A critical examination towards the Islamic discourse on "limited liability"

The concept of limited liability has been a very important component of the development of the global economy. However, while limited liability is currently a reality all over the world including the Islamic nations, it is not without discourse among the Muslim jurists. The debate mainly revolves around two core issues. The first issue is the concern of some jurists that the only acknowledged legal entity in Islamic law are natural persons, and that legal persons (like limited liability corporations) are 'fictitious'. The second issue concerns how the owners of the limited liability companies have rights to residual profits of the company, but do not bear the liability towards the debt when insolvency occurs. Some jurists are concerned because the Shari'ah dictates that paying debts is a very serious matter. Using the literature research method, this article critically examined the debate between the jurists especially in the two issues mentioned earlier and determined which argument is stronger. It was found that, in the end, establishing a legal entity other than natural persons as well as barring company owners from debt liability are very hard to justify under the Shari'ah. However, given the status-quo construct of global economics, not utilizing limited liabilities may cause devastating economic repercussions. Therefore, a new model of corporation might need to be researched and explored in order to suit the necessities of the economy as well as being consistent with the Shari'ah. © 2020 Elsevier B.V., All rights reserved.