Law Sharing for Profit and Management Profit

The Law Sharing Law in Sharia Banking is the main foundation governing the distribution of residual business results between managers and investors. This principle is an alternative to interest that is considered usury in the banking system according to Islamic law.

But, what is the law of profit sharing and how is the distribution method? This article will discuss the laws and profit sharing between investors and managers.

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What is profit sharing in business?

Profit sharing in business is a fund management system that includes procedures for distributing business results between investors and fund managers. In its application, the distribution of profit sharing portions is determined and agreed upon by both parties when the cooperation agreement is carried out.

If a profit occurs, it will be divided according to the agreement based on the amount of profit from the results of the business of the capital given. Conversely, if there is a loss, it will be borne together in accordance with the capital contribution of each party. This is in line with the principle of justice and harmonious investment cooperation relations.

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Legal principles in profit sharing

The legal principle in profit sharing is a fundamental foundation that regulates the relationship between the parties in a cooperation agreement, especially related to profit sharing. In practice, the profit sharing system is based on sharia principles and the provisions in the Civil Code (“Civil Code”). Although the concept of profit sharing is rooted in sharia teachings, its implementation in Indonesia must still comply with the principles of contract law that apply in general.

So that in its implementation, this profit sharing law combines two different legal approaches but supports each other, in which sharia principles determine the moral aspects and the substance of the agreement such as the prohibition of usury and the distribution of risks while civil law guarantees formal validity and the appointment of the agreement in the national legal system. Failure to meet one of these two aspects can cause the contract to be declared invalid or cannot be established legally.

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Yield sharing method

Based on the legal doctrine, there are several methods of distribution of results including:

1. Profit sharingNamely the distribution of results based on net profit, namely the company’s revenue after deducting all operational costs, taxes, and other obligations.
2. Sharing Gross ProfitNamely the distribution of results based on gross profit, namely the company’s revenue after deducting the cost of goods sold but has not been reduced by other operational costs such as salaries, taxes, or marketing costs.
3. Share incomeNamely the distribution of results based on total operating income, namely company revenue without a reduction in any cost.
4. The distribution of dividends and salaries, namely the distribution of general results in a legal entity company, where there is a separation between capital owners (shareholders) and managers (Directors/Commissioners/Employees). In this method the investors (shareholders) are only entitled to dividends according to the proportion of share ownership, while managers obtain salaries based on the determination of company organs (GMS or Decree of the Directors/Commissioners).
5. The distribution of dividends to investors, namely the most common and standard distribution of results in the structure of the company -mitled company, where dividends can only be distributed if the company has a positive profit balance, and the distribution of dividends must get the approval of the GMS.

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Legal aspects and taxes in profit sharing

One important aspect that must be considered in profit sharing law is compliance with the provisions of the legislation and tax regulations that apply. This is crucial to ensure legal certainty and ensure the creation of compliance with existing rules.

In the legal aspect, each profit sharing agreement must be outlined in a clear and binding written contract to guarantee legal force and avoid potential disputes in the future.

Whereas in the taxation aspect, any income earned from the profit sharing system is subject to income tax (PPh) in accordance with applicable regulations, both on behalf of the body and individuals.

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Islamic law principles in profit sharing

In Islamic law, the implementation of profit sharing can be carried out in accordance with the values ​​of justice sourced from Islamic sharia, which in its implementation uses several main principles, namely:

1. Al-Musyarakah
   Also known as the principle of profit sharing is a cooperation agreement between two parties to benefit, then each party contributes funds (or charity/expertise) with an agreement that the benefits and risks will be borne together in accordance with the agreement.

2. Al-Mudharabah
   Also known as the principle of capital participation is a agreement between the two parties, one of the two gives capital to the other so that the benefits are developed and divided between the two in accordance with the agreed provisions.

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Tips for preparing a valid profit sharing agreement

In a profit sharing agreement, it is important to understand how to prepare an agreement in accordance with the principles of sharia and contract law in Indonesia. Here are some tips for preparing legal profit sharing agreements, including:

1. The agreement must be made by meeting the valid requirements as stipulated in Article 1320 of the Civil Code:
   1. Agreed they tie themselves
   2. Skills to make an engagement
   3. A certain thing as the object of the agreement
   4. Halal reason

2. Arranged clearly and firmly related to the mechanism for distribution of results including the basis of calculation, the proportion of the distribution of results for each party, time and procedure for the distribution of results.
3. Made in detail related to the rights and obligations of each party and regarding the handling of losses, Force Majeure and all dispute resolution that can be done if there is an incident beyond control.

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(This article has been edited by the perqara editorial team)

Reference

1. Syafi’i Antonio, Sharia Bank Theory and PracticeJakarta: Gema Insani, 2001.
2. Muchlis Yahya and Edy Yusuf Agunggunanto, “Profit Sharing Theory (Share Profit and Loss) and Islamic banking in Islamic economics, Journal of Development Economic Dynamics, Vol. 1, No. 1, (2011).
3. Kartika Soetopo, David Paul Elia Saerang and Lidia Mawikere, “Analysis of Implementation of Principles of Revenue Sharing, Risks and Handling Problem Funding on Musyarakah Financing and Mudharabah Financing”, Journal of Sam Ratulangi University.
4. Syaiful Ma’ruf and Retno Ayu Cahyoningtyas, “The concept of profit sharing (Fortunately Sharring) in sharia perspective ” Al-Iqtishady: Journal of Sharia EconomicsVol. 1, No. 2, (2023).
5. Abdul Jalil and Sitti Azizah Hamzah, “The Effect of Profit Sharing and Capital Needs on MSME Interest in Filing Financing at Sharia Financial Institutions in Palu City”, Journal of Islamic Banking and Finance, Vol. 2, No. 2, (2020).