SOME ISSUES IN PARTNERSHIP

BUSINESS UNDER ISLAMIC FINANCE

By

Ahmad Bello Dogarawa, PhD

Department of Accounting, Ahmadu Bello University, Zaria
+2348032989043; abellodogarawa@gmail.com

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 Meaning of Partnership
Partnership is a form of business between two or
more people whereby each party contributes capital
in equal or varying degrees to establish a new
project or share in an existing one in order to share
in profit.
Under partnership arrangement, each of the parties
becomes an owner of his capital contribution on a
permanent or declining basis.

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 Types of Partnership [a]

Forms of Partnership

Ownership () Contract ()

By choice to jointly own an asset

To have partnership in capital and profit
By inheritance
 Forms of Contract Partnership

Partnership by contract ()

By labour or By reputation
By unequal or
Workmanship within based on credit By capital owner
equal investment:
same or different backed by manager relationship
:
profession guarantee
/
/ /
 Essentials of Partnership
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Partners acting Partnership

Unguaranteed
as agents of
equal or unequal activities and its
each other management
capital

Profit/Loss sharing
 Capital & Assets of Partnership
Capital is contributed either in cash or species of
money at an agreed valuation.
Assets are jointly owned in proportion to the capital
of each partner.

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 Management
Each partner has a right to take part in management
of the partnership business.
Managing partner may be appointed from amongst
or outside the partners by mutual agreement.
One or more partners may decide to be
sleeping/silent/non-working partner(s).
If a partner employs a worker to do a task assigned
to him, he bears the cost.

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 Profit/Loss Distribution [a]
Profit is distributed in ratios to be agreed at the time
of executing partnership contract.
Profit sharing to recognise share for management,
then the remaining for capital based on agreed ratio,
and if agreed, a portion to third party such as charity.
Distribution of profit is based on proportion of actual
net profit NOT percentage of investment or in a lump
sum amount.
Part or all of the profit could be retained by
agreement at any time; or some may choose to retain
while others choose not to.
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 Profit/Loss Distribution [b]
Where some partners retain and others decide not to
retain, composite of capital will change.
Sleeping partner(s) cannot share profit more than
percentage of capital contribution according to some
scholars.
Loss(es) is/are shared based on capital contribution.
Loss allocation may be deferred in order to be
compensated by the profits of subsequent periods.

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 Admission of New Partner
When a new partner is admitted, three options are
available:
1) Dissolution of existing partnership and forming a new
one based on new terms and agreements.
2) New partner brings new assets (cash or specie of money
at an agreed valuation)
3) New partner buys part/whole of interest from existing
partner(s) at book value.

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 Termination of Partnership [a]
Every partner has a right of termination after serving
adequate notice as agreed to other partner(s).
If some partners seek dissolution while others desire
continuity, partnership has to be restructured.
Insanity and incompetence also lead to termination.
If a partner dies, the heirs may draw his/her share
from the business or send representative to replace
him/her provided other partners agree; same
treatment applies to case of insanity.

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 Termination of Partnership [b]
In the event of termination:
If the capital/assets of the terminated partnership is in cash,
sharing will be proportionately
If the assets are non-cash, it will either be liquidated and
shared proportionately or partitioned and shared
proportionately.

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Thank you for listening

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