What is the ruling on dealing with participation in a commercial project with guaranteed capital and profit-sharing for one year, provided that both parties to the contract have the option to continue or terminate the participation with full recovery of the capital upon termination?

The basic ruling is that this transaction is permissible if it is free from any prohibited conditions, such as stipulating a guarantee for the principal capital. This is because stipulating such a guarantee removes the transaction from being a partnership (sharika) or profit-sharing (mudaraba) and places it under the category of prohibited usurious loans. The correct form is to agree on not guaranteeing the principal capital, and that both parties are exposed to either loss or profit. At the end of the term, you have the choice to either continue or terminate the partnership. As for the prohibited form, it is the full recovery of the principal capital along with the profit, if any, after the term expires, even if there was a loss.