How are profits generally shared in a partnership?

In a partnership, profits are generally shared according to the partnership agreement. The partnership agreement is a foundational document that outlines the terms of the partnership, including how profits and losses will be distributed among the partners. This agreement can specify any number of arrangements—partners may choose to share profits equally, or they might decide that distributions should be made based on the percentage of invested capital, time commitment, or any other metric they deem appropriate.

If partners do not specify a method in their partnership agreement, default rules under state partnership laws may apply, which often state that profits are to be shared equally. However, the flexibility allowed by a partnership agreement means that the specific intentions of the partners take precedence over default rules or statutory provisions.

In contrast, options suggesting equal distribution or proportional distribution based on capital contributions refer to common scenarios but do not capture the full scope of how partnerships can tailor their profit-sharing arrangements to fit their unique circumstances. The mention of legal mandates in company bylaws pertains more to corporations than to partnerships, making it less relevant in this context. Thus, the correct principle revolves around the partnership agreement as the guiding document for profit-sharing.