The Constituent Assembly of Joint-Stock Companies

প্রশ্ন · Question

Assalam Alaikum Wa Rahmatulah Wa Barakatuh
May you be in best health and wellbeing. I have a question about Joint-
Stock companies:
Why do we not consider the constituent assembly of Joint -Stock
companies as an offer and acceptance?

উত্তর · Answer

Wa Alaikum Assalam Wa Rahmatullah Wa Barakatuh

Share companies are funds companies, i.e. they represent the money
of the participants and not their persons, and the constituent assembly
also represents money and not people, so whoever has two shares has
two votes, and whoever has ten shares has ten votes, and so on. The
joint stock company is a funds company, and this does not take place
in Islam, the presence of a physical partner (badan) is a fundamental
pillar of the company according to corporate contracts in Islam, and
money alone does not create a contract. Accordingly, the constituent
assembly in joint-stock companies represents funds, i.e., it is one party
and does not create a contract, and therefore there is no offer and
acceptance.
It is mentioned in the Economic System in Islam book, p. 162 -168
(Arabic version) (p. 178 -184 English version), about Joint -Stock (Share)
Companies in detail, and I will mention some points from it:
[This is the stock company and it is a void company in Shari’. It is one of
the transactions that a Muslim is not allowed to participate in. The
reason of its invalidity and the prohibition of associating with it, appear
clearly from the following points:
The definition of company in Islam is as follows: it is a contract
between two or more persons, in which they agree to carry out
financial work with the intention of gaining profit. It is thus a contract
between two or more persons.
They then draw up a document, which represents the constitution of
the company. This document is then signed by everyone who wishes to
enter into the partnership, the signature being considered as an
acceptance. Once a person does this, he is then considered as a
founder and a partner. In other words his partnership is established
once he put his signature or when the subscription period comes to an
end. In this process, the absence of two sides that conclude the
contract is evident, and nor there is an off er and acceptance. Instead,
there is one party who agrees on the conditions, and by its acceptance

becomes a partner. It can be seen that the joint stock company is not
an agreement between two parties; rather it is an agreement of one
party on certain conditions. Thinkers on the Capitalist economy and
Western law say that the commitment in this type of company is a
type of disposition by individual will.
The contract of the joint stock company by the individual will is invalid
(Batil) in Shari’ because a contract in Shari’ is the linking of an offer
originating from one of the contractors with the acceptance of the
other contractor in a way that reveals its effect in the issue over which
the contract is concluded. This does not occur in the contract of the
share stock company as no agreement between two or more persons
occurs in the contract.
In addition to this, it is necessary that the body (Badan) which is the
disposing person exists in the company in Islam. What is meant by the
body (Badan) in the company, in trading (selling), hiring and the other
contracts is the disposing person, not the physical body or effort. So,
the existence of the body is an essential element in establishing the
company. If the body did not exist, the company could not have been
established. The share stock company has no body (Badan) at all, and
in fact it intentio nally removes the personal element from the
company. The contract of the share stock company is a contract
between properties only. The personal factor does not exist as the
properties alone and not their owners are associated with each other;
In other words, the funds associate with each other without the
existence of a body. The absence of an associating body means the
company is not established and it is invalid in view of the Shari’. Shari’
dictates that the body is the disposer of the property, and the disposal
of the property depends upon it alone. If the body does not exist, then
distribution cannot exist.
The people who own the capital are the ones who directly agree on
the subscription of the funds, and they elect the board of directors

who carry out the work in the company. However, this still does not
mean that there is a body in the company, for their agreement is upon
making the fund as a partner rather than themselves as partners. So
the funds and not its owner is the partner. With regard to their
election of the board of directors, this does not mean that the board is
their deputies. Rather their funds have been represented by deputies
(i.e. the board) selected by them, and no deputation was made on
their own behalf. The evidence for this is that the shareholder has
votes equal to his shares, so the person who has one share would have
one vote or one deputy. The person who has one thousand shares
would have one thousand votes; that is one thousand deputies. So the
deputation is on behalf of the funds and not the person. This indicates
that the element of the body is missing from the company, which is
composed of the element of funds only.
The contract of the share stock company is thus invalid. It is invalid,
because it was not established as a company, as defined by Islam] End
Quote.
You can refer for more on the topic from the book, The Economic
System in Islam, chapter of Joint-Stock Company (Share Companies).
I hope that this is enough to invalidate Share Companies, and Allah is
All-Knowing and Most Wise.
Your Brother,
Abu Yasin
3 Rajab Al-Haram 1444 AH
25/1/2023 CE