Question Summary:
Question on fixing a higher percentage ratio in a partnership

Question Detail:

We are purchasing a property and a few of our business associates want a share in it. They are talking about 40% of the property broken up into 8 shares of 5% each, and we are talking about 60%. The projected return on the property is about 13%- 16% based on the current rental income. One of the 5% shareholders wanted to know if he can get a fixed return of 14% instead of the normal equal distribution. We don’t mind doing this for him. I need to know if this is allowed or is it considered interest?

Answer :

In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
In principle, it is permissible for an active partner (Shareek al-Aamil) to receive any mutually agreed percentage ratio.
However, it is necessary that the sleeping partner “Shareek al-Na’im”[1] does not receive a fixed percentage ratio more than his/her capital investment ratio.[2]
For example, Partner A (Sleeping Partner) invests 40% towards the Business Venture. Person A will only be entitled to 40% or less of the total profits. Person A will not be entitled to any percentage higher than 40%.
It is imperative that all the partners of the JV agree on percentage ratios, terms of reference, managerial duties, fiduciary matters, etc.
And Allah Ta’āla Knows Best                                       
Ismail Desai,
Student Darul Iftaa
Durban, South Africa
Checked and Concurred by,
Moulana Abdul Azeem Bin Abdul Rahmaan
Student Darul Iftaa