According to most scholars, a stock represents a share in the company’s ownership. This is because the ʿurf (normative practice of people) considers the shareholders to be partial owners of the company as the profit is distributed among them, and its loss harms them. Additionally, they have the rights to the assets when the company is liquidated. As for the shareholders not being entitled to transact with the company’s assets directly, no one partner has the authority to transact with the company’s assets directly since each partner has joint ownership of all the assets. In addition, the company’s partners established the company on the basis that the disposal of the assets would be based on the decision of all the partners represented by the shareholders and the board of directors.^[1]

As such, the scholars have permitted the sale of stocks. However, this permissibility is subject to certain conditions, including the following:

1. If the company’s assets are all liquid, its stock can only be sold at par value.
2. The primary business of the company must be lawful. It cannot be in dealings such as gambling, wine, or pornography. However, if the primary business of the company is lawful but it has some impermissible components, such as depositing its surplus money in interest-bearing accounts, it will still be permissible to buy such stock if the impermissible components do not exceed more than five percent of the revenue. 
3. If the shareholder receives dividends, the proportion of the company’s income gained by impermissible means must be given to charity without intending reward. For example, if three percent of the revenue of a company is from interest-bearing deposits, three percent of the dividend must be given to charity.^[2]

Note that the conditions for the permissibility and validity of transactions will also apply to the sale of stocks. For example, one cannot sell that one does not own or possess. 

Gambling is when one gives something of value and expects something in return based on an uncertain outcome.^[3] When one invests in stocks, this is not the case. Instead, the return is based on the performance of the underlying asset/s. Additionally, knowing whether one’s investment will be profitable is not necessary, as it is not possible, nor is knowledge of the stock market necessary for the validity of the sale. Hence, it is permissible to invest based on the suggestions of others.

And Allah knows best.

Mf. Osman Mohammed
Graduate, Darul Iftaa Chicago

Checked and Approved:

Mf. Abrar Mirza
Head Mufti, Darul Iftaa Chicago