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Fatwa CenterThe invalidity of stipulating that one partner bears the losses and not the other
Question
In the name of Allaah, the Most Merciful, the Ever Merciful
I have an amount of money and my cousin made me an offer: that I share with him a food business on a fifty-fifty basis. I do not understand business, therefore, we agreed that he will work alone while we will both share the profit, and I will bear any loss. Is that permissible? Please advise and may Allaah have mercy upon you.
Assalaamu ‘Alaykum
Answer
All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad, sallallaahu 'alyhi wa sallam, is His slave and Messenger.
It is invalid to stipulate that one of the two partners would bear the loss, because scholars have stated, regarding the deal mentioned in the question, that profit and loss are to be sustained by both partners according to each one's share of the capital.
It is permissible for you to want your partner to manage business affairs because you are unaware of business matters. In this case, your partner would either offer his efforts for free, or charge you agreed-upon fees.
Some scholars allowed the possibility that your partner imposes a rate of profit upon you, in addition to the rate that he will gain as a profit for his share of the capital. Such a deal would be closer to the concept of Mudhaarabah than to partnership.
Mudhaarabah stands for paying someone an amount of money to invest in business and giving him a rate of the profit, provided that he will not guarantee the capital unless he transgresses or neglects it.
We think that the agreement between both of you is relevant to Mudhaarabah; however, the agreement should be clear so that it would outline your responsibility concerning the loss pertaining to your share of the capital in case your partner neither transgresses nor neglects it. It should also be made clear that he will receive a specific rate of the profit in return for his efforts. Meanwhile, you would have nothing to do with his money, whether he makes a profit or loss.
Allaah Knows best.
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