Article 551 of the Saudi Civil Transactions Law
المادة 551 من نظام المعاملات المدنية · الفرع الأول: إنشاء عقد المضاربة
A mudaraba's capital may be a debt owed to the capital owner by the mudarib, and if non-cash property is contributed, the capital is its value at the time of contracting or on agreed valuation bases.
Official text (Arabic)
This article has not been amended since the law was issued.
1- يصح أن يكون رأس مال المضاربة الدين الذي لرب المال في ذمة المضارب.
2- إذا كان ما قدمه رب المال للمضاربة مالًا من غير النقد فيكون رأس المال قيمة ما قدمه عند التعاقد أو بما يتفق عليه المتعاقدان من أسس صالحة لتقييمه.
This is the official Arabic wording, the only legally binding version. We do not translate the law itself; the explanation below is ours. Official source: Bureau of Experts at the Council of Ministers
Article 551 explained in plain English
This article explains what may be the capital of a mudaraba, and how it is calculated where it is not cash.
First: a debt as mudaraba capital. The capital of a mudaraba may be the debt owed to the capital owner by the mudarib. If one person owes a debt to another, they may agree that the debtor works with that sum as a mudaraba instead of repaying it.
Second: non-cash capital. If the capital owner contributes property other than cash to the mudaraba, such as goods or equipment, the capital is determined in one of two ways:
- the value of what he contributed at the time of contracting.
- or valuation bases that are sound and that the contracting parties agree on.
Fixing the capital matters in practice because it is the basis on which it is known whether the mudaraba has made a profit or its capital has been reduced.
This article builds on the definition of mudaraba in Article 550 as a contract in which the capital owner hands over money to a person who works with it for a joint share of the profit. It is also linked to Article 552, which obliges the capital owner to hand the mudaraba money to the mudarib and enable him to manage it and deal with it.
To avoid a later dispute, it is best to state the capital, or the bases for valuing it, clearly in the contract, and you can use a lawyer who specializes in commercial contracts to draft it.
Practical example
Faisal bought goods on credit from his friend Omar for SAR 80,000, and they then agreed that this sum would stay with Faisal as mudaraba capital, which he works with for a share of the profit. In another deal, Omar handed Faisal commercial kitchen equipment, and they agreed to value it at the market price on the day of contracting, and that would be the capital.
Translated from our Arabic explanation with machine assistance. For guidance only; it does not replace advice from a lawyer on your situation.
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Frequently asked questions about Article 551 of the Saudi Civil Transactions Law
Can a debt be the capital of a mudaraba?
Yes. The capital of a mudaraba may be the debt owed to the capital owner by the mudarib.
How is mudaraba capital calculated if it is goods or equipment?
The capital is the value of what the capital owner contributed at the time of contracting, or on valuation bases the contracting parties agree on that are sound.
Does mudaraba capital have to be cash?
No. The article allows the capital owner to contribute property other than cash and explains how its value is determined.
More articles on Partnership and Mudaraba
- Article 528
The article requires partnership contracts and their amendments to be in writing or be void, while barring reliance on the voidness against third parties and limiting its effect between the contracting parties to the period after a voidness claim is filed.
1- يجب أن تكون عقود المشاركة الواردة في هذا الباب مكتوبة، وإلا كانت باطلة، ولا يجوز أن يحتج المتعاقد بالبطلان تجاه الغير، ولا يكون للبطلان أثر فيما بين المتعاقد
- Article 529
The article defines the partnership as a contract under which two or more partners contribute a share of money, work, or both to a project in order to divide its profit or loss, and excludes partnerships governed by special legal provisions.
1- الشركة عقد يسهم بمقتضاه شريكان أو أكثر بتقديم حصة من مال أو عمل أو منهما معًا في مشروع لاقتسام ما ينشأ عنه من ربح أو خسارة. 2- لا تسري أحكام هذا الفصل على ال
- Article 530
The article bars a partner's influence, reputation or financial credibility from being his share, explains how a non-cash share is valued, and says when a partner's obligation ends if his share is a debt owed by a third party.
1- لا يصح أن تكون الحصة أو بعضها ما للشريك من نفوذ أو سمعة أو ثقة مالية. 2- إذا كانت حصة الشريك غير نقدية، قُدرت الحصة بقيمتها عند التعاقد أو بما يتفق عليه الشر
- Article 531
The article allows a partnership to be based on the partners' joint liability for what they undertake in their obligations for its benefit, makes each partner's share in the capital equal to what he undertook unless otherwise agreed, and allows partners to differ in their obligations.
1- يصح أن تقوم الشركة على أساس تضامن الشركاء فيما يلتزمون به في ذممهم من مال أو عملٍ لمصلحة الشركة، وتكون حصة كل منهم في رأس مال الشركة بقدر ما التزم به في ذمته
- Article 532
The article provides that each partner's share is determined by what he undertook in the partnership contract, and that he may not increase it except with the consent of the other partners.
تتحدد حصة كل شريك بالحصة التي التزم بها في عقد الشركة، ولا يجوز للشريك زيادة حصته عن الحصة المحددة في عقد الشركة إلا بموافقة باقي الشركاء.
- Article 533
The article subjects the guarantee of a partner's share to the rules of sale if it is a right of ownership or another real right, and to the rules of lease if it is merely the use of property.
إذا كانت حصة الشريك حق ملكية أو أي حق عينيّ آخر فإن أحكام البيع هي التي تسري على ضمان الحصة إذا هلكت أو استحقت أو ظهر فيها عيب، وإذا كانت الحصة مجرد الانتفاع با
The texts are reproduced from the official website of the Bureau of Experts at the Council of Ministers for reference; where they differ, the officially published Arabic text prevails. This content is not legal advice.