Termination of Mudarabah and Musharakah

TERMINATION OF MUDARABAH AND MUSHARAKAH

  • TERMINATION OF MUDARABAH
1)Mudarabah is terminated when it is cancelled or when a mudarib is prevented from using the fund or when he is dismissed. In this case, the mudarib is entitle to his claim in the profit. If capital is in the form of goods cancellation of mudharabah, prevention of mudarib, or his dismissal can only take place after the good are sold. The action of the mudarib who is unaware of the cancellation, prevention, or dismissal is binding on the sahih al-mal.

2)When mudharabah which is for the fixed period of time expires.

3)If either party loses its legal capacity.

4)If one of the conditions in restricted Mudharabah is violated.

5)If Mudarib fails in his duties due to his negligence or deliberate loss.

6)If the capital is destroyed in the hands of mudharib.

7)If either parties dies and if the investor dies the mudarib has no right to continue mudharabah.Any further use of the capital depends on the permission of the heirs.
  • TERMINATION OF MUSHARAKAH

1)When a partnership fulfills its obligation or when its duration is expired.

2) By request of one or mutual consent of the parties.

3) By death or incapacity of one of the parties whose heirs decide to discontinue the partnership.

4) The bankruptcy of the partners.

5) In case of liquidation the asset of the musharakah will be converted into liquid money.First, outstanding obligation of the partnership is discharged. Then capital shares are paid.
In case of loss, the parties will bear the loss in the same ratio in which they contributed to the capital.


 Termination of Musharakah without Closing the Business

If one of the partners wants termination of the musharakah, while the other partner or partners like to continue with the business:
-This purpose can be achieved by mutual agreement. The other partners  who want to run the business may purchase the share of the partner who wants to terminate his partnership, because the termination of musharakah cannot be done within one partner only.



References: Muhammad Yusuf Saleem, 2013, Islamic Commercial Law, John Wiley & Sons Singapore Pte.Ltd

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