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Companies in Islamic (Shariah) Law


Islamic jurists have defined the word 'company' ("Shirkah" in Arabic) to mean "join together or intermix" and have interpreted it as a legal concept "as a contract between partners in capital and profits". A Shirkah is further elaborated to mean "participation of two or more persons in a certain business with defined amounts of capital according to a contract for jointly carrying out a business and for sharing profits and losses". This concept was recognised from the dawn of Islam and jurists emphasised its importance as a useful method of organising business relations. The corporate personality of a company was implied, particularly in references made to the settlement of the company accounts and the company's profits and losses.

Under the rules of Islamic Law (Sharia), companies are divided into two main classes:

1. Property Companies: this type of company involves the ownership of property and is in turn usually classified into:
    1.1 Voluntary: this company is established when two or more persons agree jointly to own property.

    1.2. Mandatory: this company is established by two or more persons who find themselves in a situation where ownership of property is forced upon them, for example, by inheritance or through endowment.

    2. Contractual Companies : are established on the contract, and are divided into two main categories:

    2.1 'Mufawadha': which when translated literally means 'negotiation' or 'delegation' , and is considered established when the partners have equal shares in the company as well as equal rights and benefits in profits and management.

    2.2 'Aanan': literally translated as 'reins', where the partners' shares are variable and not distributed equally between the members.

In addition to the general categorisation referred to above, contractual companies are classified into three types:
    1. Capital Companies: are defined as a company where each of the partners provides a specific share in the capital of the company to conduct a trade together or separately and share in the profits.

    2. Work Companies: established by two or more partners providing efforts as capital for the conduct or performance of a specific work or profession and share in the fees or consideration for such efforts.

    3. Personal Companies: are defined as a company where two or more partners join together to conduct trade based on the trust and goodwill enjoyed by them in the business community. Its establishment does not require the provision of a specific capital. The object of this company is to achieve a profit in the conduct of its business based on such goodwill.

Al Majala had adopted precisely the aforementioned classification of companies. The UAE Federal Courts had also, prior to the application of the Company Law, recognised this classification of companies.



For further information on UAE Company Law and Practice, it is recommended that the full text be referred to. Click on the link to obtain a copy. For specific legal advise, please contact Sabah M A mahmoud or other reputable Law Firm.



Islamic Law (Shariah)


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