Skip to content
۞
ISC213 · Lecture 6
Shares
بِسْمِ اللَّهِ الرَّحْمَٰنِ الرَّحِيمِ

Shares

Lecture 5 named the share; this lecture rules on it. What a share is, the four values a single share carries, the three ways shares are classified — and which of those types Islamic law forbids and why. It ends with the five conditions for dealing in shares, the trading rules, and how zakat is paid on them.

12study blocks
4values of a share
8ordinary-share rights
14quiz questions
SLIDE BLOCK 1

01 What is a share? (الأسهم)

Shares are deeds representing units of ownership in a company’s capital. Each share has an equal value, cannot be split up, can be traded (bought and sold) on the market, and proves ownership rights as a shareholder in that business.

Corporations are owned by shareholders who hold shares of stock. That ownership can be:

Public
Traded on stock exchanges.
Private
Not publicly traded.
Mnemonic
A share is a deed of ownership, not a loan. Hold that one idea and every ruling in this lecture follows from it: an owner shares in profit and loss.
SLIDE BLOCK 2

02 Four characteristics of shares

  1. Equal in value — the company’s capital is divided into equal parts.
  2. Indivisible against the company — if several people share one share, only one of them represents them before the company.
  3. Tradable — shares can be sold, bought or traded.
  4. Nominal value — a stated value on the deed, set by law within a maximum or minimum limit.
Mnemonic — “E.I.T.N.”
Equal · Indivisible · Tradable · Nominal value. Lecture 7 gives bonds the same four traits, so learn them once.
SLIDE BLOCK 3

03 The four values of a share

Value What it is Does it change?
1. Nominal (par) value The face value printed on the deed — the legal minimum price at which shares can be issued. No. A fixed amount, such as $1 or $10.
2. Issue value The price at which shares are offered to the public in an IPO or when new shares are issued. Set at each issue.
3. Real value Assets minus liabilities — the share’s actual financial worth. Yes, with the company’s profitability.
4. Market value The current trading price on the stock exchange. Yes — supply and demand, speculation, political and economic conditions.
Mnemonic — “N.I.R.M.” (printed → offered → worth → traded)
Nominal is printed on the paper. Issue is what it is offered at. Real is what the company is actually worth per share. Market is what people will pay today.
Common mistake
Mixing up real and market value. Real value comes from the balance sheet (assets − liabilities). Market value comes from the exchange (supply and demand). Both move — for different reasons.
SLIDE BLOCK 4

04 Classification 1 — ordinary shares (الأسهم العادية)

Shares are classified three ways: by the rights they give, by whether their nominal value is recouped early, and by the nature of what was paid for them. The first split is by rights: ordinary versus preferred.

Ordinary shares are equal in value and give every holder equal rights:

  1. Remain in the company — no expulsion and no forced taking of shares without consent.
  2. Vote in the general assembly — one vote per share.
  3. Receive dividends — profit distributions to shareholders.
  4. Dispose of shares — sell, gift and so on, because they are tradable.
  5. Monitor the business — review the balance sheet, profit and loss and other records.
  6. Sue board members for liability over their errors.
  7. Priority in subscription when the company raises capital with new shares.
  8. Recoup their share from what is left of the assets on liquidation.
Mnemonic — the life of a shareholder
Stay → Vote → Earn → Sell → Watch → Sue → Buy first → Collect at the end. Eight rights, in the order a shareholder would use them.
SLIDE BLOCK 5

05 Preferred shares — and why they are forbidden (الأسهم الممتازة)

Preferred shares give their holder special rights that ordinary shares lack, to attract the public to subscribe:

Ruling — not permissible to issue
  1. A fixed profit regardless of profit or loss is riba (usury).
  2. Treating shareholders unequally contradicts the justice Islam requires.
Common mistake
Saying preferred shares are haram because of the extra votes alone. The slide’s first reason is riba — a guaranteed fixed return turns an owner into a lender. Unequal treatment is the second reason.
SLIDE BLOCK 6

06 Classification 2 — capital vs. enjoyment shares (أسهم رأس المال وأسهم التمتع)

Capital shares Enjoyment shares
Nominal value repaid early? No — never while the company is operating, since that would shrink the capital. Yes — the company redeems the investor’s money before it shuts down.
After repayment — The holder supposedly keeps ownership status, voting power and a right to ongoing profits.
Includes Both preferred and ordinary shares. “Shares consumption”, e.g. petroleum drilling companies.

Why enjoyment shares exist

Some businesses — like oil exploration — use up their physical assets over time. A depleting business may not have enough left to repay shareholders when it closes, so it repays them gradually while still running, refunding shares annually and choosing them by lottery.

Ruling — enjoyment shares are not permissible
Once a partner has recovered the value of their shares, they are no longer a partner in the capital or the work, so they have no right to profit — any profit taken is illegitimate money. The lottery adds manipulation and uncertainty. Together: consuming others’ wealth unjustly, plus gharar.
SLIDE BLOCK 7

07 Classification 3 — in-kind vs. cash shares

In-kind shares (الأسهم العينية)
Issued in exchange for non-cash assets — property, equipment, intellectual property, or other tangible or intangible assets.
Cash shares (الأسهم النقدية)
Bought with cash as the shareholder’s contribution — the most common way companies issue shares.
The three classifications at a glance
Rights → ordinary vs. preferred. Recouping → capital vs. enjoyment. Nature → in-kind vs. cash. Only the second member of the first two pairs is forbidden: preferred and enjoyment.
SLIDE BLOCK 8

08 When is dealing in shares permissible?

Dealing in shares is permissible on these conditions:

  1. The company’s objectives and core business are halal. Owning, buying or trading shares in a company making alcohol or running usurious banks is impermissible — its profits are unlawful and buying in is partnering in sin.
  2. The company does not deal in riba, even in some of its transactions.
  3. The company is known and transparent, with clear integrity and financial health.
  4. The shares are not preferred shares — fixed profit is riba, and unequal treatment is unjust.
  5. The shares are not enjoyment shares — no partnership left, plus lottery gharar.
Mnemonic — “Halal, Clean, Clear, Not-P, Not-E”
Halal activity · clean of riba · clear company · not preferred · not enjoyment. Conditions 4 and 5 point straight back to blocks 5 and 6 — the “(why?)” on the slide is asking you to give those reasons.
SLIDE BLOCK 9

09 Rules for trading shares

No usurious loans
Buying shares with an interest-bearing loan is strictly prohibited.
Own before you sell
Short selling — selling a share you do not yet own — is forbidden.
Fully negotiable
Shares can be sold, transferred, or used as collateral for a mortgage.
Installments allowed
Paying for a share in installments over time is permissible.
Common mistake
Thinking installments are a problem. They are allowed. What is forbidden is borrowing with interest to buy, and selling what you don’t own.
SLIDE BLOCK 10

10 Zakat on shares (زكاة الأسهم)

Type of shareholder Zakat
Long-term investor — bought or subscribed and holds for periodic dividends No zakat due directly from the shareholder, provided the company pays zakat on its shareholders’ behalf (as companies in Saudi Arabia do).
Active trader / speculator — frequently buys and sells Value the whole portfolio at market value at the end of the lunar year and pay zakat on that value.

The lecture adds a video on zakat: watch on YouTube.

Mnemonic
Hold → the company pays. Trade → you pay, on market value, once a lunar year.
SLIDE BLOCK 11

11 Flashcard glossary

Click a card to flip it.

SLIDE BLOCK 12 · FINAL CHECK

12 Pop quiz

14 questions covering the whole lecture.