A general partnership in California has three partners. Partner A contributes 50%, Partner B contributes 30%, and Partner C contributes 20%. In the absence of a partnership agreement, how are profits and losses typically shared?
Correct Answer
C) Equally among all partners
Under California's Uniform Partnership Act, profits and losses are shared equally among partners unless the partnership agreement specifies otherwise, regardless of capital contributions.
Why This Is the Correct Answer
California's Uniform Partnership Act (Corporations Code Section 16401) provides that in the absence of a partnership agreement specifying otherwise, profits and losses are shared equally among all partners regardless of their capital contributions. This is a key default rule that often surprises people who assume contributions determine distributions.
Why the Other Options Are Wrong
Option A: Majority partner decides distribution
No partner has authority to unilaterally decide profit distribution under California partnership law. Partnership decisions require agreement among partners, and the default rule for profit sharing is equal distribution, not majority-partner discretion.
Option B: According to capital contribution percentages
Sharing profits according to capital contribution percentages (50/30/20) is what most people intuitively expect, but it is NOT the California default. Capital contribution percentages would apply only if the partnership agreement explicitly specifies pro-rata distribution based on contributions.
Option D: Based on work contribution
Distribution based on work contribution is not the California default rule. While a partnership agreement could establish work-based compensation (through salaries or guaranteed payments before profit sharing), the default statutory rule is equal distribution regardless of labor input.
Memory Technique
Remember 'Partnership = Equal Partners by Default.' The capital contribution percentages are a red herring in the absence of an agreement. Think of it like splitting a restaurant bill equally even if you ordered more — the default is equal, unless you agreed otherwise upfront. 'No agreement = no inequality.'
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