1.When shares are acquired in a company, the transaction is often structured , for tax purposes, on the basis that a portion of the price is allocated to shares, and the balance to loan account , as part of a single indivisible transaction: the consummation of the one is contingent upon the other. The shares ( so acquired) can  thereafter only be sold together with the linked loan account in a single indivisible transaction.

2.In this situation, the loan account is in substance equity, from a Shariah perspective. لان العبرة في العقود للمقاصد و المعانى لا للالفاظ

3. On this basis, the shares and linked loan account held by the shareholder effectively represents the shareholder’s pro rata share  in the underlying assets of the company.

4. The underlying assets of the company must be evaluated to determine whether there are Zakaatable assets, and if so, the identity thereof. For example, the underlying assets may only constitute immovable property for investment ( capital gain) , which is exempt from Zakah. This excludes cash or rental income held on the Zakah valuation date.
    

5. To the extent that the underlying assets of the company include Zakaatable assets, ( eg: stock- in - trade + receivables +cash less allowable liabilities), such  assets would be subject to Zakah, either in the hands of the company as a separate entity, or, in the hands of each shareholder, in proportion to shareholding.

6. However, in this context, the monetary value of the  loan account itself,( treated as part of equity ) is not subject to Zakah by the shareholder.Nor is it a deductible liability against the Zakaatable assets of the company.
7. Upon the sale of the shares and linked loan account, in one indivisible transaction, the consideration paid and received by the seller, will be deemed to be added to the aggregate value of the remaining Zakaatable assets in the year of receipt, and Zakah will be paid thereon, or the remainder thereof, as held on the Zakah valuation date. No Zakah will be paid for preceding years on the proceeds of such sale. و انما تجب الزكاة فيما يبقى فى نهاية الحول  بمنزلة مال المستفاد بضمه الى الموجودات الزكوية الاخرى
( و ذهب الحنفية الى انه يضم كل ما ياتى عند الحول الى النصاب الذى عنده فيزكيها جميعا عند تمام الحول ).

And Allah Knows Best
M S Omar
27 April 2021