Selling shares and running a business

Question

Assalamu ‘alaykum wa rahmatullah,

Hazrat Mufti Sab, I hope you are well. please help me with this situation. 

  1. I own a nursing home. Can I sell shares to others which is in the business of a nursing home? I have an inventory of a few physical items and the rest would be the work I have put into establishing it, such as rent, construction I have spent, and so on. The building is not mine, however. 
  2. There is one potential buyer. The sum we are requesting is expected over a variable period, meaning we will benefit from 50% of the company profits till we are completely paid off. Is this permissible? If not, can you suggest the best type of contract for such a transaction or situation in which I want to recover my losses and or profit from it.

JazakAllah Khairan

Answer

 بسم الله الرحمن الرحيم

الجواب حامدا ومصليا ومسلما

  1. In principle, selling shares of a company is permissible with the condition that the price of each share is more than the proportionate amount of liquid (i.e. cash) wealth owned by the company. For example, if the company owns $100 cash and commodity valuing $50, and it is divided into ten equal shares; each share must be sold for more than $10, because $10 is the value of the cash proportionate to each share. 

The correct method of selling shares and establishing a partnership within the business is to sell shares to others, specify the percentage of the profit to be received by each shareholder, and divide the profit according to the stipulated ratio. The percentage of the profit to be received by each partner does not need to equal his respective percentage of the business. However, those partners who merely have a share in the company but do not take part in running the business, their share in the profit must be equal to or less than their share in the business.

For example, if four people are running a business in which one person owns a share equaling to 10% of the business, and the other three own shares equaling 20%, 30%, and 40%; they may distribute the profit proportionate to their shares (i.e. the first person will get 10% of the profit, the second will get 20%, etc.) They may also distribute the profit as they wish, irrespective of their shares in the business. However, if any partner does not have an active role in the business, he may only receive a share of the profit which is less than or equal to his share in the business. For example, if the first three people are running the business and the fourth person (whose share in the business is 40%) is not, the last person may only receive 40% of the profit or less.

2) A permissible method of making such a contract would be to only sell a portion of the company (instead of the entire company) in lieu of the down payment. Thereafter, the remaining portion of the company will be sold in installments in accordance to the amount paid. Thus, the buyer would be slowly buying out your portion of the company but you would continue to profit from your proportionate share in the company until it is fully bought out.

والله اعلم

Allah subhanahu wa ta’ala knows best.

Taha Abdulkareem

Approved by Mufti Husain Ahmad Madani