Degree

Master of Science in Islamic Banking & Finance

Department

Department of Finance

Faculty/ School

Faculty of Business Administration (FBA)

Date of Submission

Fall 2026

Supervisor

Dr. Irum Saba, Professor, Institute of Business Administration, Karachi

Committee Member 1

Prof. Dr. Imam Uddin, Examiner-I, Associate Dean – College of Business Management & Director Centre for Islamic Business & Finance, Institute of Business Management (IoBM), Karachi

Committee Member 2

Dr. Syed Aun Raza Rizvi, Examiner-II, Associate Professor, Lahore University of Management Sciences

Committee Member 3

Dr. Mohsin Sadaqat, Assistant Professor, Department of Finance

Keywords

Islamic Finance, Islamic Economics, Governance, 

Limited liability; Separate legal personality; Shirkah; Mushārakah; Shariah; Corporate law; Hybrid liability; Protection of rights-holders; Pakistan

Abstract

The modern corporation rests on two doctrines: separate legal personality and limited liability. Together they have enabled capital formation and the participation of passive investors on an unprecedented scale, yet they also permit business risk to be shifted onto financiers, trade counterparties and other third parties who are poorly placed to price or contract against that risk. This thesis reassesses both doctrines from the standpoint of Shariah, and in particular the classical framework of shirkah and mushārakah, in which liability is personal, follows ownership and control, and is governed by the maxim al-ghurm bil-ghunm. Adopting a doctrinal and comparative legal methodology, the study traces the historical development of separate legal personality and limited liability in English and American law, reviews the academic and Shariah literature on both doctrines, and examines the Pakistani corporate environment, where group structures and insolvency practice have exposed financiers and other counterparties to significant loss. The doctrinal analysis is complemented by interviews with five experienced Hanafi Shariah scholars. The thesis finds that the existing Shariah justifications for limited liability, including the master–slave analogy and the argument from functional equivalence, do not adequately address the position of shareholders who actively control the company. It proposes a hybrid liability framework under which passive investors retain limited liability while director-shareholders and shadow director-shareholders bear proportionate personal liability to the company’s financiers and other rights-holders for losses caused by bad faith or mismanagement, including negligence. A draft legislative provision giving effect to this framework is presented for adoption in a model Islamic companies law.

Keywords: Limited liability; Separate legal personality; Shirkah; Mushārakah; Shariah; Corporate law; Hybrid liability; Protection of rights-holders; Pakistan

Document Type

Restricted Access

Submission Type

Thesis

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