Dr. Monzer Kahf, Scholar in Islamic Economics & Financial Expert, states the following: “According to all contemporary Muslim Shariah scholars, stocks represent shares in the ownership of companies, and a stockholder is an owner of a percentage in the company equals to the number of stocks she owns divided by the total number of shares.
Establishment of common stock companies is permissible, and it must be announced to the public, i.e., that it is a common stock company and it has limited liability (see OIC Fiqh Academy resolutions).
Preferred stocks are not permissible to issue and own if the preference is in the rate of profit, its guarantee, guarantee of principal or in the distribution of proceedings at liquidation.
Owning a stock and trading in it is subject to the general principles of sale and ownership. The business of the company must be permissible in the Shari`ah. This rules out stocks of banks, Western entertainment business. Not only that but it also includes permissible businesses in which the management make impermissible transactions such as getting loans against interest or depositing funds in banks for interest, or any other illegitimate kind of transaction.
Additionally, there is an important rule in the Shariah, it is as follows: You can sell any owned asset, mobile, fixed or abstract (e.g. publication right) for an agreed price, which is essentially based on the market price. However, you cannot sell money or debt except for their nominal amount, regardless of the date of maturity (for a debt). This implies to stocks of companies at the inception stage when all their assets are either cash on hand or cash deposited in bank accounts must sell only the face value of the stock, BUT once other assets exist including intangible assets, and the total of physical and abstract assets becomes more than the total of debts and cash, the stock may sell at any price regardless of the face value. Otherwise, such a sale involves Riba as it is obvious. All the above quotes the majority’s or unanimous views.
As far as the minority opinion is concerned, I can say that there is great inconvenience in the above rules, a few, but still very respected scholars argue that inconvenience must be removed, hence one may buy and own stocks of companies that deal with prohibited products or have prohibited transactions within certain conditions. These are: the main and predominant business of the company must be permissible and the prohibited products and transactions must be marginal and accidental. Interest earning must not make more that 15% of net earning, total borrowed loan to total asset must not exceed one third, the company must not be an outright supporter of enemies of Muslims/immoral causes such as homosexuality or arms sales to aggressors.
Additionally, one must always clean one’s earnings from such stocks by estimating, in an educated manner, the percentage of prohibited earning and give it away for charitable causes. Where did the numbers come from? From analogy to similar numbers and ratios used in Fiqh for several other issues, there is nothing so great about them, the principle is the lowest impermissible thing is always the better.
An important final note:
Even if we take this relaxing opinion, which is an exception anyway, a Muslim is forbidden to run the business of such a company because it is completely haram to produce anything forbidden or to be part of any forbidden transaction.”