In absence of any Profit-sharing ratio how is the profit divided?
Last updated Jun 24, 2026
Correct Answer:
Option A —
equally amongst all partners
In the world of accounting and law, if a partnership firm does not have a formal Partnership Deed, or if the deed is silent regarding how profits and losses should be split, the provisions of the Indian Partnership Act, 1932 (specifically Section 13) apply .
Key Rules in the Absence of a Partnership Deed:When there is no written agreement, the following rules must be followed regardless of how much work or money each partner contributes:Profit and Loss Sharing: Profits and losses are shared equally, even if one partner invested $Rs\ 10,00,000$ and another invested only $Rs\ 1,000$.Interest on Capital: No interest is allowed on the capital contributed by partners.Salary/Remuneration: No partner is entitled to any salary, commission, or remuneration for taking part in the business, regardless of their experience (Option C).Interest on Loans: If a partner provides a loan to the firm (beyond their capital), they are entitled to interest at a fixed rate of 6% per annum.Why the other options are incorrect:B) On the basis of capital: This only happens if specifically agreed upon in a written deed. Without a deed, capital contribution is irrelevant to the profit split.C) On the basis of experience: Experience might help a partner negotiate a better deal in a contract, but the law does not recognize "effort" or "seniority" as a default basis for money distribution.D) As the court may decide: Courts generally only intervene to enforce the "equal sharing" rule defined by the Act; they do not arbitrarily decide new ratios.
Answer verified by Quintessence Classes faculty — Karan Nagar, Srinagar.