investment partnership (مضاربة): Business, Profit and Termination

1. Restricted and unrestricted investment partnership (المضاربة المطلقة)

• restricted investment partnership (المضاربة المقيدة) limits the managing partner (مضارب) to a specified business or condition.
• unrestricted investment partnership (المضاربة المطلقة) gives broader freedom to choose suitable business activity.

Key terms:
• al-Muḍārabah al-Muqayyadah (المضاربة المقيدة): restricted investment partnership (مضاربة).
• al-Muḍārabah al-Muṭlaqah (المضاربة المطلقة): unrestricted investment partnership (مضاربة).

2. More Than One managing partner (مضارب)

• One capital provider (رب المال) may appoint more than one managing partner (مضارب).
• They may manage the capital jointly.
• Their combined managing partner (مضارب) share can be divided between them according to an agreed ratio.
• In the business they work together in a partnership-like relationship.

Keeping the legal roles clear prevents the arrangement from being treated like a fixed-return loan. Capital, management, ownership and profit entitlement should each follow the role actually undertaken.

3. Normal and Extraordinary Acts

• The managing partner (مضارب) may perform acts normally done in that type of business.
• Routine buying, selling and related activity fall within his authority.
• An extraordinary act outside normal trade practice needs express permission from capital provider (رب المال).

Keeping the legal roles clear prevents the arrangement from being treated like a fixed-return loan. Capital, management, ownership and profit entitlement should each follow the role actually undertaken.

4. Profit Must Be a Share of Actual Profit

• Profit ratio must be agreed at the beginning.
• Shari‘ah does not impose one universal percentage.
• Parties may agree on equal or unequal shares.
• A fixed lump sum is not valid as a guaranteed profit share.
• A percentage tied to capital is also not valid as profit.
• Valid: 40% of actual profit to managing partner (مضارب) and 60% to capital provider (رب المال).

5. Different Ratios for Different Situations

Parties may agree on different profit ratios for different permitted situations.
• Wheat trade may give one ratio.
• Flour trade may give another.
• Business in the home town may have one ratio.
• Business in another town may have another.
The conditions must be known and agreed in advance.

Rent is justified by use of an owned share, so it should track the ownership that actually remains with the lessor. If ownership falls, the rentable share also falls.

6. Salary and Personal Expenses

• managing partner (مضارب) cannot claim a separate salary or fee for the same investment partnership (مضاربة) work in addition to his profit share.
• Imam Ahmad allows daily food expenses from the investment partnership (مضاربة) account.
• Hanafi jurists allow necessary personal expenses when the managing partner (مضارب) is on a business trip outside his own city.
• Under that Hanafi rule, no daily allowance is taken while he is in his own city.

7. Losses Are Offset Before Distribution

• Some transactions may earn profit and others may suffer loss.
• Profit is first used to offset those losses.
• Only the remaining net profit is distributed according to the agreed ratio.

The practical test is to separate normal business loss from loss caused by negligence or misconduct. Genuine investment loss follows the relevant capital rule, while a party remains responsible for loss caused by its own fault.

8. Termination and Time Limits

• Either party may normally terminate investment partnership (مضاربة) by giving notice.
• If assets are cash, capital and profit can be settled directly.
• If assets are non-cash, managing partner (مضارب) should be allowed to liquidate them so actual profit can be known.
• Hanafi and Hanbali schools allow a specified maximum term.
• Shafi‘i and Maliki schools do not accept restricting it in the same way.

9. Minimum Commitment in Modern Business

Modern projects often need time to produce results.
• Early termination may seriously damage the project.
• It may also leave the managing partner (مضارب) with no return after substantial effort.
• Parties may agree that neither side will terminate during a specified period except in stated circumstances.
• Such a valid condition can protect business continuity.

The purpose is to protect a genuine project, not to guarantee a fixed return.

10. Level Summary

• investment partnership (مضاربة) may be restricted or unrestricted.
• More than one managing partner (مضارب) may manage the same capital.
• Ordinary acts are allowed; extraordinary acts need express permission.
• Profit must be an agreed share of actual profit.
• managing partner (مضارب) cannot take a separate salary for the same work.
• Profit first offsets losses.
• Termination rules depend on asset form and juristic views on time limits.

investment partnership (مضاربة) gives the managing partner (مضارب) operational authority within agreed limits and clear profit rules.