Business based upon 'residual income'

20-9-2004 | IslamWeb

Question:

For your hard work and may Allah reward you the highest level of Paradise. Several businessmen would like me to join their business that I have some doubts towards. This business is based on 'residual income', where an innovator or entrepreneur gets 4% profit from every person who uses his idea to launch profitable business (ex. franchises). In Canada/US, the residual income can be in the thousands or even millions of dollars.
This type of business can make it possible for individuals to retire at the age of 30 (assuming the person starts to work right after graduating from his/her post-secondary institution), hence the person doesn't need to work anymore to get a steady income till the rest of his/her life.
I'd like to know if this type of business is Halal or not, given the fact that the innovator or entrepreneur works for a short period of time and gets income for the rest of his life. From what I know, your profit is determined by the amount of effort you exert towards achieving it, but this type of business seems to break the rules here. May Allah bless you, your efforts and your time.

---

Answer:

All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad is His slave and Messenger. We ask Allaah to exalt his mention as well as that of his family and all his companions.

 

Your question comprises two different matters.

The first matter: What relates to the right of invention and business name.

The Islamic Fiqh Committee in its 5^th conference held in Kuwait in 1405 A.H issued a report about moral rights, like copyrights and the like. The report says: "After the committee had examined the research handed by the members and experts regarding the subject of moral rights and after listening to the debates which were held on this regard, the committee decides the following:

Firstly, the business name, the business address, logo, editing and invention, are personal rights of their owners. Today, it has a considerable monetary value in contemporary traditions as people invest on them. These rights are recognized by Islamic Jurisprudence, so it is not permissible to transgress these rights.

Secondly, it is permissible for the owner to do as he pleases in relation to his business name, business address, logo, or transfer any of it with a monetary value if there is no harm or cheating, as this is considered as a monetary right of ownership.

Thirdly, the copyright and rights of invention are Islamicly protected. Their owners have the right to run them, and therefore it is not permissible to transgress these rights.  

The second matter:

What relates to the selling or renting the right of invention or the business name with some benefits:

This is not permissible because the yearly benefit rate is unknown, it could be small and it could be a large benefit, or it could be that there is no benefit at all. So the matter is unknown, and this is considered form of cheating, and the Prophet forbade us from cheating.

Therefore, the solution for this kind of transaction is to sell or rent the right of invention or the business name for a known price rather than for a portion of an unknown amount. 

Allaah knows best.