Guarantee of a Minimum Profit to a Partner

Partners sometimes agree that a particular partner — often a newly admitted partner, or one contributing mainly skill/labour rather than capital — will be guaranteed a stated minimum amount of profit, regardless of what his normal profit-sharing ratio would otherwise entitle him to in a lean year. This guarantee may be given by the firm as a whole, or by one or more SPECIFIC partners individually.

Working out a guarantee:

1. First, divide the firm's actual net profit among ALL the partners in their normal, agreed profit-sharing ratio, exactly as if no guarantee existed.
2. Compare the guaranteed partner's NORMAL share (from step 1) against the guaranteed MINIMUM amount.
3. If the normal share is already equal to or more than the guaranteed amount, the guarantee simply has no effect — the partner keeps his normal share, and every other partner also keeps their own normal share unchanged.
4. If the normal share falls SHORT of the guaranteed amount, the shortfall (the "deficiency") must be made good out of the OTHER partners' shares:
   • If the guarantee was given by the firm as a whole (i.e., by all the other partners jointly), the deficiency is borne by the other partners in their OWN mutual profit-sharing ratio (the ratio in which they share profits among themselves, excluding the guaranteed partner), unless the deed specifies a different ratio for bearing the deficiency.
   • If the guarantee was given by ONE SPECIFIC partner alone, that one partner alone bears the entire deficiency, and every other partner's share stays exactly at their own normal, unadjusted figure. …