Shirkah

AAA

DEFINITION of 'Shirkah'

An Islamic finance term that describes a partnership between two or more individuals. The parties involved combine a portion of their capital or labor in order to share in the profits and losses of the business.

Shirkah, in the Islamic theory and philosophy of law, is divided into two categories:

1. Shirkah-ul-milk: Joint ownership between the parties involved, where each party has provided capital in order to purchase a particular property.

2. Shirkah-ul-'aqd: A partnership created through a contract. This can also be translated to mean a type of joint commercial enterprise.

INVESTOPEDIA EXPLAINS 'Shirkah'

The cooperative relationship of Shirkat-ul-milk can be created two ways; either voluntary, in which there is a prearranged agreement, or automatically. For example Shirkah-ul-milk can commence automatically by inheriting the partnership through the death of a family member. Profit and losses are usually shared according to the investor's predetermined portion of the investment.

Shirkat-ul-'aqd is further divided into three sub categories:

1. Shirkah-ul-amwal: Each party provides capital to a venture. Similar to how shareholders provide capital to a corporation through an initial public offering (IPO).

2. Shirkah-ul-A'mal: Each party provides labor instead of capital. In this case, all wages earned by the partners would be placed into a wage pool, which is then shared amongst all parties.

3. Shirkah-ul-wujooh: This partnership is based on goodwill. Each party purchases commodities at a deferred price, by way of a loan. They then share the profits after selling the commodities at the spot price.

RELATED TERMS
  1. Strategic Alliance

    An arrangement between two companies that have decided to share ...
  2. Zakat

    A term used in Islamic finance to refer to the obligation that ...
  3. General Partnership

    A arrangement by which partners conducting a business jointly ...
  4. Sukuk

    An Islamic financial certificate, similar to a bond in Western ...
  5. Controlling Interest

    When one shareholder or a group acting in kind holds a high enough ...
  6. Musharakah

    A joint enterprise or partnership structure with profit/loss ...
RELATED FAQS
  1. Is it possible to fund limited partnership interests with SEP contributions?

    Yes. The same rules that apply to investing Traditional and Roth IRA assets applies to SEP IRA assets. Therefore, providing ... Read Full Answer >>
  2. What is an Islamic investment policy?

    Islamic investments are a unique form of socially responsible investments because Islam makes no division between the spiritual ... Read Full Answer >>
  3. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  4. How can I use a regression to see the correlation between prices and interest rates?

    In statistics, regression analysis is a widely used technique to uncover relationships among variables and determine whether ... Read Full Answer >>
  5. How do I calculate a modified duration using Matlab?

    The modified duration gauges the sensitivity of the fixed income securities to changes in interest rates. To calculate the ... Read Full Answer >>
  6. How do I calculate the rule of 72 using Matlab?

    In finance, the rule of 72 is a useful shortcut to assess how long it takes an investment to double given its annual growth ... Read Full Answer >>
Related Articles
  1. Retirement

    Discover Master Limited Partnerships

    These unique investments provide significant tax advantages.
  2. Investing Basics

    The Basics Of Corporate Structure

    CEOs, CFOs, presidents and vice presidents: learn how to tell the difference.
  3. Retirement

    Working With Islamic Finance

    There is no division between the spiritual and the secular in this type of socially responsible investing.
  4. Professionals

    Are Stock Buybacks Always Good for Shareholders?

    Stock buyback programs aren't always done with the interests of shareholders in mind. It's important to try to understand the motivation behind such moves.
  5. Economics

    What's a Centrally Planned Economy?

    A centrally planned economy is one where the government controls the country’s supply and demand of goods and services.
  6. Economics

    What are Barriers to Entry?

    A barrier to entry is any obstacle that restricts or impedes a company’s efforts to enter an industry.
  7. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P 500 Trust

    Find out more about the SPDR S&P 500 ETF Trust, the characteristics of the exchange traded fund and the suitability of investing in the fund.
  8. Brokers

    10 Most Famous Public Companies That Went Private

    Here’s a list of the most popular listed companies that went private in recent decades.
  9. Mutual Funds & ETFs

    ETF Analysis: Energy Select Sector SPDR

    Find out more about the Energy Select Sector SPDR Fund, the top holdings of this exchange-traded fund and the characteristics of the fund.
  10. Investing News

    The Financial Singularity Will Destroy Your Return

    Given the current and future growth of financial technology, many believe algorithms will soon define what drives market outcomes. With a wealth of big data, algorithms would be able to create ...

You May Also Like

Hot Definitions
  1. Dog And Pony Show

    A colloquial term that generally refers to a presentation or seminar to market new products or services to potential buyers.
  2. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  3. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  4. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  5. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  6. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!