Question
We are two partners in a business. I am the investor and my partner runs the business. He has not made any monetary investment. I am the sole investor. His share of the profits is 75% and my share is 25%. I invested R150'000 with a partner to buy 500kg of a product. I am the silent partner putting in the money, while he is putting in the marketing and sales, etc. I have a number of queries regarding this partnership. Please answer each question as they are all queries that have a bearing. The current position of the business is: Cash at bank currently after selling 400kg and paying expenses related to marketing etc. is about R240'000. Of the stock, approximately 100kg remain. 1. If I want to get out, do I get the R150'000 paid back and cease to be involved? 2. Am I entitled to 25% of the remaining cash as well as 25% of the remaining stock? 3. Can the other partner decide to pay me out, or must the decision to terminate and dissolve be mutually agreed upon? 4. If I want to remain, but since I paid in the initial cash, can I or do I have the right to insist and demand that all monies are controlled by myself or my appointed accountant? 5. Can the other partner refuse such request? Since I put in the finance I simply want to now be able to control inflows and outflows of all sales and expenses revenues? 6. Do I need a reason to request the financial administration be done by myself? 7. Can the partner use, disburse, loan any amount from the capital of R150'000, and or any part of the profits generated that has yet to be paid out as per our partnership, to venture into other business investments, or to loan to family, or to do anything else besides what was initially agreed as the basis of investment, i.e. buy the product and resell at a profit and anything directly related to its marketing or sales or other related expenses for purposes of buying and or selling product? 8. If I wanted to remain in the partnership, and not take my R150'000 out now, and remain a part of the venture and retain my 25% ownership and profit share by not withdrawing it, but by simply taking administrative and financial control, is that in order? 9. Can the partner simply decide on what to pay me out and disburse that amount and remove me after paying me and or giving me stock? 10. Can the partner decide to pay me the R150'000 and pay me 25% of all cash profits and pay me value of 25% of the stock if I prefer to have my share of actual stock instead of a cash equivalent? 11. Can the other partner make unilateral decisions on any aspect of the business, or do I have a right to expect to be consulted on any and all business or product related matters? 12. Can the other party decide the course from here on his own – i.e. the other partner has any right to decide to maintain or dissolve the arrangement or does it have to be mutually agreed?
Answer
The partnership you have entered into, in terms of the Shariah is called Mudhaarabah. 1) You are entitled to your initial capital investment of R150,000 plus 25% of the net profit. According to the figures provided by you, the present net profit is R90,000 cash plus the 100 kg stock. Thus, your entitlement is 25% of the R90,000, plus 25% of the stock, plus your initial investment of R150,000.
Once you withdraw your capital investment, the partnership ends. Each partner then takes his respective share of the profit.
2) The above answers your second question. You are entitled to 25% of the cash as well as of the stock.
3) If when the partnership agreement was made, a time for the duration of the partnership was not stipulated, then you may unilaterally terminate the partnership. However, in view of there still being stock remaining, the partnership will subsist until the stock has been cleared if the other partner insists on this.
Nevertheless, the partnership can be mutually terminated immediately. A mutual agreement could be made pertaining to the remaining stock. If the other partner insists on the continuation of the partnership until the remaining stock has been sold, then he does have this right. In that case, you may withdraw your capital investment, plus your 25% of the cash. He can then continue selling the 100 kg stock and give you your 25% thereof upon having sold it.
The other partner can decide to pay you out in order to dissolve the partnership. If he decides on this route, he has to pay you the R150,000, plus 25% of the R90,000 cash profit, plus 25% of the remaining product.
4) Yes, you have every right to stipulate that the money be invested for a specific kind of trade, and not for anything else. But you, the investor in the Mudhaarabah contract, will not have control of the money. The Mudhaarib (the other partner) has full control of the money, but he is restricted to trading in the venture for which the partnership was established. You do not have the right to control the money nor to appoint an accountant to control the money.
5) The other partner can refuse your request to control the money. In the Mudhaarabah type of partnership, the investor has no right of controlling the finances and the actual running of the business.
It is therefore essential that he selects an honest, experienced person to operate the business as the Mudhaarib.
6) In a Mudhaarabah partnership, the investor has no right of administration. Thus you may not request for / that financial administration be placed in your control.
7) The partner does not have the right to use anything of the capital investment or of the profit for any venture other than initially agreed as the basis of the investment. He may not loan any of the money to anyone nor diverge into any other project or venture if he was not given this right when the contract was made. He is confined to trade in the products for which the partnership was initiated.
8) Even if you decide to remain as a partner and not withdraw your initial investment, you will not have the right to take control of the business whether it be financial administration or any other aspect of the running of the business.
9) The partner has the right to dissolve the partnership at will. But he has to pay you your share of the profit plus your initial investment.
10) If the partner terminates the partnership, he has to give you 25% of the actual stock if you so desire. He does not have the right to unilaterally give you the cash value of the 25% stock. He has to give you your R150,000 investment plus 25% of the cash, plus 25% of the actual stock. Thereafter, by mutual agreement you can sell the stock to him if he wishes to buy.
11) The Mudhaarib (your partner) can make unilateral decisions pertaining to the operation of the business. He is not compelled to consult you. However, his operation is confined to the type of business for which the partnership was established. He cannot, for example, take from the business loans for himself or for family or friends or to do some other business for his personal gain.
12) If there was no time period fixed, e.g. one year, two years, etc., for the duration of the operation, then either partner may dissolve the partnership unilaterally. However, there will be consequences if there is unsold stock as explained above. 13) If the Rabbul Maal (the investor) perceives any problem developing, or he may now realize that the partner is dishonest or not conducting the business as was expected, or that he is mishandling the amaanat of cash or stock, then it is best to terminate the partnership. In this scenario, the longer the partnership is retained, the greater are the
- Source
- themajlis.co.za
- Published in
- The Majlis Vol 25 No 10
- PDF page
- 1
Appears under MUDHAARABAH PARTNERSHIP (approximate).