Two partners contribute different amounts of capital but agree to share profits equally. Which principle applies?
Correct answer: B. The agreed partnership terms govern profit sharing
- A. Profits must always follow capital contributions
- B. The agreed partnership terms govern profit sharing
- C. The partner with more capital receives all profits
- D. Profits are automatically paid to creditors first
Explanation
Partners may agree on a profit-sharing ratio that differs from their capital contributions. If there is no agreement, the applicable partnership law may provide a default rule, but the partners' valid agreement normally governs.
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About Nature and Forms of Business Organisation
Business organisation combines people, capital, materials and entrepreneurship to produce goods or services and earn profit, while also meeting customer and social needs. Coverage includes sole proprietorships, partnerships, companies and cooperatives, with comparisons of ownership, liability, control, profit sharing, continuity and legal status.
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