The partnership agreement specifies that Partners A and B share profits in the ratio 3:2 but does not mention how losses should be shared. How are losses sh...
Question 1 Report
The partnership agreement specifies that Partners A and B share profits in the ratio 3:2 but does not mention how losses should be shared. How are losses shared?
Answer Details
The correct answer is in the ratio 3:2, the same as the profit sharing ratio.
Unless the partnership agreement specifically states otherwise, losses are shared in the same ratio as profits. The Partnership Act 1890, Section 24(1), provides that partners share equally in profits and losses, but where an agreement specifies a profit-sharing ratio without mentioning losses, the courts have held that the same ratio applies to losses.
Sharing losses equally would only apply if no ratio were specified at all. An inverse ratio of 2:3 has no basis in law or practice. Losses being borne entirely by one partner would require an explicit agreement to that effect.
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