"Hijran Mahjura"

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Profit and Loss Sharing (PLS) is a financial arrangement where partners pool resources and distribute business gains and losses proportionally, often based on capital contributions or a pre-agreed ratio. This model emphasizes mutual trust, risk-sharing, and collective responsibility, ensuring that financial outcomes are transparent and fair among all parties involved.

1. General Partnerships

With an Agreement: Pre-Agreed Ratio profits are distributed according to the ratio explicitly defined in the partnership deed or operating agreement.

Without an Agreement: Pre-Agreed Ratio profits In the absence of a specific clause, default laws in most jurisdictions (such as the Uniform Partnership Act in the US or the Partnership Act 1890 in the UK) mandate that profits be shared equally among all partners.

• Musharakah (Joint Partnership): Losses must be shared strictly in proportion to each partner's capital contribution

For example, if a partner provided 40% of the capital, they must bear exactly 40% of the loss. Any agreement to distribute losses differently (e.g., equally or based on profit ratios) renders the contract invalid.

• Mudarabah (Trustee Partnership): Financial losses are borne solely by the capital provider (Rabb-ul-Maal).

The working partner (Mudarib) loses their effort and time (receiving no profit for their labor) but does not suffer financial loss unless the loss was caused by their negligence or misconduct.

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