As one can readily infer from the case studies at the end of Chapter 6, equity investment in the forms of stock- and mutual-fund ownership, as well as index participations with or without principal protection and the like, have been among the more successful areas in Islamic finance. Indeed, it is easier to explain to Muslims and non-Muslims alike the virtues of investing only in certain types of stocks, excluding those of companies that produce, for example, alcoholic beverages or weapons. The links between the “Islamic” brand name, on the one hand, and ethical and economic considerations, on the other, are more direct in those areas.

On the other hand, many Muslims did not accept stock ownership as permissible until recently, and some continue to argue that Islamic jurisprudence recognizes only simple partnership styles, to the exclusion of contemporary corporate structures. At the other extreme, many contemporary jurists have allowed ownership of legal constructs such as stocks, mutual funds, index participations, and the like, albeit under slightly inaccurate legal interpretations of those structures. In this chapter we shall review classical jurisprudence on partnerships of various types, as well as contemporary juristic analyses of limited-liability corporations and corporate stocks.

Classical Types of Partnership

Simple partnership forms existed in Arabia prior to the advent of Islam and were recognized and legalized both in the Qurʾan and in Prophetic traditions.