If no profit-sharing agreement exists, how are profits divided among partners?

If no profit-sharing agreement exists, how are profits divided among partners?

• A. Evenly among the partners.
• B. According to each partner's input in the business.
• C. According to the capital contributions of each partner.
• D. Based on a future agreement established by the partners.

Answer: (C)

In the absence of a specific profit-sharing agreement among partners, the profits are generally divided based on the capital contributions each partner has made to the partnership. This principle stems from the notion that partners should be rewarded in proportion to their investment. If a partner has contributed more capital to the business, they are typically entitled to a larger share of the profits, reflecting their greater stake and risk in the enterprise. This method ensures fairness and acknowledges the financial involvement of each partner. It's important to note that this approach is commonly recognized in partnership law, where the default rule is often to allocate profits based on the amount of capital contributed unless there is an alternative agreement in place.

In the absence of a specific profit-sharing agreement among partners, the profits are generally divided based on the capital contributions each partner has made to the partnership. This principle stems from the notion that partners should be rewarded in proportion to their investment. If a partner has contributed more capital to the business, they are typically entitled to a larger share of the profits, reflecting their greater stake and risk in the enterprise.

This method ensures fairness and acknowledges the financial involvement of each partner. It's important to note that this approach is commonly recognized in partnership law, where the default rule is often to allocate profits based on the amount of capital contributed unless there is an alternative agreement in place.