One is going to be the investor (passive) with zero involvement in day to day operations. Second partner (active) has skills and will work from start like setting up the business and running/dealing with all sorts of business activities on a daily basis onward.
1. Should this be a 50, 50 partnership? ,
2. If so then how about in case of loss. Who will bear the loss.
The partner with zero investment can’t bear to pay for any losses as he does not have financial affordability for this.
3. In case business going in loss in a month how the partnership will work?
4. Let’s suppose partners decide to sell the business in later years and it is sold for lesser than the initial investment then who will bear that loss?
Bismillahi Ta’ala
Walaikum Assalam Warahmatullah
In the scenario you have mentioned, where the investment is coming from one person while the other person will be using that investment to carry out the business, a contract of “Mudarabah” will be enacted.
1. In a Mudarabah, the investor (Rabbul Maal) invests his Capital (Maal) on the investing party (Mudarib), either with instructions on which market to work in, or with an open mandate, upon a mutually agreed upon profit sharing. It can be 50-50 as well as any other ratio as per their mutual understanding.
2. The loss in such a Mudarabah agreement is borne by the investor (Rabbul Maal) in totality. The working party’s (Mudarib) loss will be limited to the loss of his time and efforts only.
3/4. Mudarabah agreements does not work in perpetuity like a Musharakah (Partnership). Instead it works in increments. So, the two parties keep a record of Capital invested in first increment. Mudarib (working party) will use this capital and make a profit, which will be distributes between him and the Rabbul Maal (Investor). This will conclude the Mudarabah agreement. At the conclusion of the Mudarabah all assets/commodities in it are liquidates to calculate the profit shares.
[There are other advanced modes of Mudaraba models as well]
a. One could set up concurrent multiple instances of Mudarabah may be set up.
b. Moreover, one could also conduct a long term continual mudarabah increments in succession, where by profits (or portion thereof) is reinvested as the Capital for the next increment of Mudarabah. A thorough book keeping of all the accounts can help maintain clarity of each party’s finances.
etc,
There are further laws and rules related to Mudarabah as well. You could read through the chapter of Mudarabah in Mufti Taqi Uthmani’s “Introduction to Islamic Finance”.
Wallahu A’lam
And Allah Ta’āla Knows Best
Mufti Faisal al-Mahmudi