Question Summary:
Joint venture with your partner for the development of software

Question Detail:

I am planning to start a business in software development and would be partnering with a well-wisher and friend on a 50:50 ratio. I would be contributing towards this venture with my experience and talent in software development and my partner would be funding it. I wouldn’t be taking home a salary during this period till we break even or come to another conclusion. Here are my queries: 1. Is it correct Shariah wise for me to negotiate for a 50:50 based partnership in this case with contributions mentioned above? 2. Is it ok if I do not take a salary in such a case though I have agreed for it?
I would be taking an interest free loan from my well wishers for my family expenses. 3. Incase there is a loss incurred wherein we lose the entire/partial amount invested what should be the ratio of loss bearing on each one of us? Here my business partner would lose his investment and I would lose out on time + effort invested during this period wherein I could have been employed for a handsomely paying job (if it was in my fate). Thanks for your efforts and I request the respected ulema and all readers to pray for pure halal benefits, success and affiyat in this venture.

Answer :

We understand that you intend to launch a joint venture with your partner for the development of software. You will contribute your effort and time while your partner will contribute the capital.
 
According to Shariah, this type of partnership is termed as Mudarabah. Therefore all the rules and laws of Mudarabah will govern this partnership.
 
Mudarabah is a partnership wherein one partner contributes investment capital to the partnership while the other partner contributes management skills to the partnership. The investor is referred to as the Rabb al-Mal while the entrepreneur is referred to as the Mudarib.
 
In a Mudarabah partnership, a fixed profit ratio/percentage may be fixed. For example, partner A receives 60% of the profits while partner B receives 40% of the profits. However, a fixed amount cannot be fixed nor can a percentage on the capital investment be fixed.
 
All losses will be attributed to the investor. The Mudarib will merely lose his efforts in managing the Mudarabah portfolio.
 
The Mudarib cannot be entitled to a separate salary/wage for managing the Mudarabah portfolio. His percentage ratio may be increased to compensate him.
 
You may download a copy of our Mudarabah Contract at:
http://daruliftaa.net/index.php/publications
 
And Allah Ta’āla Knows Best
 
Ismail Desai,
Darul Iftaa
 
Checked and Approved,
Mufti Ebrahim Desai.