COMPARATIVE STUDY OF PARTNERSHIP UNDER ISLAMIC AND STATUTORY LAWS IN NIGERIA

Abstract:

Partnership as a means of trade and commerce is widely practice in an infinite variety of circumstances. In choosing the type of business enterprise one is to engage in from range of options such as sole proprietorship, forming a registered company or forming a partnership, regard is to be heard to ones financial capability. This is more so in the contemporary Nigerian society where the outcry of lack of funds is the order of the day in almost every household. This condition makes investment as a sole proprietor or forming a company affordable only to very few people. The option open to the vast majority of others is to engage in Partnership – a system that permits people to put their respective resources together with a view to profit. Nigerian society is by all standards a complex one with multi-religious and ethnic groups. Although majority of its population arc Muslims, the country follows English based legal system with very few exceptions that permits the application of Islamic law in some areas which include, the muslim personal laws. In this respect matters involving Muslims – relating to marriage, divorce and civil transactions may be govern by Islamic Law. Thus the choice of a comparative study of partnership under both statutory and Islamic Law is a necessity. The laws applicable to partnership involving muslim parties on the one hand is or ought to be Islamic Law and statutory laws in all partnership involving other categories of people with or without a muslim partner on the other. In respect of the statutory laws, we use the English Partnership Act of 1890 which is a statute of general application and still applies to many states that are yet to enact their own indigenous partnership laws. In fact in Northern States, it is only Kaduna State that enacted their partnership Edict and in the South, states like Lagos, former western state now Ekiti, Oyo, Ondo, Ogun and Osun and former Bendel State, now Delta and Edo. It is not in doubt that even the states that have succeeded in enacting their indigenous partnership laws, it was a substantial reproduction of the English Act with virtually little or no modification. This makes the historical development of the Nigerian Partnership laws (statutory) inseparable to that of the English Act. The above notwithstanding, vast majority of partners are completely ignorant of the legal provisions governing partnership both under the statutes and Islamic Laws alike. Thus the rules for determining the existence or otherwise of partnership, capacity of the parlies to enter into partnership and the essential issues that need to be agreed upon by potential partners are the bedrock of any partnership agreement. This, considered as a prelude, forms the basic of our discourse in Chapter one. When a party decides to engage in partnership, the next huddle is to know and chose the type of partnership he is to go into. Partnership both under Islamic and statutory Laws are of various types and their division is based on the nature of business involved. Under statutory laws, if it does not involve a lot of commercial activities it is categorised as civil this include partnership such as that of farmers, artisans, labourers. While if it involve a lot of commercial activities, like trading it is categorised as commercial. Partnership may be divided into undisclosed, general and limited partnerships. In some circumstances partnership may also arise by estoppel. Other type of partnership includes corporate, group, particular, sub and illegal partnerships. Whereas under Islamic Law Partnership is broadly categorised into proprietary (Sharikat al-milk) which does not involve much commercial activities and contractual or commercial (Sharikat al-aqd); which, as the name suggest involved commercial activities. It comprise of – unlimited investment partnership (Sharikat-al-mufawada). limited investment partnership (Sharikat- ul-Inan), commenda (Sharikat-al-mudarabah) skilled partnership (Sharikat al-Sanai), credit partnership (Sharika al-wujuh), share tenancy (Muzara’a and Musaqat). Attempt has been made to high light the areas of differences and similarities between the categories under statutory laws and those under Islamic law. These have been exposed in chapter two. The whole essence of engaging in partnership is to make profit. The profit cannot be made except some obligations are met. It is the criss-cross of these two factors that culminates into the rights and obligations of the partners which is our main concern in chapter three. There are a lot of similarities in the rights and duties under the two laws but a sharp distinction exist in the freedom of the parties to agree on the share of loss. Under Islamic Law, loss follows capital contribution and it is not permissible for partners to agree on any proportion other than that of capital contribution while under statutory laws the parties are free. As a necessary antecedent to rights and obligation of partners, comes the partners’ relationship to third parties. Part of each partner’s obligation is how he relates to third parties on behalf of the partnership firm. Each partner acts in dual capacity:- as principal when his co-partners act for the firm and as agent when he acts for the firm. Here again there are a lot of similarities with some sharp differences when it comes to the right of third party against the firm. Under statutory laws a third party can sue the firm as a whole whereas under Islamic Law, he can only sue the partner he had dealings with. This has been treated in chapter four. Chapter five focuses on the relationship of partnership as a concept to other related business concepts with particular references to company and agency. It examines the differences and similarities between company and partnership in areas of legal personality, limited liability, perpetual succession, possibility of transfer of shares and ownership of property as it applies both under statutory and Islamic Laws. Whereas in the case of partnership and agency we examined them as twin sisters in that partner acts as principal on the one hand and as agent on the other. Principal and agent are the two pillars for the existence of agency relationship. Having considered the formation and types of partnership, rights and obligation of the partners, partners relation to third parties and the relationship of partnership to company and agency. Chapter six examines the ways and manners through which partnership can be dissolved. Dissolution under statutory laws is of two types i.e. dissolution in the ordinary process not by court and dissolution by court, depending on the factor calling for the dissolution. Although not expressly categorised, dissolution under Islamic law follows virtually the same process to that under statutory laws with few differences. Dissolution whether pre-arranged, or agreed by the parties or abrupt is always visited with some consequences. The connection of the partners still remains, until the affairs of the firm are finally wound up. In other words the dissolution give rise to certain rights and obligations pending winding up and final settlement of account. Chapter seven examines the processes of winding up to final settlement of account, as the consequences of dissolution. Finally chapter eight reviews the whole work and attempted to harmonise the practical operation of partnership with the legal provisions. It highlighted the lots of problems associated with partnership and canvassed some suggestions with a view to arresting the problems.