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Fatwa CenterIslamic finance
Question
I am trying to research on Islamic Finance and how it works (or how it "should" work) in today's world of dominating western finance and Riba'. SPECIFIC TOPICS include: How a merger transaction between two companies would be implemented under Islamic Law? Also how would it differ between two Islamic countries ( it shouldn't, since there's only one Shariah) But, we know that the law is implemented differently across Islamic countries. In summary, how should a merger of two companies be implemented and how is it actually implemented in Muslim countries?
Answer
Praise be to Allah, the Lord of the Worlds; and blessings and peace be upon our Prophet Muhammad and upon all his Family and Companions. The Fiqh rules about merging two companies or more are easy. Each one of the companies that are to be merged should conduct an inventory and estimate its belongings before anything else. Then, there should be an agreement on the work mechanism, how the functions will be distributed amongst themselves and an agreement on the pre-conditions. All these things should be determined according to the Shari'a rules as detailed by the Fuqaha under the Chapter of partnership. Then, the merger could be carried out and the new company starts its transaction on these bases and any future profits are shared accordingly. When, the hour for distributing the profits comes, each contributor takes out the part of the benefits that is equivalent to the number of shares he owns. The capital of each one is the value, which was given to his company before the merger took place. The differences between Islamic countries, regarding this issue and others are due to the fact that most of these countries do not apply the Islamic economic system. Each country, then, has chosen a particular way. Some times copying the socialist way, other times copying the capitalist of one or even founding a new way particular to them. Consequently, people have gone far from the Shari'a, hence their interests have become very different and failure has been the result of most of their enterprises. The fault here is not in Islam but rather in the Muslims. And Allah knows best.
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