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Partnership

📅 Published on: October 23, 2026

When two or more individuals pool their financial resources together to run a business venture, they form a partnership. The total net profit or loss generated at the end of a specific accounting period is distributed among the partners based strictly on two factors: 

  1. Capital Invested (The amount of money contributed by each partner) 
  2. Time Duration (The length of time for which the capital stayed invested in the business) 

 

The Golden Rule of Partnership: 

Ratio of Profit Shares=(Capital1×Time1):(Capital2×Time2):(Capital3×Time3)Ratio of Profit Shares=Capital𝟏×Time𝟏:Capital𝟐×Time𝟐:Capital𝟑×Time𝟑

 

Classification: 

  1. Simple Partnership

  • Definition: When all partners invest their capitals for the exact same time period, the time factor cancels out. 
  • Rule: Profit or loss is distributed simply in the direct ratio of their invested capitals. 

Profit1: Profit2 = Capital1 : Capital2 

 

  1. Compound Partnership

  • Definition: When partners invest their capitals for different time periods (e.g., partners joining or withdrawing capital at different months during the year). 
    • Rule: Profit or loss must be distributed in the ratio of the product of capital and time (Capital×TimeCapital×Time). 

 

  1. Active vs. Sleeping Partners

  • Active (Working) Partner: Manages the day-to-day operations and administration of the business. They are often paid a fixed salary or commission before the remaining profit is distributed. 
  • Sleeping (Dormant) Partner: Only contributes financial capital and takes no part in daily management. They receive a profit share proportional only to their investment. 

 

Shortcut: 

  • Type A (Capital Withdrawal/Addition): Compute individual investment products month by month (Capital×Months ActiveCapital×Months Active) and sum them up for each partner before finding the final ratio. 
  • Type B (Charity / Salary Adjustments): Always subtract fixed salaries or charity percentages from the Total Profit first. Divide the remaining net profit using the investment ratio. 

***

 

PREVIOUS YEAR QUESTION 

  1. A and B start a business by investing ₹40,000 and ₹60,000 respectively. At the end of the year, they earn a total profit of ₹ 10,000. Find A’s share of the profit.  (RRB NTPC (Graduate) 2025)

(A) ₹3,000
(B) ₹4,000
(C) ₹5,000
(D) ₹6,000

 

Answer: (B) ₹4,000
Solution:
Ratio of capitals of A and B= 40,000 : 60,000=2:3. Since time periods are equal (1 year each), profit is shared directly in the capital ratio. Total ratio units =2+3=5 units=₹10,000⟹1 unit=₹2,000 . A’s share= 2×2,000=₹4,000

 

  1. P, Q, and R invest capitals in the ratio 2:3:5. If their time periods of investment are equal, find Q’s share in a total profit of ₹ 20,000. (RRB NTPC (UG) 2025) 

(A) ₹4,000
(B) ₹6,000
(C) ₹10,000
(D) ₹8,000

 Answer: (B) ₹𝟔,𝟎𝟎𝟎

Solution: Capital ratio of P, Q, R= 2 : 3 : 5

. 

Total ratio units

=2+3+5=10 units=₹20,000⟹1 unit=₹2,000=2+3+5=10 units=₹20,000⟹1 unit=₹2,000

. 

Q’s share

=3×2,000=₹6,000=3×2,000=₹𝟔,𝟎𝟎𝟎.