Limited Liability of Shareholders

Islamic Perspective

Abstract

Risk sharing is the backbone of Islamic Financial Industry. No one is absolved of so long as he has some assets to discharge his financial liability. Hence, the issue of limited liability for the members of the corporation is of great importance. There are contradictory opinions about the permissibility of the limited liability. Some scholars are in its favor while some other consider it against Islam. The concept of limited liability affects the rights of creditors i.e. if a company becomes insolvent and its entire assets are not sufficient to pay the debt, then creditors definitely lose their credit. Furthermore, limited liability gives the space to absolve the debt from shareholders. In Islamic law, there is no space for absolution of debt. Hence, the concept of limited liability is not compatible with the principles of Islamic law.