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Profit and Loss Distribution in Partnerships

The document discusses how profits and losses are distributed among partners in a partnership. It states that profits and losses will be distributed according to any agreement among the partners. If there is no agreement, profits will be distributed in proportion to capital contributions, with the industrial partner receiving an equitable share of profits. Losses will also typically be distributed according to capital contributions, though an industrial partner is not liable for losses. Examples are provided to illustrate different scenarios.

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3K views7 pages

Profit and Loss Distribution in Partnerships

The document discusses how profits and losses are distributed among partners in a partnership. It states that profits and losses will be distributed according to any agreement among the partners. If there is no agreement, profits will be distributed in proportion to capital contributions, with the industrial partner receiving an equitable share of profits. Losses will also typically be distributed according to capital contributions, though an industrial partner is not liable for losses. Examples are provided to illustrate different scenarios.

Uploaded by

BOEN YATOR
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
  • Article 1797
  • How is Profit Distributed?
  • Example 1
  • Example 2
  • Example 3
  • Distribution of Losses

ARTICLE 1797

DISTRIBUTION OF PROFITS AND LOSSES


AMONG PARTNERS

BY: SWEET DIANA DAWN P. PALLER


ARTICLE 1797
THE LOSSES AND PROFITS SHALL BE DISTRIBUTED IN CONFORMITY WITH THE
AGREEMENT. IF ONLY THE SHARE OF EACH PARTNER IN THE PROFITS HAS
BEEN AGREED UPON, THE SHARE OF EACH IN THE LOSSES SHALL BE IN THE
SAME PROPORTION.

IN THE ABSENCE OF STIPULATION, THE SHARE OF EACH PARTNER IN THE


PROFITS AND LOSSES SHALL BE IN PROPORTION TO WHAT HE MAY HAVE
CONTRIBUTED, BUT THE INDUSTRIAL PARTNER SHALL NOT BE LIABLE FOR
THE LOSSES.

AS FOR THE PROFITS, THE INDUSTRIAL PARTNER SHALL RECEIVE SUCH


SHARE AS MAY BE JUST AND EQUITABLE UNDER THE CIRCUMSTANCES. IF
BESIDES HIS SERVICE HE HAS CONTRIBUTED CAPITAL, HE SHALL ALSO
RECEIVE A SHARE IN THE PROFITS IN PROPORTION TO HIS CAPITAL.
HOW IS PROFIT DISTRIBUTED?
1. General Rule: If no sharing agreement, the profits or losses shall be divided equally among
partners.

2. If there is an agreement, the partners share the profits according to their Partnership Deed.

[Link] there is no such agreement;

• The share of the capitalist partner shall be in proportion to his capital contribution.

• The industrial partner shall receive such share, which must be satisfied first before the
capitalist partners shall divide the profits, as may be just and equitable under the
circumstances.
EXAMPLE 1
A, B, and C formed a partnership, whereby each of them contributed Php 30,000.
They agreed that should the partnership realize profits, the same shall be
distributed in the following proportions;

A, as managing manager ------------ 40%


B --------------------------------------- 30%
C --------------------------------------- 30%

In this scenario, the partners shall share the profits in conformity with their
agreement.

If there is NO agreement with respect to the share of each partner, then, they shall
share the profits EQUALLY.
EXAMPLE 2
Suppose the contributions of the partners are as follows:

A -------------------- 72,000.00
B -------------------- 48,000.00
C -------------------- 24,000.00
TOTAL --------------144,000.00

In the absence of stipulation, the share of each of their partners shall be in


proportion to his contribution:
A ------ 3/6
B ------ 2/6
C ------ 1/6
EXAMPLE 3
• Assuming that the partnership makes a profit of 51,000.00 ---

• The share of the industrial partner shall be given first.

• Assuming that D is an industrial partner and the partnership makes a profit of 51,000.00, the
partners may determine considering all the circumstances, that D, as industrial partner, is
entitled to 6,000.00. Hence, the balance of 45,000.00 will be divided among other partners A,
B, and C in proportion to their respective capital contributions.

• A will have a share of 22,500.00, B will have a share of 15,000.00, and C will have a share
of 7,500.00.

NOTE: If an industrial partner, aside from his services, contributed his capital, he shall also receive a
share from the realize profits in proportion to his contribution.
DISTRIBUTION OF LOSSES
1. The losses shall be distributed according to their agreement.

2. The losses are divided among the partners in same proportion as profits
would have been shared. The share of of each losses shall be in accordance
with the profit-sharing ratio.

3. If there is no profit-sharing stipulated in the contract, then losses shall be


borne by the partners in proportion to their capital contributions.

4. NOTE: Industrial partner shall not be liable for losses.

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