Dissolving a partnership with the condition of restraint of trade
Q: I have a few questions pertaining to the dissolvement of a partnership. Preamble relating to the questions:
In the year 2012 (July) I sold a 50% share of my business to my cousin. Alhamdulillah our partnership proved to be very beneficial to both of us. In the year 2020 (August) I requested a dissolvement of the partnership due to personal reasons. During the time of our partnership, we established 2 branches, JHB & DBN. At the time of dissolvement we agreed to the following:
1) I would take the Durban branch and he would take the JHB branch.
2) The Durban branch generates a lower turnover so we decided to split the areas that the JHB branch supplies.
3) JHB would keep the following provinces exclusive to itself i.e Mpumalanga, Gauteng, North West and Free State. Swaziland and Lesotho would also fall under the JHB client base.
4) The Durban branch would keep the KZN & EC provinces exclusive to itself.
5) Limpopo would be divided into the following category: All “Blue Chip” clients would remain under the JHB branch whilst all independent hardware stores would fall under my portfolio of clients.
6) Botswana as well as a certain single customer from the North West would also fall under my portfolio.
7) Our agreement on the areas and customers only pertain to products that were manufactured by us. For any additional products or new products, there is no restriction on either party. Each partner is free to trade in these new products with any client in any area.
8) The value of the business was restricted only to actual value i.e no goodwill figures or future earnings were added to the value. Stock was calculated at cost and equipment was calculated at an agreed percentage of depreciation. Alhamdulillah , the dissolvement has been very amicable thus far and we pray to Allah Ta'ala that we both maintain our respect and love for each other.
Question:
1) Whilst we have a gentleman’s agreement in place pertaining to the restraint of trade, is it allowed in Shari'ah law?
2) The restraint agreement only pertains to the life time of either partner. Is this permissible?
What happens if either partner decides to hand over the business to their children. Will this restraint still be allowed?
3) In the event that either partner sells his business/branch will the restraint still be allowed?
A: The shari'ah does not recognise the concept of restraint of trade.
And Allah Ta'ala (الله تعالى) knows best.
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