Profit Sharing Ratio in Partnership Act

The Partnership Act, 1932 lays down certain provisions regarding the profit sharing ratio in a partnership firm. The profit sharing ratio refers to the proportion in which the profits of the firm are distributed among the partners. The Act provides for the following methods of determining the profit sharing ratio:

1. As per agreement: The partners can decide among themselves the ratio in which the profits will be shared. This can be done through a partnership agreement.

2. Equally: In the absence of any agreement, the profits are shared equally among the partners.

3. In Capital Ratio: The profits are shared in proportion to the capital contributed by each partner.

4. None of the above: If none of the above methods is applicable, then the profits are shared in the ratio that the partners agree upon.

Profit Sharing Ratio as per Partnership Act

According to the Partnership Act, if there is no agreement among the partners regarding the profit sharing ratio, then the profits are shared equally among the partners. This means that each partner will receive an equal share of the profits, irrespective of the capital contributed or the work done by each partner.

For example, if there are three partners in a firm and they have not agreed upon any profit sharing ratio, then each partner will receive one-third of the profits of the firm.

Conclusion

In conclusion, the profit sharing ratio in a partnership firm can be determined as per the partnership agreement, equally, in capital ratio, or as agreed upon by the partners. However, in the absence of any agreement, the profits are shared equally among the partners as per the provisions of the Partnership Act.