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. Islamic Financial Services Board ...

    An international organization that issues guiding principles ...
  2. Joint Venture - JV

    A business arrangement in which two or more parties agree to ...
  3. Zakat

    A term used in Islamic finance to refer to the obligation that ...
  4. Sharia

    Islamic religious law that governs not only religious rituals, ...
  5. Musharakah

    A joint enterprise or partnership structure with profit/loss ...
  6. Majority Shareholder

    A person or entity that owns more than 50% of a company's outstanding ...
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. 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 >>
  4. 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 >>
  5. How do I calculate the standard error using Matlab?

    In statistics, the standard error is the standard deviation of the sampling statistical measure, usually the sample mean. ... Read Full Answer >>
  6. How do I adjust the rule of 72 for higher accuracy?

    The rule of 72 refers to a time value of money formula that investors use to calculate how quickly an investment will double ... 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. Investing Basics

    Explaining Tender Offers

    A tender offer is a broad public offer made by a person or company to purchase all or a portion of the shares of a publicly traded company.
  5. Economics

    Understanding Limited Liability

    Limited liability is a legal concept that protects equity owners from personal losses due to their ownership interest in the company.
  6. Fundamental Analysis

    Explaining the Empirical Rule

    The empirical rule provides a quick estimate of the spread of data in a normal statistical distribution.
  7. Economics

    Explaining Demographics

    Demographics is the study and categorization of people based on factors such as income level, education, gender, race, age, and employment.
  8. Fundamental Analysis

    Calculating Degree of Financial Leverage

    Degree of financial leverage (DFL) is a metric that measures the sensitivity of a company’s operating income due to changes in its capital structure.
  9. Economics

    What Does Capital Intensive Mean?

    Capital intensive refers to a business or industry that requires a substantial amount of money or financial resources to engage in its specific business.
  10. Fundamental Analysis

    Can Japan's Stewardship Code Turn Passive Funds Into Active Managers?

    Institutional investors in Japan have been criticized for being too cozy with corporates. Can a code force them to focus on the needs of beneficiaries?

You May Also Like

Hot Definitions
  1. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  2. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  3. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  4. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  5. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  6. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
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!