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Search Fatawaa

Subject : Partner`s Liability in Limited Liability Company

Fatwa Number : 3632

Date : 08-08-2021

Classified : Foreclosure and Bankruptcy

Fatwa Type : Search Fatawaa

Question :

What is the ruling of Sharia in case a limited liability company failed to pay the rent and what is the amount for which each of the partners is liable?

The Answer :

All perfect praise be to Allah the Lord of the Worlds. May Allah`s peace and blessings be upon our Prophet Mohammad and upon all his family and companions.

In principles, in a limited liability company, each partner`s liabilities are limited to the amount they put into the capital. The resolution issued on the fourteenth meeting of the International Islamic Fiqh Academy states, "A limited liability company is one whose capital is owned by a limited number of partners (Which could vary according to different laws), its shares are non-negotiable, and each partner`s liabilities are limited to the amount they put into the capital." According to the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), "It is permissible to limit the liability of the company to its capital, if that was declared, where the shareholders are made aware of that leaving no room for deception."

Consequently, in the event the company declared bankruptcy, each shareholder`s liability is limited to their share in the company and if the debts exceeded the company`s capital, then the creditors don`t have the right to claim anything from the shareholders so long as the bankruptcy is real, not an act of deception."

As for the shareholding partners, they are just like the rest of the partners, however, this is provided that they haven`t violated the company`s system, Companies Act or it was established that they were negligent and committed misconduct in running the company.

However, if a new creditor appeared after the company had declared bankruptcy by court order, then he/she should claim his share from the other creditors. It is stated in the book {Asna al-Matalib, V.2:191}: "If a new creditor appeared after the funds had been divided amongst the other creditors, then this division isn`t void. Rather, he/she gets his/her share from them." Based on this, in principle, this new creditor should go to a civil court to claim his right after establishing that he is entitled to it."

As for the partners whose company had gone bankrupt, this new creditor doesn`t have the right to claim anything from them unless the bankruptcy was an act of deception or those in charge of running the company were found negligent or committed misconduct.

In conclusion, passing a ruling on these issues, affirming the partners' liability and the new creditor (Landlord) claiming his right from the rest of the creditors require a court decision to settle this matter in case of failure to reach an agreement. This is because ruling that the limited liability company had gone bankrupt doesn`t apply to the partners` funds unless the bankruptcy was an act of deception or it was established that the partners in charge of running the company were negligent or committed misconduct. And Allah the Almighty knows best. 



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