Also known as: share of profits and losses · profit and loss sharing · profit sharing · partnership profits
Written by attorneys — see sources below.
An allocation mechanism in a corporate or employment benefit plan under which gains and losses from operations are distributed among designated participants. The mechanism determines each participant's share of payments and any corresponding reductions when performance falls short.
Solstice Ventures adopts a plan under which current officers receive annual allocations from net earnings based on performance metrics. The board approves the plan and directs that losses from underperformance reduce future allocations proportionally. The allocations bind the corporation to distribute gains and absorb losses through the plan structure.
In a marital property proceeding, Taylor's profit-sharing account is valued at dissolution. The court treats the account balance as a deferred employment benefit that includes both accrued gains and any plan-defined loss adjustments. The allocation fixes the non-employee spouse's share of the present value.
No. Receipt of profits under a corporate plan or deferred compensation arrangement does not create partnership status. Such payments are treated as employment benefits.
Loss adjustments follow the plan formula or, if none, the proportionate interests established at adoption. Reductions are applied only to future allocations, not to prior vested amounts.