Dr. Monzer Kahf, Scholar in Islamic Economics and Financial Expert, states the following: “The discussion is detailed and the opinion is clear, in all schools of Fiqh that: in partnerships, a partner/manager’s act or decision is done on behalf of all the partners, i.e., as if it were done by each and every partner. There is no dispute about this at all between all jurists. That is why they say, for instance, that it is incorrect to enter into a partnership with any unbeliever unless the Muslim is the manager because the other does not mind making Riba-based transactions.
In recent years, there were discussions in several seminars, about the issue of common stock companies. The OIC Fiqh Academy passed a resolution a few years ago which states that in principle, it is forbidden to buy stocks in a company that deals sometimes in Riba or any other prohibited contracts, although its mainline of business may be perfectly permissible. The basis of this resolution is the following: When the management of a common stock company undertakes a prohibited transaction, it does that in the name and on behalf of all stockholders. There were two qualifications of this resolution that came in some side meetings of scholars and there was an interpretation that actually takes a form of an exception.
1. If you buy stocks in a company with the intention of transforming it to a Shari’ah compatible company, then your action falls within permissible limits, provided that you have voting power (and other kinds of power) to make such a change and that you put a reasonable time limit for this attempt, such as one or two years.
2. It is permissible to buy and own stocks in companies in Muslim countries whose main business with the basic infrastructures, such as energy, utilities, basic communication, etc., and they make the backbone of the economy, especially in countries where such companies cannot be cleansed of Riba and other prohibited transactions because of existing laws and governments, or because if you do not participate in them they will fall in the hands of non-Muslim minorities and/or crooked Muslims who do not mind dealing with Riba and don’t observe the best interests of the people and the country.
The exception in the interpretation of the basic resolution argues that:
1. The principle is true and correct.
2. Its implementation creates a great hardship for Muslim investors, especially the absent investors–those who have no access to investing their savings directly or with friends and relatives.
3. The intention of such investors is really only to get some dividend/capital gain from buying/owning a given stock, with no interest in the management and the company itself.
4. Yet, it is understood that buying stocks in a company means you are a partner and supporter of it. All that calls for accepting the principle and making an exception for
those common stock companies that have only a few prohibited transactions.
The minority of scholars who adopt this interpretation/exception put a few criteria to what is little, or tolerable stock, provided you are not in a position of decision making, nor the founder in such a company and that you give away to charity a percentage of realized income from such stocks that is equal to what you can estimate as coming from prohibited transactions.
These criteria aim at putting a definition of the degree of tolerance. They are:
1. That receivable/assets must be low.
2. Debts and loans/equity must also be low.
3. Income from interest/net profit must be low.
4. The main line of business should not be in prohibited commodities/services such as tobacco companies and conventional banks.
5. No essential contribution to industries whose products are used against Muslims such as American military industry, etc.
I intended not to mention percentages because the scholars do not agree on what is little and the only thing agreed upon for sure is that when a percentage is zero that is the littlest a thing can be!
Finally, I can conclude that there is a difference between receiving a bonus (shares) and buying shares in your partnership-based company that has only six partners.
Bonus shares are given to you without a specific effort on your part to acquire them, and if someone gives you something that contains a bad part and a good part you don’t have to throw it away, you are required to only give up the bad part. In this case, I don’t see a problem in keeping these shares and periodically giving to charity the part of income that you think results from prohibited transactions.
Certainly, a better solution would be to sell them, if they have a market, and give away to charity the part that you think is not permissible.
Also, if you are given a choice to have the bonus cash or the shares, under the circumstances you may have to select the cash unless such a choice may harm your position in the company and affect your main income which is, in sha’ Allah, halal.
In buying stocks you are knowingly seeking to become a partner in a partnership (it doesn’t matter if you call it a corporation, it is the same) whose management makes prohibited transactions in your name and on your behalf. The case of common stock companies does not really apply to you.”