Forms of Business Organization (PowerPoint)

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					   CHAPTER# 6

            KOKAB MANZOOR

Introduction and Importance

   Business require large financial
    resources to carry out production
    and related business operations.
    Such large scale monetary
    resources are sometimes beyond
    their own capacity. To obtain them
    it is inevitable to seek the
    cooperation of other individuals or

   Islamic economics provides several
    modes to secure such financial
    resources of which the following are
    particularly noteworthy;

1    Sharakat( Musharakah)
2    Modarbah          3   Bai-Salam
4    Bai-Murabaha      5   Bai-Muajjal
6    Ijarah
1 Musharakah
       Shirkah (partnership):
     It literally means sharing. The
    sharing may be of money, labor, or
    anything else.

     Shirkah (partnership): is defined
    as a contract between partners on
    both capital and profit.
1      Musharakah
   Musharakah (partnership) is
    actually participation of two or
    more persons in a certain
    business with defined amount of
    capital invested according to a
    contract for jointly carrying out a
    business and for sharing profit
    and loss in specified proportions
   Kinds of Partnerships
1 Shirkat ul-milk
  (partnership of ownership):
   It means joint ownership of two or
   more persons in a particular property.

 This kind of Shirkah may come into
   existence in two different ways.

 By the partners choice:
 Without the partners choice:
  Kinds of Partnerships
2 Shirakal al-aqd
   (partnership of a contract):
  which means a partnership
  effect by a mutual contract.

  This kind of Shirkah exists in
  three types:
         Shirakal al-aqd

 Shirkal ul-amwal
    (partnership in trade):

 Shirkat ul-A`mal
    (partnership in services):

 Shirkal ul-wujooh
    (partnership in goodwill):
Basic Rules of Musharakah
 A)     Distribution of profit
1. The proportion of profit to be
   distributed between the partners must
   be agreed upon at the time of the
   effecting of the contract.

2. The ratio of profit for each partner
   must be determined in proportion to
   the actual profit accrued to the
   business, and not in proportion to the
   capital invested by him.
 B ) Sharing of Loss

In the case of loss each partner
shall suffer the loss exactly
according to the ratio of his
investment. If a partner has
invested 40% of the capital, he
must suffer 40% of the loss, not
more, not less.
C ) The Nature of the Capital

               Most of the Muslim
               jurists are of the
               opinion that the
               capital of a joint
               venture must be in
               monetary form, but
               in some cases part of
               it can be contributed
               in commodities.
       2 Mudarabah
   The word Modarbah comes from the
    Arabic root (Dharabahfi al ard),
    which means going and working to
    obtain livelihood.

   The first partner is called “Mudarib,”
    (the manager) and the second
    partner is called “Rabb ul-mal.” (the
    one who invest money)
   Under mudharabah, one party
    provides capital and the other
    utilizes it for business purposes
    under the agreement that profit
    from the business will be shared
    according to a specified
Types of Mudarabah

a)   Al-Mudarabah al-muqayyadah
     (restricted Modarbah):

b)   Al Mudarabah al mutlaqah
     (unrestricted Modarbah):
Distribution of the Profit
It is necessary for the validity of
Mudarabah that the parties agree
right at the beginning on a definite
proportion of the actual profit to
which each one of them is entitled.
They can share the profit in equal
proportions, and they can also
allocate different proportions for the
Rabb-ul-mal and the Mudarib.
Termination of Mudarabah

   The Mudarabah contract can be
    terminated at any time by either of
    the two parties. The only condition is
    for notice to be given to the other
   If all the assets of the Mudarabah
    are in cash form at the time of
    termination, and some profit has
    been earned on the principal
    amount, it shall be distributed
    between the parties according to the
    agreed ratio.

   If the assets of the Mudarabah
    are not in cash form, the
    Mudarib shall be given an
    opportunity to sell and liquidate
    them, so that the actual profit
    may be determined.
3      BAI-SALAM
   Seller agrees to supply specific
    goods to the buyer at a future
    date in exchange of an
    advanced price fully paid at

   Price is in cash but the supply of
    goods is deferred.
    Purpose of Salam

   To meet the needs of small farmers
    who need money to grow their crops
    and to feed their family up to the
    time of harvest.
   To meet the need of working capital.
   To meet the needs of liquidity
   To meet the need of traders for
    import and export business.

   Salam is beneficial to the seller,
    because he receives the price in
    advance, and it is beneficial to
    the buyer also, because
    normally the price in salam used
    to be lower then the price in spot
4 Bai Murabaha
   Murabaha is a particular kind of
    sale where the seller discloses
    its cost and profit charged

   The price in this sale can be
    both on spot and deferred.

   Involve purchase of commodities
    from third parties (through a bank
    as an agent of the fund) and
    reselling the same to the bank on
    deferred basis

   Profit between the bank and the
    fund is comparable to returns
    from money market instruments
        Difference b/w Salam &

Salam                   Murabaha
   purchased goods        purchased
    are defferred,          goods are
    price is paid on        delivered at
    spot.                   spot, price may
   In Salam price          be either on spot
    has to be paid in       or differed.
    full in advance        price may be on
                            spot or differed
         Difference b/w Salam &
    Salam                  Murabaha
   It can not be executed        It is executed in
    in the particular
    commodity but
    commodity is specified
    by specifications.            It can be
   It cannot be effected in       executed in those
    respect of things, which       things.
    must be delivered at
    spot. e.g Salam b/w
    wheat barley
        5 Ijarah (hire)
Definition of Aqd al-Ijarah:

   It is a contract on using the
    benefits or services in return
    for compensation.
              Ijarah (hire)
The term Ijarah is used for two different

1.   It means to employ the services of a
     person on wages given to him as a
     consideration for his hired services.

    The employer is called Mustajir, the
     employee is called Ajir
2.   Relates to the usufructs (right
     to use of a property) of assets
     and properties

    Ijarah in this sense means to
     transfer the usufruct of a
     particular property to another
     person in exchange for a rent
     claimed from him.
Conditions of Ijarah (Islamic
    The commencement of lease
    Rent should be charged after the
     delivery of the leased asset to the
    Expenses consequent to ownership
     to the lessor
    Lessee as Ameen
    Penalty for late payment of Rent
    Termination of Lease
     6     Bai Mu’ajjal
(Sale on Deferred Payment Basis)

   A sale in which the parties
    agree that the payment of
    price shall be deferred.
Shariah orders for Bai Muajjal
1   Item on sale must be owned in
    physical by seller.
2   Seller has right to ask for mortgage
3   Seller has right to take profit of that
    sold item if he bears the risk.
4   Possession of sold item must be
    transferred to purchaser at once.
5   The deferred price may be more
    than cash but it will be fixed at the
    time of sale.

6   If the commodity is sold on
    installments, the seller may put a
    condition on the buyer that if he fails
    to pay any installment on its due
    date, the remaining installments will
    become due immediately.

7   In order to secure the payment of
    price the seller may ask the buyer to
    for a any kind of security. E.g
    mortgage or a lien etc.

8   The buyer can also be asked to
    sign a promissory note or a bill of
    exchange but the note or the bill
    cannot be sold to a third party at a
    price different from its face value.
    Thanks n bby


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