Series of Answers by the Eminent Scholar Ata Bin Khalil Abu Al-Rashtah, Ameer of Hizb ut-Tahrir, to the Questions of the Followers of his Facebook Page "Fiqhi"
To Khalid Sidqi Awwartani
Assalamu Alaikum Wa Rahmatullah Wa Barakatuh,
Our honorable brother, the Ameer of Hizb ut-Tahrir, may Allah protect you, care for you, and grant you success in all that is good.
First Question: Is there a conflict or contradiction between the following two statements, or does the second statement contain an omission and an estimation based on the meaning of the first?
The first statement is in the book The Economic System, under the section "Dissolution of a Partnership": "It becomes void upon the death of one of the two partners, his insanity, his being placed under legal guardianship due to folly (safah), or by dissolution by one of them, if the partnership consists of two people. This is because it is a permissible (jaa’iz) contract, so it becomes void by these things just like agency (wakalah). If one of the two partners dies and has a mature heir, the heir has the right to continue in the partnership, and the [other] partner permits him to dispose [of the capital/assets], and he has the right to demand a division. If one of the two partners requests dissolution, the other partner must grant his request. If they are [multiple] partners and one of them requests the dissolution of the partnership while the rest agree to its continuation, the partnership that existed is dissolved and renewed among the remaining ones."
The second is in The Economic System under the nullification of a General Partnership (Sharikat at-Tadamun) and the explanation of its violation of the conditions of partnership in Islam: "And because he has the right to leave the partnership at any time he wishes without the need for the partners' approval; the partnership does not dissolve by the death of one of the partners or his being placed under legal guardianship, rather his partnership alone is annulled, and the partnership of the remaining partners continues, if the partnership is composed of more than two."
Second Question:
It was stated in the nullification of the General Partnership: "If the partners agree to expand the partnership, either by increasing their capital or by adding partners, they have absolute disposal to do as they wish." Does the agreement to expand the partnership by increasing capital or adding other partners necessitate the dissolution of the existing partnership and the renewal of the partnership contract with a new contract or not?
Third Question:
It was stated in the aforementioned statement: "If one of the two partners dies and has a mature heir, the heir has the right to continue in the partnership (an yuqima 'ala ash-sharikah), and the partner permits him to dispose, and he has the right to demand a division." What is the meaning of "continuing in the partnership" and what are his powers, specifically what does it mean if he is the heir of the Mudharib (working partner) or the heir of the Rabb al-Mal (investor) in a Mudharaba partnership? Is it permissible for the partnership to continue with the resident heir who is authorized by the rest of the heirs, or must it be dissolved and a new contract created if the partners want the partnership to continue?
May Allah bless you and reward you with all goodness.
Answer:
Wa Alaikum Assalamu Wa Rahmatullah Wa Barakatuh,
Your three questions relate to two places in the book The Economic System:
The first place is in the chapter "Dissolution of a Partnership":
"(A partnership is one of the permissible (jaa’iz) contracts in Sharia. It becomes void upon the death of one of the two partners, his insanity, his being placed under legal guardianship due to folly, or by dissolution by one of them, if the partnership consists of two people. This is because it is a permissible contract, so it becomes void by these things just like agency. If one of the two partners dies and has a mature heir, the heir has the right to continue in the partnership, and the partner permits him to dispose, and he has the right to demand a division. If one of the two partners requests dissolution, the other partner must grant his request. If they are partners and one of them requests the dissolution of the partnership while the rest agree to its continuation, the partnership that existed is dissolved and renewed among the remaining ones. However, a distinction is made in dissolution between a Mudharaba partnership and others. In a Mudharaba partnership, if the worker requests to sell [the assets] and the owner of the capital requests division, the worker's request is granted, because his right is in the profit, and profit only appears through sale. As for the other types of partnership, if one requests division and the other requests sale, the request for division is granted, not the request for sale.)" End.
The second place is in the chapter "General Partnership (Sharikat at-Tadamun)":
"(It is a contract between two or more persons, in which they agree to trade together under a specific title, and all its members are liable for the company's debts with all their assets in solidarity without limit. Therefore, no partner can waive his rights in the company to another except with the permission of the rest of the partners, and the company dissolves upon the death of one of the partners, his legal incapacity, or his bankruptcy, unless there is an agreement to the contrary. The members of this company are jointly liable for its obligations towards others in fulfilling all company commitments, and their liability in this is unlimited. Each partner is required to pay all company debts, not only from the company's funds but also from his own assets. He must settle with his own funds what remains of the company's debts after its funds are exhausted. This company does not allow for the expansion of the project. it is formed from a few persons, each of whom trusts the other and knows him well, and the most important consideration in it is the personality of the partner, not only as a body but in terms of his position and influence in society.
This company is invalid (fasid) because the conditions it stipulates contradict the conditions of partnerships in Islam. The Sharia ruling is that a partner is only required to be legally capable of disposal (jaa’iz at-tasarruf), and that the partnership has the right to expand its business. If the partners agree to expand the partnership, either by increasing their capital or by adding partners, they have absolute disposal to do as they wish. Also, a partner is not personally responsible in the company except in proportion to his share in it, and he has the right to leave the company at any time he wants without the need for the partners' approval. The company does not dissolve upon the death of one of the partners or his legal incapacity; rather, his partnership alone is annulled, and the partnership of the remaining partners continues if the company is composed of more than two. These are the Sharia conditions; therefore, stipulating a General Partnership contrary to these conditions—rather, the opposite of them—makes it an invalid company, and it is not permissible to participate in it according to Sharia.)" End.
The answers to your three questions are as follows:
1- Regarding the first question:
You did not specify the point of contradiction between the two statements you quoted from the book The Economic System! However, it seems you mean that there is a contradiction between what is said in the chapter on Dissolving a Partnership: ("...It becomes void upon the death of one of the two partners... if the partnership consists of two people..."), and what is said in the chapter on General Partnership: ("...the partnership does not dissolve by the death of one of the partners... rather his partnership alone is annulled, and the partnership of the remaining partners continues, if the partnership is composed of more than two."). In the first statement, it says the partnership becomes void upon the death of one of the two partners, and in the second, it says it does not dissolve. How is that?
By scrutinizing the two mentioned statements, it becomes clear that there is no contradiction or conflict between them, but rather harmony and agreement. This is because the first statement: ("...It becomes void upon the death of one of the two partners... if the partnership consists of two people...") speaks about a partnership if it is between only two people. If one of them dies, the partnership ends with his death because a partnership contract cannot be imagined between fewer than two partners. Thus, if the contract is between two partners and one of them dies, the partnership ceases to exist upon the death of one of the partners; this matter is clear.
As for the second statement: ("...the partnership does not dissolve by the death of one of the partners... rather his partnership alone is annulled, and the partnership of the remaining partners continues, if the partnership is composed of more than two."), it speaks about a partnership composed of more than two partners, such as five or six partners. In this case, the death of one partner does not affect the existence of the partnership; it remains standing because there are still four or five partners. That is, the reality of the partnership remains legally standing within it, and only the person who died has his partnership with the company dissolved due to his death because his partnership contract does not remain standing after his death. The intent of the second statement is that the partnership of the individual partner alone becomes void, not the entire company, due to the plurality of partners. The intent of the first statement is the entire partnership because it exists between only two partners. Thus, there is no contradiction or conflict between the two statements.
This is if you see the contradiction in what we mentioned above. However, if you see a contradiction between the following two statements:
("...If they are partners and one of them requests the dissolution of the partnership while the rest agree to its continuation, the partnership that existed is dissolved and renewed among the remaining ones.")
("...the partnership does not dissolve by the death of one of the partners or his being placed under legal guardianship, rather his partnership alone is annulled, and the partnership of the remaining partners continues, if the partnership is composed of more than two.")
There is also no contradiction here between these two statements:
The first statement speaks about the dissolution of the partnership by one of the partners. This dissolution has an effect on the entire contract because partners authorize one another in the partnership contract. If one of them dissolves the partnership contract, something has occurred to the entire contract that affects it from the perspective of agency (wakalah), as the one requesting dissolution has withdrawn his authorization of the other partners and requested that they withdraw their authorization of him. This means the agency existing in the partnership has been compromised, so the partners who intend to keep the partnership need to renew the partnership contract.
As for the second statement, it speaks about the death of one of the partners or his legal incapacity. This differs from dissolution (faskh) because no dissolution occurred from the deceased or the incapacitated person. Rather, what happened was the end of their agency due to death for the deceased and the prevention of disposal for the incapacitated. This has no effect on the agency existing between the rest of the partners because nothing occurred to compromise it. Therefore, the partnership remains standing among the rest of the partners and does not need a contract renewal if the reason for one partner's exit is death or legal incapacity.
2- As for the second question, the expansion of the company occurs in one of two ways:
A- By increasing the capital of the partners or the capital of some partners in the company. This does not require dissolving the existing partnership contract because there is nothing to compromise the existing contract. Thus, the contract remains standing among the members of the company. If they agree to increase the partners' shares in the capital, their profit percentages are adjusted according to the changes in the capital, and this clause is attached to the company's documents concluded before the adjustment of the partners' shares. That is, the consent of the existing company is necessary to increase the capital and the resulting redistribution of profits.
B- By adding new partners. This also does not require dissolving the existing partnership contract because there is nothing to compromise the existing contract. The contract remains standing among the members of the company. If they agree to the new partners, a contract is made between the existing company and the new partners according to the conditions, shares, and profits they agree upon. The shares of the older partners in the capital are adjusted, as well as their profits according to the changes in the capital, and this clause is attached to the company's documents concluded before the inclusion of the new partners. That is, the consent of the existing company is necessary to include new partners and the resulting adjustment of profits, etc.
The conclusion is that the existing company is not dissolved due to increasing the company's capital or adding new partners as long as that is done with the consent of the existing company.
3- As for the third question, the answer is as follows:
The deceased's partnership contract ends with his death because the partnership contract is based on agency (tawkil). With death, the deceased's ability to give or receive agency ends. If the deceased was the owner of the capital, his giving of agency to the partner ends with his death. If the deceased was the worker, his receiving of agency from the partner ends with his death. Thus, the deceased's partnership is dissolved and becomes void upon his death, whether he was the owner of the capital or the worker in the company. Therefore, it is not necessary to dissolve the deceased's partnership after death because it is naturally dissolved.
Upon the partner's death, his right in the company belongs to his heirs, and they have a choice between two things:
A- Requesting division, i.e., returning the capital to the owner of the capital and the profit earned by him, and giving the worker his earned profit according to the details explained in the books of Fiqh.
B- Continuing in the partnership with the consent of the other partner. The meaning of "continuing in the partnership" is that the partnership is affirmed by the non-deceased partner with the heir of the deceased partner by concluding a partnership contract according to the previous conditions in the partnership with the deceased, provided that the heir takes the place of the deceased partner in the company. If the deceased was the owner of the capital, the heir becomes the owner of the capital (or whoever the heirs authorize if they are multiple). If the deceased was the worker, the heir becomes the worker. As for the non-deceased partner, he remains in his previous description before the death of the partner; if he was the owner of the capital, he remains the owner of the capital, and if he was the worker, he remains the worker. Note that if the worker's profit is calculated after the death of the deceased partner and then placed into the company's capital, the worker then has a share in the capital, meaning he becomes both an owner of capital and an owner of effort.
Naturally, in continuing the partnership, the following is taken into account:
If the company's assets at the time of the partner's death are "liquid" (naadh) as in the terminology of the jurists, i.e., Dinars, Dirhams, or cash, then the new contract with the heir is easy.
If the company's assets or some of them are "commodities" ('urood), i.e., goods and not cash, then there are many jurisprudential details about how to make the commodities liquid, about the valuation of commodities, and about continuing the partnership in this case. These details are found in the books of Fiqh for whoever wishes to refer to them.
Also taken into account is the change that may occur to the partners' shares in the capital if the capital owner's profit from the previous company is added to the new company's capital, or if the worker's profit from the previous company is added to the new company's capital.
I hope this answer is sufficient.
Your brother, Ata Bin Khalil Abu Al-Rashtah
28 Ramadan 1440 AH Corresponding to 02/06/2019 CE
Link to the answer from the Ameer's page (may Allah protect him) on Facebook