Fatwa No : 82561
The ruling on partners agreeing upon unequal distribution of profit in a business partnership

The ruling on partners agreeing upon unequal distribution of profit in a business partnership

What do the respected Islamic scholars and esteemed Muftis say regarding the following matter that two parties started a business together around seven years ago. One party was based in Karachi, while the other was from a village. The village-based party invested money with the Karachi-based party, and an agreement was made that 20% of the total profit would go to the Karachi-based partner as compensation for his effort, and the remaining 80% would be divided equally between both parties, meaning 40% each. Thus, the Karachi-based partner would receive 60% of the total profit, and the second party (from the village) would receive 40%. The Karachi-based partner was to manage the entire business. By the grace of Allah, the business flourished. However, there were serious shortcomings in bookkeeping and financial accountability. The second partner was not given his due share of the profits. Although some amount was sent to him from time to time, it was very little compared to his rightful share. After some time, the business started facing losses, and the Karachi-based partner fell into significant debt. Now, the first partner has realized his mistake, sincerely wishes to repent, and intends to work honestly moving forward, while also wanting to make amends for the injustice done to the second partner. Now, a question arises: since the entire business is in the hands of the Karachi-based partner, all debts and transactions are also under his management. The issue is: although the Karachi partner is receiving 20% as compensation for his effort, he also insists that his personal household expenses in Karachi should be paid from the joint business funds, and that he will still claim his full 20% + 40% profit share.
Is this permissible? Please provide guidance.
Second point:
Since the beginning of the business, the village-based partner has visited Karachi only twice, for personal reasons, and during those visits, he also checked in on the business. The Karachi-based partner has been running the business throughout. At times, two brothers, sometimes three, and at times one brother of the Karachi-based partner have been involved in the work. When the agreement was made regarding the 20% share for effort, all three brothers were jointly involved. Furthermore, due to the ongoing injustice, the second (village-based) partner has now become disillusioned and is demanding a complete audit and that he be disengaged from the partnership.
Note: Initially, the village-based partner invested Rs. 450,000, and later added another Rs. 1,400,000 (i.e., total Rs. 1,850,000).

الجوابُ حامِدا ًو مُصلیِّا ً

It is permissible for both parties to receive profits according to the agreed-upon percentage, and it is also permissible for the first party to receive a higher percentage due to his efforts. However, it is not permissible for him to cover personal household expenses from the business funds. Therefore, it is obligatory to conduct a complete audit of all transactions carried out so far and give the second party his rightful share according to the agreed percentage. If both parties wish to enter into a new agreement and continue the business together, that is also permissible. However, trusting again after experiencing loss, and repeating what has already been tested, is like inviting further loss — thus, it is better to avoid doing so.

مأخَذُ الفَتوی

كمافي مشكاة المصابيح: عن أبي هريرة قال: قال رسول الله صلى الله عليه وسلم: «لا يلدغ المؤمن من جحر مرتين» . متفق عليه (3/ 1404)۔
وفي الدر المختار: وإن شرطا الربح للعامل أكثر من رأس ماله جاز أيضا على الشرط اھ (4/ 312)۔
وفي الفتاوى الھندية: وأن يكون الربح معلوم القدر فإن كان مجهولا تفسد الشركة اھ (2/ 302)۔