Sharing of Profits under Partnership Act

April 3, 2023
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The Act doesn’t include a definition for the word “profits.” It refers to the excess of returns over outlays, or net gain. Although the distribution of profits is one of the fundamental components of every partnership, the recipients of profits do not necessarily have to be partners.   For instance, giving the manager of  business a share of the profits rather than a fixed wage will encourage him to take a greater interest in the growth of the company but he won’t be a partner. Similar to this, a businessman may give a moneylender a portion of his profits as payment for the return of his loan and interest; however, this moneylender does not become partner.

A person who received a share of the profits was once believed to be a partner and as such would be responsible for the debt. According to Grey C.J., who established this rule in the 1775 case Grace v. Smith, “every individual who has the portion of profits of a trade ought likewise to bear his share of the loss.” In Cox v. Hickman, 1860, the House of Lords was asked to weigh in on this issue. In that instance, it was decided that those who share in a profits are not always liable as partners unless their actual relationship is one of partners. If you want to be a judicial officer and are looking for RJS coaching, here, at Jyoti Judiciary we provide comprehensive study material to make your preparation solidified and topnotch. From preliminary mock tests, to mains answer writing sessions every material required for clearing the exam is provided. We have separate legal current affairs classes, legal general knowledge, current affairs classes all in one time enrolment. Hurry up.

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