Article 556 of the Saudi Civil Transactions Law
المادة 556 من نظام المعاملات المدنية · الفرع الثاني: آثار عقد المضاربة
The mudarib may not mix the mudaraba money with his own or hand it to another as a mudaraba except by custom or authorization, and where mixing is permitted the profit of each fund is calculated by its proportion.
Official text (Arabic)
This article has not been amended since the law was issued.
1- لا يجوز للمضارب أن يخلط مال المضاربة بماله ولا أن يسلمه للغير مضاربة، إلا إذا جرى العرف بذلك أو كان رب المال قد فوضه العمل بما يراه.
2- في الأحوال التي يجوز فيها للمضارب خلط مال المضاربة بماله؛ يحسب ربح كل مال بقدر نسبته من المال المختلط، ويوزع النصيب المستحق لمال المضاربة بين المتعاقدين وفق أحكام هذا الفصل.
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 556 explained in plain English
This article places two restrictions on the mudarib, then explains how profit is calculated if mixing is permitted.
First: the starting point is prohibition. The mudarib may not:
- mix the mudaraba money with his own private money.
- hand the mudaraba money to another as a mudaraba, that is, give it to someone else to work with.
The exception: this is permitted in two cases:
- if custom has established it.
- if the capital owner has authorized the mudarib to work as he sees fit.
Second: calculating profit where mixing is permitted. If the mudarib mixes the two funds in a case where that is permitted:
- the profit of each fund is calculated by its proportion of the mixed money.
- The share due to the mudaraba money is distributed between the contracting parties in accordance with the provisions of this chapter of the Law.
So the profit attributable to the mudarib's own money remains his, while the profit of the mudaraba money is divided between him and the capital owner according to the provisions on mudaraba.
This article is linked to Article 555, which makes custom govern the mudarib's work in an unrestricted mudaraba, and to Article 557, which obliges the mudarib to compensate for a shortfall in the capital if he commits a transgression or default.
If there is a dispute about whether mixing is permitted or how profit is distributed, you can consult a lawyer who specializes in commercial contracts.
Practical example
Mazen received SAR 100,000 from a capital owner to work with as a mudaraba in the furniture trade, and the capital owner authorized him to work as he sees fit. Mazen mixed it with SAR 100,000 of his own money to buy a larger quantity. If the deal makes a profit of SAR 40,000, half of the profit belongs to the mudaraba money because it represents half of the mixed money, and that half is distributed between Mazen and the capital owner in accordance with the provisions on mudaraba, while the other half is Mazen's.
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 556 of the Saudi Civil Transactions Law
May the mudarib mix the mudaraba money with his own?
No, unless custom has established it or the capital owner has authorized him to work as he sees fit.
May the mudarib give the mudaraba money to someone else as a mudaraba?
No, unless custom has established it or the capital owner has authorized him to work as he sees fit.
How is profit calculated if the mudarib mixes the two funds?
The profit of each fund is calculated by its proportion of the mixed money, and the share of the mudaraba money is distributed between the contracting parties in accordance with the provisions on mudaraba.
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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.