Mudaraba is a partnership in profit (ribh) in which one party (rab al-mal) provides funds, while the other (mudarib) contributes efforts, experience, and labor. The mudaraba contract may be concluded using any of the following designations: mudaraba, mu’amala, or qirad (all denotes the same meaning). Like any typical commutative contract, both parties to a mudaraba contract (aqd al-mudaraba) should possess the legal capacity by which a party can authorize the other by way of agency (wakala) or accept authorization from the other, also by way of agency. Accordingly, mudaraba cannot be concluded in cases where either one or both parties (or their agents) lack absolute legal capacity.

The liquidation (tandeed) of a mudaraba contract can be effected in one of the following ways/ situations:

• On the death of mudarib (if an individual) or the winding up of the entity in charge of the tasks of of mudarib.
• The mutual agreement of both parties (iqalat al-mudaraba).
• On maturity date if the two parties had decided not to renew the contract for any further period.
• When the capital of mudaraba has been wiped out, partially or entirely, due to huge losses.
• By unilateral termination of the contract (faskh al-aqd) by either party (this is generally based on one important feature of mudaraba: a non-binding contract- aqd ghair mulzim).