AAOIFI Shari’ah Standard No. (12) Sharikah (Musharakah) and Modern Corporations (Revised Standard)

Statement of the Standard

1. 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

2/1 Definition of Sharikat al-’Aqd
• Sharikat al-’Aqd (contractual partnership) means an agreement between two or more parties to combine their assets, labour or liabilities for the purpose of making profits.

2/2 Classifications of Sharikat al-’Aqd
• Sharikat al-’Aqd is classified into two main categories:

First Category: Traditional Fiqh-Nominate Partnerships.
Second Category: Modern Corporations.

2/2/1 The traditional Fiqh-nominate partnerships are as follows:
a) Sharikat al-’Inan (contractual partnership)
b) Sharikat al-Wujuh or Al-Dhimam , i.e. partnership of creditworthiness or reputation (liability partnership)
c) Sharikat al-A’mal (vocational partnerships and partnerships for undertaking difficult work or accepting jobs)

2/2/2 Modern corporations and their well-known forms are as follows:
a) Stock company
b) Joint-liability company
c) Partnership in commendum
d) Company limited by shares
e) Allotment (Muhassah) partnership
f) Diminishing partnership (this partnership has originated from Sharikat al-’Inan)

This document belongs to Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). Full access to the original source is available here: https://aaoifi.com/shariaa-standards/?lang=en