CASE STUDY: Taking Salaries by Business Partners and the Islamic Position

According to Islamic rules of 3qood (contracts), taking a salary by one or more of the partners is prohibited.

Below are listed the various reasons.

We are all familiar with the way western companies are set up. For example, let's say that there is a company called ABC Limited, and you also have the director(s) who own the company. The company and the director are two separate entities. Hence, each entity's liabilities can be arbitrarily set. For example, in the western world, if you paid for a service or product provided by ABC Limited, but the director decides to close down his business on the grounds of false bankruptcy, then the liability will fall on the company to pay, not on the director.

However, in Islam, there is no separation between the company (sharika) and the director/s or shareholders. They all form one entity. So, if the company fails to provide the goods or service you paid for, then either your money must be returned, or the service/product will have to be delivered, even if the director has to borrow the money!

This makes Muslims take their business more seriously, especially with respect to contractual obligations.

“O you who have believed, fulfill [all] contracts…” (Qur’an 5:1)

"There are three signs of a hypocrite: whenever he speaks, he lies; whenever he makes a promise, he breaks it; and whenever he is trusted, he betrays his trust." [Hadith Sahih]

If we can understand the above difference between western company structure and Islamic company structure, then the rest will be easy insha’Allah.

So, in western company structures, you have the company, which is a legal entity and is separate from the director/s (individual owners). Hence, we’re familiar with the concept of the company paying the directors' wages, since he/she is an employee of the company.

While we are discussing wages and employment, let us look at the shariah definition of what defines an employee.

Shariah defines an employee as every person who works for a wage, whether the employer is an individual, a company (sharika), or the government.

When a worker is employed, four things must be made clear before hiring:

1. The type of work, e.g. selling, cold-calling, marketing
2. The period of work, e.g. monthly contract, annual
3. The effort (e.g., the number of hours a day)
4. The wages (e.g., a fixed payment amount that can be made with whatever has monetary value)

Now, to proceed with explaining what is wrong with taking wages if you're in a business partnership, I will need to use a basic business scenario, which is detailed below.

CASE STUDY: Let’s say two people entered a mudharaba partnership. This means that one partner brings his asset (e.g., a car worth £20k), and the other just his effort, for a 50/50 profit share.

Note: In a normal mudharaba contract, the party who brings his asset and no effort will bear 100% of the loss.

Revenue will be generated by charging customers for transporting them from point A to point B. The non-investing partner will drive the car, and at the end of the month, both partners will split the profit 50/50. The ownership of the car (100%) will belong to the investor.

If the partner (the driver) takes wages, then it will create the following contractual problems:


Wages are normally agreed upon between the employer and the employee. Since the employee is one of the employers, then what will happen is that the basic of all Islamic contracts - i.e. ‘offer and acceptance’- won't take place. After all, how can a person make a agreement with himself by offering himself a job!

If that partner says that the wages or compensation for time spent has been agreed upon by the other partner, then this still contradicts the shariah. This will be demonstrated by the following five points.


Is the other partner your employer? In this case, there should be an employee-employer contract. Is the other person your partner? In this case, there should be a profit sharing agreement in place.

Also, don't forget that, in Islam, both the employee and the employer have certain rights.

If you have already agreed to a 50/50 profit share, the income for the partner driving the car will be 50% of the profit.

(Wouldn’t it be nice for someone to just drive the car around and pay himself a salary, regardless of whether there is a profit or not? I've seen it happen everywhere!)

Indeed, as believers, we understand that the laws of Allah (swt) are far superior than any other law. And Allah (swt), being All Just, will not give us a system of life that's harmful for anyone. His (swt)'s rules will be free from all human deficiencies.


We must understand wages according to sharia. Indeed, Allah (swt) has perfected His deen, and He left out nothing from it.

"Today I have perfected your Deen (way of life), and have completed my favor upon you (mankind) and have chosen for you Islam as your Deen." (Quran 5:3)

In Islam, wages or compensation for work must be fixed (e.g., £10 an hour for cashier job). It’s incorrect to say, ”I’ll give you something if you work for me.”

So, as a partner, if you’re giving yourself a fixed wage (even for a short period of time), then you’re getting a fixed return on investment.

Note: Partners are not allowed to offer themselves a fixed return on investment; otherwise, you would be waiving off the ‘risk’ element of the business venture. The risk must be present for both parties, in order for the organization to be a recognized business. So the driver partner risks his time, and the investor risks his asset.


Wages are considered business expenses in Islam. If the driver (who happens to be a partner) gives himself a £10k salary, for example, and assuming the profit was £30k that year, then one partner would have earned £25k (if you add £15k, the 50% of the profit), while the other would have made only £15k, which does not equate to a 50/50 profit share.


Since wages must be paid to an employee for services rendered, what happens when a company does not make enough money to pay the wages? Well, according to Shariah, the liability for loss falls on the partner who invested with his assets.

It gets really interesting now.

So, lets say the company only made £5k, but the wages are £10k. In this case, the other partner has to pay £5k from his pocket to his partner, since wages are considered as business expenses. All expenses must always be settled, unless wages paid to partners were never meant to be a business expense!


Assuming the partners agrees that the other isn’t taking wages, but is simply taking dividends, this could work, but we’ll continue to refer to these as wages. This still causes problems, though, because of the following:

a. Wages are fixed, but dividends can go up or down.

b. Dividends are part of your profit share, while wages are considered a business expense.

c. Wages come with fixed work/ responsibilities, and nothing more or less. Partnership comes with whatever is necessary (as per agreement) to make the business successful (without counting the hours, in general).

d. The word ‘wages,’ or anything similar to it, cannot be used in business contracts, since the meaning does not convey dividends. If there is confusion over the meaning of the terms, then the contract will not be enforceable.

e. The responsibility on the partners, in terms of who is liable for what, becomes blurred. This can lead to apathy (e.g., “I am going to do only what I am paid to do.”) or over burdening oneself (e.g., “After finishing my ‘job,’ I’ll have to put in more time as a partner!).

f. Dividends are normally calculated at the end of the business partnership or at the end of the financial year (or zakat/lunar year). Paying wages to partners will have to be deducted from the partner’s profit share. The question is this: If the partner receives too much dividend early on, will he be able to pay it back right away?

So, what’s the Islamic solution, if you feel that it’s unfair for one partner to be doing all the work while the other has just invested his/ her money:

Here is one of many Islamically valid solution:

The partners are allowed to agree on a different profit share ratio. You can do a 30/70 split, for example. Or, you can own 50/50 of the company, but split the profit share differently (e.g. 25/75), where 75% goes to the person who will be working more in the company.

While running the business, if one partner needs an allowance to pay for his personal/family expenses, then drawings can be taken from the business. The amount taken should be based on an estimate of his share of the total profit that this partner will hope to make at the end of the business agreement.

However, drawings from the company earnings, can ONLY be taken if the following conditions are met:

a. a. The partners specify that the drawings are taken as an early measure of profit, and they will give back the difference if they’ve over estimated (and vice versa).

b. b. The word ‘wages’ is not specified anywhere in the contract (if it is for legal purposes, then a definition of it should be pronounced in writing, or verbally, at the beginning of the partnership).

c. 'Drawings' are exactly the same as dividends or profit share.

d. Drawings are not considered to be business expenses.

There are, of course, other solutions. So, please email me if you have any questions or comments.

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Posted by Sumaiyah on 01-10-2015

I would like to find out if 2 partners are physically working in a company but the shares are 25/75%, does the partner with the 75% have more or final say.

Replied by Abid

Jazakillah khairan sister for your question.

If both partners are physically involved and no terms has been stipulated between them that one of them can have a greater or final say on a part of the business or the whole business then the decision has to be made together, i.e. all parties must agree.

This means, the partner who has 75% share or even 99% share doesn't have a greater say.

But as Muslim businessman or woman we should always value the opinion of other people, as who knows Allah swt could bless the other person's way of doing something more than yours especially if you let go of your own opinion with a generous heart.

Posted by Eman on 08-07-2015

If two partners are investing in a small business, and they feel that it would run best if one of them works (is in charge) in the business.
So one of the partner runs it and earns the amount decided for that position. You said it would be unfair to the other partner but if the other partner agrees to it, then is it permissible?

Jazak Allah Khair

Replied by Abid

If both partners have invested their own asset/investment then, yes, it's permitted for partners to take drawings from the business (which is like wages/ salary) for the extra work with the permission of the other partners.

It's not allowed to take a salary for the partner who hasn't invested money/asset except his own effort.

Posted by irfan on 13-05-2014

I have a real case...if the invester has put all the money in biz and he is a silent partner..and the managing partner has no money for investment and both agree for a salary for tha mangaing partner...say 5000dollars a month...the reason why the investors do this is because-1.some businesses the break even happens only after 2 how should the poor managing partner survive?..3.he is working so hard should not he get some benefit from the conpany in formvof salary?..4.for a poor managing partner if there is a loss how can he bear a huge loss when he has invested nothing...5ins nt the salary justified then..6..increasing the share in profits is not practical beacause almost all investors will say a big NO because money is his and he wants a greater share ..what is the fatwa for the poor managing partner is he allowed to take a salary and have a small chunk of profits and losses ..if any..wassallam

Replied by Abid

Jazakallahu khairan brother for your question.

The answer is, as you've pointed out in point 6, increase the share of the profit for the managing partner.

You see the partners can agree to increase the profit share for 3 months or 3 years, and review that accordingly. It's entirely up to them.

They can also put down a note (or a clause) saying the increase in share of the profit is only given to help the managing partner cover his living expenses, but will revert back to the original amount once the business is generating full profit, and that this will be reviewed every 3 months.

Also, bear in mind that the ownership of the company doesn't have to go up and down, only the profit share needs to change.

It's important to understand that the managing partner (who invested no capital/ asset) has been given partnership so that he expends his effort on the company.

Paying a salary will confuse the required effort the managing partner should invest.

Posted by Mahmood on 28-03-2014

I do not agree with you.
So we must refer to Koran and Sunnah and if we do not we become KAFER [unbeilevers]. This is the legislation of Allah sura 4 ayat 59.

If we dispute we must not go to any other scholars before we go back to Allah and Rasul[sa].

If we keep disobeying Alla and Rasul[sa] we burn in hell FOREVER [72.23].
When Allah Himself said FOREVER, it is forever. He says --MY word does not change.

Do you know it is haram to pray fard salat at home as it contradicts what Allah orders [ 2.43, 3.43].
It is also haram to pray salat at a very low voice ? sura 17.110. Almost 99% people prays at a very low voice.Their salat will be binned. PRAY AS YOU HAVE SEEN PRAYING [ hadith]

Replied by Abid

No, No brother. One does not become Kafir if they commit a sin.

Posted by Shaher on 28-03-2014

Thank you for the efforts and the time you put to writing the article.

However, there few issues with the points you raised. It will be difficult to go through everything, but the main point is that when you form a company which is a LTD, one of the partners can be employed by the company. According to the UK laws he has to be employed according to an employment contract.

Now form Shariah point of view, different rules will apply depending on whether the partners have agreed between themselves to have their partnership on Mudaraba or Musharaka?

In case of Musharaka which is the normal form when you have a LTD, one of the partners may become an employee of the company and take a fixed salary.

Consider the following scenario: a company deals in whole sale and they need to employ a person for the role of director of sale. Anyone can apply for this job and the company has to pay a salary. One of the partners (who work full time for another company) applies for this job. It will be allowed for him to take this job and receive the agreed salary.

The rule here is that if the job is essential for the company and must be done by a person, then this person can be one of the partners and he can become a paid employee of the company (subject of course to the fact that such job cannot be part of the work required by him to do as a partner of the company).

This is my humble view and I might have got it wrong and Allah knows best.

Replied by Abid

Jazakallahukhair for your reply.

If the partnership requires one of the partner to put in more time, because, essentially that's what it boils down to, then the last part of the article above would apply i.e.

In no circumstance can a partner play both roles because this would make him an employer and employee at the same time!

Read the other comments on this page and insha'Allah you will find a link to a more detailed article which goes on to say that the scholars are unanimously against partners becoming employees.

Posted by Habbab on 28-03-2014

Jzk for the article, a strong article.

May I ask what scholar you took advice from to reach this position as this can be a very difficult area of fiqh and coming from an insurance background, when we needed advice on what was allowed and not allowed, there were very few scholars who could offer a concrete opinion.

Replied by Abid

Actually there is a scholarly consensus on this issue. Have a read below. (someone forwarded this to me)

Posted by Nazmul on 28-03-2014

I have heard about this point from other brothers. What I have not seen is evidence from the text to show that there can't be 2 contracts ie. partnership and an employment. Secondly, what is the evidence to show that a partner can't be a employee.

Replied by Abid

Jazakallhukhairan. You know shariah evidences are not just Qur'an and Hadith, but they can also be whatever these two sources point to. E.g. divine analogies, shariah principles, consensus of the sahaba, maqasid as shariah and so on.

What this article does is explain what an Islamic company is, what is an employee and how these two contract types can't be mixed into one.

Posted by Najma on 28-03-2014

So what is the solution?

Business partners would take a profit share then.?

Replied by Abid

Yes. You may read the last part of my article for the answer in detail.

Posted by Abu Bakkar on 28-03-2014

Very interesting subject! has definitely clarified the situation.

Replied by Abid

May Allah swt increase our understanding of His beautiful deen. Ameen

Posted by Noor on 28-03-2014

Thank you for much needed information.

Replied by Abid

You're welcome. :) Ws.

Posted by Muhammed on 28-03-2014

Interesting and very useful

Jazakallah khair

Replied by Abid


Posted by Zakariya on 28-03-2014

Masha'Allah tabarak'Allah Brother, A very interesting, thought provoking and eye opening article. Indeed, Allah's law is free from all human deficeincies.

As I read this article, I could not help but remember the number of incidents I have come across where the business partnerships have gone sour and family and friends relationships torn apart bacause of the injustice that have taken place and one side blamse the other.

If only we took time to understand and implement the religion of Islam in every facets of our lives, we would ultimately be the ones who are successful.

JazaakhAllahuKhair for bringing the business partnership and the salary issue to light as it will no doubt be an enormous benefit for the Muslims in the UK and the Ummah worldwide insha'allah!

Let us BE Muslims and let us BE the drop in the ocean that causes the ripples and then who knows... it could eventually turn into a Tsunami!

Replied by Abid

Barakalluhufik brother Abdul Mukit for your kind comments.

I too have come across Muslims engaging in businesses without being even partially aware of the Islamic rules of transaction. I think there’s a fear amongst us that if we find out the rules we will surely find at least something wrong.

Well, if we do fear Allah the we would just get it checked. Besides, how else would the believers experience the mercy and blessings of Islam in their own lives if we don’t take the rules of best practice from the One Who created us and the universe!