Sharika (partnership or corporate entity) or musharaka (the process of forming sharika) is the commingling of funds and/ or resources from different parties for the purpose of making and sharing profit.

From the perspective of fiqh al-mua’amalat (Islamic jurisprudence), sharikaat (pl. of sharika) come in two principal types: sharikat al-mulk (holding partnership or ownership partnership) and sharikat al-aqd (contract partnership).

• Sharikat al-mulk: a partnership that is formed by means of inheritance or wills. Two or more people will end up holding an asset in common- i.e., they own it together and share its returns.
• Sharikat al-aqd: a business entity that is formed by means of mutual agreement between two or more persons who agree that each of them contributes to the capital of the business and is entitled to a corresponding share in its financial results (profits or losses). The contracting parties agree to combine their assets, efforts, and/ or liabilities for the purpose of making profits. Sharikat al-aqd (contract partnerships) is traditionally classified as: sharikat al-inan, sharikat al-wojooh, sharikat al-mufawadha, and sharikat al-a’maal.

1. Sharikat al-inan (limited liability partnership): a partnership between two or more persons, each contributing a portion of the total capital and participating in work and management. Each partner has its share in profit or loss as agreed in the contract. However, shares in contributions or profits need not be equal between the partners. In other words, the partners can specify contribution and profit ratios by agreement. Fuqaha unanimously approve this type of sharikat.
2. Sharikat al-wojooh (liability partnership or receivables partnership): a contract between two or more persons whereby they build on their reputation and prestige in addition to their commercial expertise. Partners buy goods on credit from merchants, with their reputation being a credit enhancer, and sell the goods for immediate payment. They share the financial results of the business according to the contribution of each to the credit enhancement or guarantee supplied by each of them. This type of partnership is solely based on credit backed by reputation, and hence doesn’t require any capital contribution. Sharikat al-wojooh is considered permissible by some schools of thought (namely Hanbalis and Hanafis) since it encompasses a guarantee by means of agency (wakala).
3. Sharikat al-mufawadha (full authority and obligation): a contract between two or more persons with each contributing a portion of the total capital and participating in work and management. Partners receive their respective profit or loss shares according to equal ratios. Both Hanafis and Malikis considered this type of partnership valid and permissible, though they subjected it to a set of restrictions.
4. Sharikat al-a’maal or a’mal (occupational partnership): a contract between two persons or more whereby they jointly take up some occupation or craft for the purpose of making profit (whether within the same profession or across different professions). Partners receive their respective profit shares based on some pre-agreed ratio. An example of such partnership is the pooling of resources by two craftsmen who agree to work together and divide profits or shoulder losses on an agreed basis. This form of partnership is considered permissible by the majority of fuqaha (jumhur), literally Hanbalis, Malikis, and Hanafis on the basis of Prophetic approval thereof, and because it is modeled on wakalah contract. Sharikat al-a’maal is also known as sharikat al-abdan (partnership in labor, skill and management) or sharikat al-sanai’e (partnership in occupations/ crafts).

Musharaka can be also classified as constant musharaka and diminishing musharaka:

• Constant musharaka: a musharaka contract in which the proportionate shares of partners in the musharaka business/ project/ venture remain unchanged over the musharaka term (denominated in the currency of the agreement).
• Diminishing musharaka: a musharaka contract in which one partner agrees to transfer to the other partner his share in the musharaka business/ project/ venture and profit on a gradual basis, so that the former sees his share declines over time, while the latter has an increasing share until the latter becomes the sole proprietor of the musharaka venture, and the former ceases to be a partner.