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ACCA Applied Knowledge · Business and Technology · The purpose and types of business organisation

Three accountants set up a partnership with no written partnership agreement, and the jurisdiction's default partnership law applies. Which statement about how profits are normally shared under such default rules is correct?

Without a partnership agreement, default partnership law normally provides that partners share profits equally. Capital contributed and time worked are ignored unless the partners have agreed otherwise in writing or by conduct. A partnership agreement is therefore advisable to reflect different contributions.

  1. AProfits are shared in proportion to capital contributed
  2. BProfits are shared equally between the partnersCorrect
  3. CProfits are shared in proportion to time worked
  4. DProfits are allocated to the senior partner first

Explanation

Under typical default partnership rules, where there is no agreement, partners share profits equally regardless of capital or effort. Sharing by capital or time would need to be agreed in a partnership agreement.

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