SS 12 – Sharikah (Musharakah) and Modern Corporations

The objective of this standard is to explain the basis and general rulings for Sharikat al-’Aqd, (contractual partnership) which is known today as Musharakah, including the rulings for joint partnership, reputation (cred- itworthiness) partnership, vocation partnership, diminishing partnership and modern corporations. The explanation of these partnerships includes definitions, rulings applicable to each partnership and the Shari’ah lim- itations that must be taken into account by Islamic financial Institutions (Institution/Institutions).

The word (Institution/Institutions) is used here to refer, in short, to Islamic financial institutions including Islamic Banks.

Scope of the Standard

This standard covers all forms of traditional Fiqh-nominate partnerships that operate on the basis of Sharikat al-’Aqd (contractual partnership), except the partnerships that are explicitly excluded by this standard as indicated below. The standard also applies to all modern forms of partnerships including diminishing Musharakah. The standard does not cover ownership partnership where the parties jointly own an asset. It does not include rules for Sharikat al-Mufawadah because the practical application of this form of partnership is rare and, if need be, reference should be made to Fiqh books. The standard does not cover Mudarabah, because this form of partnership has a separate standard. In the same vein, it does not cover sharecropping partnerships, such as irrigation and agricultural partnerships. The standard also does not cover, as far as modern partnerships are concerned, regulatory policies and procedures necessary for operations in the market. 2. Definition, Classifications and Types of Sharikat al-’Aqd