Happy family

Find a legal form in minutes

Browse US Legal Forms’ largest database of 85k state and industry-specific legal forms.

Profit Sharing

Agreeing to share profits is a precondition for the formation of a partnership. Sharing profits is not the same as sharing revenues. Revenues refer to all of the money received by a business, including income, receipts, or proceeds. Profits are the amount remaining of the revenue after expenses incurred by the business are subtracted. If one party agrees to share revenues with another party, but the agreement makes not stipulation for profits, then a partnership has not been formed. The focus on profits requires the partners to pay attention to the management of the entire business, not only the amount of money taken in by the business. By comparison, a person who receives revenues, but not profits, is much more likely to focus on the sales of a business but not the costs in doing business.

Partners do not need to share profits equally. Under both the UPA and the RUPA, partners can agree to the division of profits made by a business. In a situation where there is a capital partner and a labor partner, the partnership agreement will most likely include a salary for the labor partner, with the capital partner receiving the profits.

Inside Profit Sharing