Is Goodwill permissible?
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
Goodwill is seen as an intangible asset on the balance sheet because it is not a physical asset such as buildings and equipment. Goodwill includes assets with value that are exceptionally difficult to quantify. It typically reflects the value of intangible assets such as a strong brand name, good customer relations, good employee relations and any patents or proprietary technology.
Goodwill helps a company remain competitive in the long term, even if the company does not produce the best product. For example, a customer will be more likely to buy peanut butter from one company and pay more for it, if he/she thinks the company produces better-tasting peanut butter, regardless of whether or not this is the case. When a company buys another company, it will often pay above the target company’s book value to account for Goodwill.
Goodwill is not considered to be valid article of trade in Sharī’ah. Therefore, it will not be permissible to charge any amount for Goodwill.
As an alternative, a businessman can inflate the price of his business to incorporate the amount of Goodwill he would have received. For example, a business is worth £40,000 and the Goodwill is worth £10,000. It is not permissible to charge £10,000 for the Goodwill. So instead of making a £10,000 loss, the businessman should sell his business for a total £50,000 without making any reference to Goodwill. In this way, the sum total of £50,000 will be equated wholly to the business. As a result, it will be permissible for him to receive the total of £50,000.
And Allah Ta’āla Knows Best
Mawlana Faraz ibn Adam