How do partnerships divide profits among themselves? What are some
examples of partnership apportionment formulas, especially for small
partnerships of 2-10 partners? Let me know if you have any questions-
thanks!

Hi! Thanks for the question.

Some documents in the answer are in PDF file so you will need the
Adobe Acrobat Reader to read them. In case you haven’t installed it
yet here is a link so you could download The Adobe Acrobat Reader
(http://www.adobe.com/products/acrobat/readstep2.html).

I found the following, which has sample profit distribution schemes
for partnership agreements.

Interactive Worksheet on Partnership Accounts 
http://www.bized.ac.uk/stafsup/options/accounting/work07.htm

Consulting Partners Network 
http://www.help-finance.com/affiliate_consul_terms.htm

Examples of other profit sharing schemes could be done on a
case-to-case basis.

"Susan decides to open a sandwich shop near a busy college campus. She
wants her friend Ellen to work with real enthusiasm but, because money
is short, can only pay her a modest salary to start. To insure Ellen's
continued dedication, Susan offers her a bonus of a profit-sharing
agreement under which Ellen gets 25% of all net profits."

"The Partnership Book: How to Write a Partnership Agreement"
http://www.nolo.com/lawstore/products/product.cfm/objectID/2B56A3E5-074A-4AE1-9E827B910E1B3426/sampleChapter/4

"We give our users three options for allocating profits and losses of
the partnership among the partners in the agreement: (a) assigning a
fixed profit / loss percentage to each partner, (b) using a formula to
allocate profits and losses to the partners, and (c) deferring
division of profits and losses for a vote of the partners at the end
of each year. If you are assigning partnership profit / loss
percentages to each partner, the total must add up to 100%: i.e.,
Partner A--40%, Partner B--40%, and Partner C--20%. In this example,
were the partnership to have net income of $70,000 in a year, Partner
A's allocation of that income would be $28,000 (i.e., $70,000 x 40%)."

"General Partnership Agreement"
http://www.medlawplus.com/forminfo/generalpartnershipagreement.htm

Another way to get a good idea is to look at samples of general
partner agreements.

“PROFIT-SHARING PLAN FOR SELF-EMPLOYED INDIVIDUALS”
http://www.myjaxchamber.com/bus_resources/download/profit_sharing_plan.pdf

“General Partnership Agreement”
http://www.4expertise.com/PDF/GENERAL_PARTNERSHIP_AGREEMENT.pdf 

“SAMPLE GENERAL PARTNERSHIP AGREEMENT”
http://www.innovawv.org/partnershipagreement_97.PDF 

Search terms used:
Partnership “profit sharing” agreements distribution sample

I hope these links would help you in your research. Before rating this
answer, please ask for a clarification if you have a question or if
you would need further information.
  
Thanks for visiting us.  
  
Regards,  
Easterangel-ga  
Google Answers Researcher

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Request for Answer Clarification by twistyrider-ga on 04 Jan 2003 18:44 PST

I certainly thank you for your thoughtful answer; however I am still
seeking information. I'm afraid I was not specific enough in my
original question.

What I am trying to do is create a formula that will allocate profits
among partners. So what activities should be rewarded in this formula?

Obviously, profits divided by number of partners is too simple. The
amount of time billed to clients should be recognized. And the billing
rate per hour of the partner should be recognized. The partner billing
at $400/hr is entitled to more of the profits than the partner billing
at $300/hr (all else being equal).

And I think business development (non-billed) activity should be
rewarded, as well as any other extracurricular activity that benefits
the business (press appearance etc).

And all of this would boil down to a formula. All the major accounting
and law firms (which are partnerships) must be working with some
formula to fairly distribute profits.

It is examples of this formula that I am after. Thank you so much for
your efforts.

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Clarification of Answer by easterangel-ga on 04 Jan 2003 20:04 PST

Thanks for asking a clarification before making a rating. Since I will
have to get more detailed information I would need more time. I would
just like to say that I have taken note of your request and shall work
on it immediately.

Thanks for your patience.

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Clarification of Answer by easterangel-ga on 05 Jan 2003 07:59 PST

Hi again! I have searched the web but could not find anything
definitive that would be worthy for an answer. So I did the next best
thing or probably the best option all along. I consulted a certified
public accountant.

He gave me two samples of cases they do to clients in a partnership
and the formulation when it comes to income distribution. In the case
you cited he gave these possible formulas:

--------
Case 1:                Partner A            Partner B         Net
Income

Partnership             $XXX                $XXX                $XXX
Net Income     

Less: (Salary 
Allowances to Partners) $XX                  $XX               ($XXX)
(Based on amt.of time
billed to clients and
the billingrate per hr)             
 
                                                              
_________
Net Income after Salary                                         $XXX
& Allowances                                                   

Allocated Ratio             $XX             $XX                ($XXX)
example:

a. based on original        
capital contribution

or

b. based on ending 
balance per partner

                         
________________________________________________
Total Share for each       $XXX                $XXX            -0-
partner

---------

Case 2:                  Partner A          Partner B         Net
Income

Partnership               $XXX                $XXX              $XXX
Net Income     

Less: Fixed Salary         $XX                 $XX             ($XXX)
Allowances to each 
partner        
                                                            
__________

NI After Salary &                                              $XXX
Allowance

Remaining NI Allocated
based on total income/
profit on services
rendered by each partner 
to clients                  $XX              $XX              ($XXX)

                          
_____________________________________________

Total Income to             $XXX            $XXX               -0-
each partner

I hope that this time the information provided would be helpful to
you. If again you would need further information or assistance please
just ask for another clarification.

Best Regards,
Easterangel-ga
Google Answers Researcher