying how can a share be eligible for dividends when it owns none of the company. You fail to realize that because it is entitled to dividends it shows ownership. Because a share can appoint the board of directors which can direct and control the corporation's assets, that shows ownership. Contrary to your belief that a company can just wind up and leave - in that case the board of directors can be sued - where it can be proven they were negligent or acted fraudulently. The CEO and other executives of Enron and other multinational corporations are in jail and there is class action lawsuit against them to recover money which was not recovered from the corporation. 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.

[Frjrbefd]

Assalamu alaikum,

I have read arguments from both sides and personally I am not convinced at all by the arguments made by Mufti Ebrahim Deai saheb. The arguments put forward by Mufti Taqi and his father Mufti Shafi', I find are much more reasonable, both of who permit investing in shares of limited liability corporations.

Needless to say there are two camps on this issue, and those who prohibit investing in shares is clearly the minority. I do not think there is any point in actually discussing the merits of the arguments of the two parties as I am sure the ulema on both camps have considered the arguments. The intention of this post is merely to bring to the attention of the members of the forum that as far as I know majority of the scholars and the majority of the Deobandi scholars permit investing in the shares of limited liability corporations.

It is however important to note that one must abide by the conditions of investing in shares which are highlighted in the AAOIFI standards. Apart from obvious impermissibilities such as not investing in a haram company, etc., one has to ensure that the company's debt to asset ratio is below 30% and haram income in the company is below 5%.

Good point, IF you know your calls will fall on deaf ears with relatives and friends, atleast redirect the message towards something which is at a basic level Ethical by Islamic standards. Agree with your reference to the above on AAOIFI standards.

But they by no means shield one from the potential disaster market-trading and investing in this modern age can lead one to. Bankers are constantly changing definitions, creating new names for new products to sell to the wider market. On face value, it looks like an asset - when analysed carefully, all it is is debt wrapped-up as equity in an asset and the investment bankers 'knowingly' sell this toxic garbage onto you (at a fantastic profit for themselves).

Great example of this is the recent float in the US of Facebook. It opened and hit $40/Share on first day of trading with nearly $100billion market capitalisation - unexperienced investors chasing Facebook stock all the way upto $40. Mark Zuckerberg cashed-in over $1billion in the first week of trading (selling-off stock in his own company is always a bad sign if its the boss). Now, only a couple of months later, Facebook has lost nearly half of its value. Common stock in Facebook is worth only $20/share and still falling. The unexperienced investor is the one who got suckered into Facebook at $40 and is watching the value of his stock collapse almost daily - and these guys have no way out except swallowing their losses and cutting what they have left. But folk keep on risking their money on the markets like this.

And you know the worst thing about that, there are people who are making a fortune through Put options as the price of Facebook (and so many other stocks) collapse. Short-selling is one of the most devastating financial weapons in the markets today. Companies are deliberately overpriced, sold onto retail investors and then short-sellers move in and clean the price up (force it lower through a combo of HF trading and triggering profit/loss stop positions) - making more money the further the price collapses.

Allahu A'lam

[DuesTyr]

و عليكم السلام و رحمة الله و بركاته و مغفرته

بسم الله الرمن الرحيم

Mufti Ebrahim Desai said that the arguments provided by Mufti Taqi were incomplete and by Mufti Taqi's own words further research is necessary on this topic, therefore it is clear that it was not a fatwa detailing it's permissibility and more research was needed before a conclusion could be drawn. Nevertheless, I am intrigued. I am not an alim, so I won't even attempt to debate, but for my own curiosity I would like to ask a few questions and maybe the aalim's of this forum can contribute or I can go ask someone else.

1) How is the concept of a limited liability corporation legal in Shariah? It clearly contradicts many hadeeths by the Prophet SAW which clearly state that profit without risk is Haraam, and profit is in proportion to risk. The risk of a shareholder is capped at their investment into the company, whereas their profit is unlimited. Hence, if the company is to be wound up, the shareholders can walk away without any of their assets being touched. As a result the shareholders have a partial risk and do not bear the full force of the risk. Neither do the directors. This results in bigger risks being undertaken without care for the consequences and results in creditors being extremely vulnerable.

2). How is a share entitled to dividends in a company despite that fact that it owns none of the company? Or despite that a shareholder does no work for the company? Or the fact that a member of a company does not bear the full risk? It violates all the ways halaal profit can be made.



With all due respect, that entire paragraph is meaningless. The entire world could be on baatil but that does not make the baatil haq nor the haq baatil. For example, the majority of the world is not Muslim, that does not make them correct.

Regarding a difference of opinion, I think I wrote about that somewhere in the previous page. You have talked about Mufti Taqi and his respected father. If they provide good evidence for permitting shares then I guess we can say there is a valid difference. But until then merely saying there is a difference of opinion is not enough. This was also discussed in the discussion. I assume you have just forgotten as these points you raised in this paragraph were dealt with in much detail. Until valid evidence can be provided it is not enough to say there is a difference of opinion.

Again I am not a scholar. I am merely interested in why you disagree with the impermissibility of shares. I look forward to your reply and will try and research into the matter.

Brother,


Shares do denote ownership of the company. The capital structure of a company is composed of shares. You own the shares - you own the company and are entitled to payout of dividends in proportion to what you own.

The problem in this day and age is that there are many types of shares and this is where problems will occur - ordinary shares/stock give you ownership and voting rights - you can vote in and out the management of the company and vote on all major resolutions.

Preference shares/stock and some other types do not give you those rights. They merely make you a kind of secured creditor but with the effect of 'diluting' the other common stockholders. Also, sometimes debt-warrants are converted into equity thereby diluting your interest again. This needs more attention as failing managers will tend to go down this route and damage the capital structure of the company and make you r interest and holdings potentially less than you began with.

Allahu A'lam

[Leczyslaw]

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