The ratio in which the profits or losses of a business are shared. For a partnership, the profit-sharing ratios will be set out in the partnership agreement. This will show the amount, usually given as a percentage of the total profits, attributable to each partner. In some agreements there is a first charge on profits, which is an allocation of the first slice of the profits for the year. The remainder will then be split in the profit-sharing ratios as specified in the agreement. The profit-sharing ratios can also apply to the capital of the partnership, but this does not always follow. The partnership agreement can specify a different capital-sharing ratio. If no specific agreement has been made, profits and losses will be shared equally in accordance with the Partnership Act 1890.
Subjects: Financial Institutions and Services — Accounting.