Trading Shares halal or haram ?

[Rabbana]

Assalamu alikum wa Rahmathullahi wa Barakathu ,

I am thinking about joining share market for buying and selling of shares of diff. companies ? Is it haram or halal ? Please express your views

Shukran

[not known]

Assalamu alikum wa Rahmathullahi wa Barakathu ,

I am thinking about joining share market for buying and selling of shares of diff. companies ? Is it haram or halal ? Please express your views

Shukran

Having discussed this in my MBA class, I think I can answer this question

buying and selling of shares (equity and preference shares) is halal, but doing transactions with debenture shares is haram


Allah knows best

--
website

[Rabbana]

Can you explain more , what is 'preference ' , 'equity' and 'debunture ' shares ?
Explain with an example

[not known]

Can you explain more , what is 'preference ' , 'equity' and 'debunture ' shares ?
Explain with an example

Shares are basically of three types

1. Equity share - These share holders directly invest money in company. If the company is in profits, they get profit and if company is in loss then they also share the loss. Unless otherwise stated, all shares issued by company are considered to be equity shares.

2. Preference share - These shares have a fix amount of dividend on profits. If the company gets profit, then they get a fixed amount of dividend on their share which is decided by board of directors

3. Deferred share - These shares are given to people related to company and not for general public (these are not entertained in public companies)

And if the company is winding up. then the share is first paid back to preference share holders, then to equity share holders and at last to deferred share holders

Debentures

These shares are like loan. Its like a person is giving loan to a company on interest. And this shares are not allowed in Islam

--
website

[abuhajira]

Having discussed this in my MBA class, I think I can answer this question

buying and selling of shares (equity and preference shares) is halal, but doing transactions with debenture shares is haram


Allah knows best

--

this should be of some help..

Issues with Shares and Company Ownerships
Appendix A | Appendix B | Appendix C

And this concise write up on the issue will also be beneficial.

Shar’i stance on SHARES & STOCKS

[meelash]

Having discussed this in my MBA class, I think I can answer this question

buying and selling of shares (equity and preference shares) is halal, but doing transactions with debenture shares is haram


Allah knows best

--
website

On the basis of your MBA class, you decide what is halaal or haraam? lol

Just kidding with you bro, but we have to be more careful- nowadays people think they have to get an MBA to know business, but in order to decide halal or haraam, they just need to have an opinion, not any study...

[meelash]

this should be of some help..

Issues with Shares and Company Ownerships
Appendix A | Appendix B | Appendix C

And this concise write up on the issue will also be beneficial.

Shar’i stance on SHARES & STOCKS

:jazak Very nice, I will have a chance to go through this in a few weeks.

[meelash]

Interesting stuff!! Actually, I just read most of the debate part right now, couldn't wait

If the topic starter doesn't mind, I will post questions here as I think of them:

Mufti Saheb gives two examples:

EXAMPLE A
Zaid and Ahmad have a box, which they call box z. They each put a R1000 in box z, and tell the public that we as partners will be dealing with you only from box z.
Box z and its contents always belong to Zaid and Ahmad. It would therefore be correct to say that the R2000 belongs to Zaid and Ahmad. However, it would be incorrect to state that the R2000 belongs to box z and not Zaid and Ahmad. The R2000 has only one owner, i.e. the partners Zaid and Ahmad. The only difference is that it is kept separately from the rest of their wealth, and administered differently.
Realistacerbitynotwithstanding,thefictionalistsfir mlybelieveacorporationisnothingmorethan acreatureofthe state and this view is consistent with and supported by the provisions of the Corporations Act 2001 dealing with the creation of a new corporation in the form of a registered company. (When legal fictions collide: The primacy (or otherwise) of the separate entity principle of corporate law in intellectual property cases, Rhonda Chesmond, Deakin Law Review, Vol. 11 No. 2, 2006, pp. 71-72)
Page 54 of 113
The Debate on Shares Zaid and Ahmad then take some money from box z, and purchase some goods, which they put into
box z. Anything they purchase from the R2000 goes into box z. Similarly, if they have to sell anything from box z, the money goes into box z. There is no mixing of anything from box z and their other personal wealth. All their business dealings are done to and from box z.
Even if they have to purchase something on credit, they make it clear that we will only pay from box z. Somehow, business from box z falls on hard times, and box z is unable to pay its debts. Its funds are depleted. The business run from box z owes Bakr R100. Bakr approaches Zaid to claim the R100. Zaid responds that I made it clear that I will be dealing with you solely from box z. Since there are no more funds in box z, I do not owe you anything. I am not responsible to pay you from my personal funds the amount owed to you by box z. In other words, my other funds are administered separately from box z. Box z is administered independently. If you dealt with box z, you have no claim over me.
EXAMPLE B
Amr has no money at all. Hasan and Yunus each give Amr R2000 to do business. It is agreed that Amr becomes the owner of the R4000 immediately upon receipt, and will use it to trade in his (Amr's) own name. They further agree that, from time to time, Amr will give Hasan and Yunus the profits he has gained via trading.
There can be only one owner of the R4000, i.e. Amr. One cannot say that all three own the R2000. Nor can one that Hasan and Yunus own the R4000.
Amr takes the R4000 and purchases some goods. It is Amr purchasing it for himself, and not Amr purchasing it on behalf Hasan and Yunus. Since Amr has become owner of the R4000, he is now using his own money to purchase the goods. Therefore, whatever goods there are belong solely to Amr. Neither does Hasan nor Yunus have a share in the goods.
In this manner Amr goes on and trades. Amr purchased something from Zubair on credit. After some time Amr's business fails and he is unable to meet his commitments. Zubair demands his money from Amr, who declares bankruptcy. Since Amr's coffers are empty, Zubair has no recourse in claiming his dues.
He decides to approach Hasan. Hasan's reply is that you are approaching the wrong person. Your dealings were with Amr and not with me. He is a separate person. The fact that I gave part of the money he had does not make us one and the same person. He is a separate individual, and I am someone else. Do not confuse each one of us with the other. Therefore Zubair will just have to accept his losses. (End of example)

He states that limited liability companies are like example B and not like example A. So two questions came to my mind:

Is example A permissible in Islam?

What is the practical difference between these two and how do we show that there is a practical difference between the box and Amr? I think Mufti Saheb is trying to say that from the words of secular law it is obvious that public companies are example B, but shouldn't there also be a practical difference, otherwise people could just say, "my intention is the first kind of partnership, even if the words of the law may be something else."

One possible practical difference that came to my mind as I read further was that if have their own personal debts that they cannot pay, the creditors will have the right to place a lien on their portion of ownership in the box, whereas, Hasan's debts cannot be taken from Amr. Is this correct in Islam?

EDIT: Guess I should have finished reading since my questions were answered after p. 71. So my understanding is that A is not permissible because of the limited liability issue even though it is a permissible partnership. In A the money for creditors would be taken from the debtees portion of box assets. B is permissible if Amr is a real person, not if it is a "juristic person" as in the case of modern companies. That's correct right?



[DISCLAIMER: I believe Mufti Ebrahim Desai to be a trustworthy scholar and accept and practice on his opinion in this issue, so it's not like I'm trying to argue anything here! I just want clarity of my understanding on this issue. When Mufti saheb says, "Only one ignorant of the nature of partnerships and companies will aver that there is no major difference" I'm fully willing to admit that I'm that one.

[meelash]

Second question:

Mufti Ebrahim Desai brings the proof of shareholders not being owners of the company because they cannot jointly sell, destroy, etc. the assets of the company.

But I was under the impression that shareholders do have joint power over the assets of the company. In the US, at least there are annual shareholder meetings, and although it is a practical rarity, I think, any shareholder can submit proposals for company policy, change of directors, firing of CEO, etc. and if a majority vote for it, the company does do that thing.

So I thought that if all the shareholders decided to do whatever they wanted with the company assets, they actually could (as long as not illegal). Is this not the case?

[hope1]

Assalamu alaikum,

As far as I know ulema who permit common shares do not permit preferred shares.