1. Imam Malik is of the view that the liquidity of capital is not a necessary condition for the validity of the Musharakah and, therefore, it is permissible that a partner contributes to the Musharakah in kind, although his share shall be determined on the basis of evaluation according to the market price prevalent at the date of the contract. This view is also adopted by some Hanbali jurists.
2. Imam Abu Hanifa and Imam Ahmad are of the view that no contribution in kind is acceptable in a Musharakah. Their standpoint is based on two reasons:
(a) First, they say that commodities of one partner are always distinguishable from commodities of another. For example, if A has contributed one motor car to the business, and B has come with another motor car, each of the two cars is the exclusive property of its original owner. Now, if the car of A is sold, the proceeds of the sale should go to A. B has no right to claim a share in its price. Therefore, so far as the property of each partner is distinguished from the property of the other, no partnership can take place. However, if the capital invested by every partner is in the form of money, the share capital of each partner cannot be distinguished from that of the other, because the units of money are not distinguishable. Therefore, they will be deemed to form a common pool, and thus the partnership comes into existence.
(b) Secondly, they say, there are a number of situations in a contract of Musharakah where the partners have to resort to redistribution of the share capital to each partner. If the share capital was in the form of commodities, such redistribution could not take place, because the commodities may have been sold at that time. If the capital is repaid on the basis of its value, the value may have increased, and there is a possibility that one partner receives all the profit of the business, because of the appreciation in the value of commodities he has invested, leaving nothing for the other partner. Conversely, if the value of those commodities decreases, there is a possibility that one partner secures part of the original price of the commodity of the other partner, in addition to his own investment.
3. Imam al-Shafi’i has a via media between the two points of view explained above. He says that commodities are of two kinds:
(a) Dhawat-ul-amthal, i.e. commodities which, if destroyed, can be compensated by similar commodities in quality and quantity, such as wheat, rice, etc. If 100kg of wheat is destroyed, it can easily be replaced by another 100kg of wheat of the same quality.
(b) Dhawat-ul-qeemah, i.e. commodities which cannot be compensated by similar commodities, such as cattle. Each head of sheep, for example, has its own characteristics which cannot be found in any other head. Therefore, if somebody a kills a person’s sheep, he cannot compensate him by giving him a similar sheep. Rather, he is required to pay its price.
Imam al-Shafi’i says that commodities of the first kind (dhawat-ul-amthal) may be contributed to the Musharakah as a partner’s share capital, while commodities of the second kind (dhawat-ul-qeemah) cannot form part of the share capital.
By this distinction between dhawat-ul-amthal and dhawat-ul-qeemah, Imam al-Shafi’i has met the second objection to “participation by commodities” that was raised by Imam Ahmad. For in the case of dhawat-ul-amthal, redistribution of capital may take place by giving to each partner similar commodities to those he invested. However, the first objection remains unanswered by Imam al-Shafi’i. In order to meet this objection also, Imam Abu Hanifah says that the commodities falling under the category of dhawat-ul-amthal can form part of the share capital only if the commodities contributed by each partner have been mixed together in such a way that the commodity of one partner cannot be distinguished from that of the other.
In short, if a partner wants to participate in a Musharakah by contributing some commodities to it, he can do so, according to Imam Malik, without any restriction, and his share in the Musharakah shall be determined on the basis of the current market value of the commodities prevalent at the date of the commencement of the Musharakah. According to Imam al Shafi’i, however, this can be done only if the commodity is from the category of dhawat-ul-amthal.
According to Imam Abu Hanifa, if the commodities are dhawat-ul-amthal, this can be achieved by mixing the commodities of each partner together. And if the commodities are dhawat-ul-qeemah, then they cannot form part of the share capital. It seems that the view of Imam Malik is more simple and reasonable and meets the needs of modern business. Therefore, this view should be acted upon. We may, therefore, conclude from the above discussion that the share capital in a Musharakah can be contributed either in cash or in the form of commodities. In the latter case, the market value of the commodities shall determine the share of the partner in the capital.
1. Every partner has a right to terminate the Musharakah at anytime after giving the other partners notice to this effect, whereby the Musharakah will come to an end. In this case, if the assets of the Musharakah are in cash form, all of them will be distributed pro rata between the partners. But if the assets are not liquid, the partners may agree either on the liquidation of the assets, or on their distribution or partition between the partners as they are. If there is a dispute between the partners regarding this matter, i.e. if one partner seeks liquidation while the other wants the partition or distribution of the non-liquid assets themselves, the latter should be preferred. This is because after the termination of Musharakah, all the assets are in joint ownership, and a co-owner has a right to seek partition or separation, and no one can compel him to liquidate. However, if the assets are such that they cannot be separated or partitioned, such as machinery, then they shall be sold and the sale proceeds distributed.
2. If any one of the partners dies during the currency of the Musharakah, the contract of Musharakah with him stands terminated. His heirs will have the option either to draw the share of the deceased from the business, or to continue with the contract of the Musharakah.
3. If any one of the partners becomes insane or otherwise becomes incapable of effecting commercial transactions, the Musharakah stands terminated.
Termination without closing the business
If one of the partners wants termination of the Musharakah, while the other partners would like to continue with the business, a mutual agreement can be reached. The partners who want to continue to run the business may purchase the share of the partner who wants to terminate his involvement, because the termination of the Musharakah with one partner does not imply its termination between the other partners.
However, in this case, the price of the share of the leaving partner must be determined by mutual consent, and if there is a dispute about the valuation of the share and the partners do not arrive at an agreed price, the leaving partner may compel the other partners to liquidate or distribute the assets themselves. The question arises whether the partners can agree, when entering into the contract of Musharakah, on a condition that the liquidation or separation of the business shall not be effected unless all the partners – or the majority of them – wants to do so; and that a single partner who wants to come out of the partnership would have to sell his share to the other partners and not force them into liquidation or separation.
Most of the traditional books of Islamic Fiqh seem to be silent on this point. However, it appears that there is no bar from the Shariah point of view if the partners agree to such a condition right at the beginning of the Musharakah. This is expressly permitted by some Hanbali jurists. This condition may be justified, especially in modern situations, on the ground that the nature of business today requires continuity for success, and liquidation or separation at the insistence of a single partner may only cause irreparable damage to the other partners.
If a particular business has been started with large amounts of money that has been invested in a long-term project, and one of the partners seeks liquidation in the infancy of the project, it may be fatal to the interests of the partners, as well as to the economic growth of society, to give him such an arbitrary power of liquidation or separation. Therefore such a condition seems to be justified, and it can be supported by the general principle laid down by the Holy Prophet in his famous hadith: