The Concept of Corporate Limited Liability in the Light of the Principle of Liability under Islamic Law (al-Kharāju biḍ-Ḍamān)

Abstract

Ḍamān, liability or compensation, in Islamic law it can take many forms, but it has a special meaning in Islamic commercial law where it reads that earning (or profit or revenue) depends upon the corresponding liability for bearing loss. The principle, thus stated, is perhaps the most powerful in the entire corpus of Islamic law. It is tied to the passing of ownership or the passing of title in commercial transactions. It is intimately tied to the rule of the prohibition of interest or ribā in so far as it deals with risk bearing transactions. The principle also sheds light on the concept of limited liability associated with limited companies or corporations. It is this last meaning that is of importance for this paper. This study first understands the meaning of limited liability with reference to the corporation, and traces its evolution and current status. The meaning, nature and total scope of ḍamān is then explored. Once the power of the principle is seen, it is applied to commercial law, not only Islamic commercial law, but also to modern secular law. Finally, the principle is applied to the concept of limited liability as found in modern corporations. The study sheds light on the way Muslims are justifying modern devices and institutions, especially in the area of commerce.