Are Limited Liability Companies Halal?
Answered by Shaykh Abdul-Rahim Reasat
Question
I’m currently in a consultancy firm and manage company incorporation and its related works and act as a company secretary. I read many articles saying “Limited Liability” is not accepted in Islam.
1. Is this business permissible in Islam, and is my income halal?
2. Can I own a limited liability company?
Answer
I pray you are well.
The concept of limited liability is problematic in Islam as it contradicts the legal principle of “Profit is offset by loss.” (Zarqa, Sharh al-Qawa‘id al-Fiqhiyya) This basically means that one can make a profit from business transactions, but he also liable to bear any potential losses from those transactions.
Without this, the fairness and equity the Shari‘a commands is absent. The process of limited liability can prevent a creditor from recuperating all of his money, even if the borrower is able to pay it.
This business model is not permissible, and should be avoided. Owning such a company is not inherently impermissible, but trading and borrowing with it would be problematic, especially if the situation occurs where creditors are deprived of their rights by legal loopholes. Those loopholes won’t prevent them on the Day of Judgement.
The best thing to do is to bear that consequential day in mind when conducting business, and avoid using such practices that contradict the spirit of the Shari‘a. You can find a more detailed analysis here.
May Allah facilitate what is halal and wholesome for you.
[Shaykh] Abdul-Rahim
Checked and Approved by Shaykh Faraz Rabbani
Shaykh Abdul-Rahim Reasat began his studies in Arabic Grammar and Morphology in 2005. After graduating with a degree in English and History, he moved to Damascus in 2007, where, for 18 months, he studied with many erudite scholars. In late 2008 he moved to Amman, Jordan, where he continued his studies for the next six years in Sacred Law (fiqh), legal theory (Usul al-fiqh), theology, hadith methodology, hadith commentary, and Logic. He was also given licenses of mastery in the science of Quranic recital, and he was able to study an extensive curriculum of Quranic sciences, tafsir, Arabic grammar, and Arabic eloquence.
