Also known as: prorata contribution · pro-rata contribution · pro rata
Written by attorneys · grounded in primary & secondary sources — see below
A method of allocating liability or distributing assets whereby each participant bears or receives a share determined by dividing the total equally or in proportion to ownership interests among the parties.
Pioneer Energy's board approves a liquidation plan that sells all corporate assets for $10 million. The company has two classes of shares outstanding. The board distributes the net proceeds equally among holders of the preferred class according to their ownership percentages. Each preferred shareholder receives a check reflecting that exact fraction of the total fund.
Precision Tools declares a ten-percent stock dividend on its common shares. The articles contain no contrary provision. The board issues new shares to every common shareholder in exact proportion to the shares already held. Each recipient obtains additional stock without paying any consideration.
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Parker Phillips and Piper Patel negligently cause a collision that injures a pedestrian. A jury finds both defendants jointly and severally liable and awards $200,000. Parker pays the full judgment. Under the governing contribution rule, Parker then recovers exactly half the amount from Piper regardless of their respective degrees of fault.
Pavel Petrov holds a security entitlement through a brokerage intermediary. The intermediary holds 10,000 shares of a single issuer. When the issuer becomes insolvent, the intermediary's holdings are distributed. Pavel receives a fractional interest equal to his entitlement divided by the total entitlements in that asset.
Paige Porter and Priya Prasad are found jointly liable for securities fraud. The judgment totals $1 million. Paige satisfies the entire amount. She then seeks contribution from Priya. The court orders Priya to pay exactly half under the traditional pro rata rule.
Pilar Pena's estate is insolvent. Multiple creditors file claims in two states. Each probate court marshals assets under its control. The courts direct that every creditor receive the same percentage of its claim after valid liens and preferences are satisfied.
Pro rata contribution divides the judgment equally among joint tortfeasors without regard to fault percentages. Proportional contribution instead allocates liability according to each tortfeasor's comparative fault. Many jurisdictions have replaced the equal-division rule with the fault-based approach.
Model Bus. Corp. Act § 6.23(a) permits the board to issue shares pro rata and without consideration to existing shareholders unless the articles provide otherwise. The issuance is treated as a share dividend. No separate shareholder vote is required under that section.
Model Bus. Corp. Act § 7.32(a)(2) expressly allows shareholder agreements to govern the authorization and allocation of distributions, including non-pro rata allocations, subject to solvency limits. The agreement must meet the statute's formal requirements of unanimous written consent and proper notice.
…was to be merged into a new company; and 55% of the common shares of the new company were to be offered to the former users on a pro rata basis, determined by the quantity of stamps issued to each of these nonshareholding users during a designated period. Some 621,000 shares were thus to be offered in units, each consisting…