Article 972
The distribution of profits and losses of a partnership shall be handled in accordance with the provisions of the partnership contract; if there is no agreement in the partnership contract or the agreement is not clear, the partners shall decide through consultation; if the negotiation fails, the partners shall distribute and share the shares according to the proportion of their paid-in capital contributions; and if the proportion of capital contribution cannot be determined, the partners shall distribute and share it equally.
I. Purpose of this Article
This article is about the distribution of profits and the sharing of losses of partnerships.
II. Evolution of the Provisions
This article draws on the relevant provisions of the Partnership Enterprise Law and continues the provisions of Article 35 of the original General Principles of the Civil Law, and clarifies the rules for determining the distribution of partnership profits and the sharing of losses. Paragraph 1 of Article 35 of the original General Principles of the Civil Law stipulates that the debts of a partnership shall be repaid by the partners with their respective assets in accordance with the proportion of capital contribution or the agreement agreed. Article 47 of the original Opinions on the General Principles of the Civil Law stipulates that all partners shall be jointly and severally liable externally for the amount of losses incurred in the partnership, and internally shall be shared in accordance with the proportion of debts or capital contributions agreed in the agreement; and if the agreement does not stipulate the proportion of debts or capital contributions, they may be borne in accordance with the agreed or actual proportion of surplus distribution. However, the partners who are at fault for causing the losses of the partnership shall be held liable accordingly according to the degree of their fault. Article 48 stipulates that a partner who only provides technical services but does not provide funds or in-kind services shall also be jointly and severally liable externally for the losses of the partnership; internally, it shall be borne in accordance with the proportion of debts to be borne or the proportion of capital contribution to be discounted from technical services; if the agreement does not stipulate the proportion of debts or capital contributions, it may be borne in accordance with the agreed or actual proportion of the partners' surplus distribution; and if there is no proportion of surplus distribution, it shall be borne according to the average proportion of investment of the remaining partners. Article 33 of the Partnership Enterprise Law stipulates that the distribution of profits and losses of a partnership enterprise shall be handled in accordance with the provisions of the partnership agreement; if the partnership agreement is not stipulated or the agreement is not clear, the partners shall decide through consultation; if the negotiation fails, the partners shall distribute and share the shares according to the proportion of paid-in capital contributions; and if the proportion of capital contribution cannot be determined, the partners shall distribute and share them equally. The partnership agreement shall not stipulate that all profits shall be distributed to some of the partners or that some of the partners shall bear all losses. In the process of compiling the Civil Code, on the basis of Article 35 of the original General Principles of the Civil Law, the relevant provisions of the Partnership Enterprise Law and the original Opinions on the General Principles of the Civil Law were absorbed, and the rules for the distribution of partnership profits and the sharing of losses were stipulated.
3. Interpretation of Provisions
This article regulates the distribution of benefits and the allocation of losses of the partnership.
The purpose of a partnership is to make joint contributions, operate together, share benefits and share risks. In accordance with this purpose, the rules for the distribution of partnership benefits and the burden of losses are:
1. Distribution of interests: Partners enjoy the right to share dividends from the joint property of the partnership, which is the right to benefit from the common ownership. In a partnership, in addition to leaving sufficient accumulation for development, the surplus of the partnership is distributed to the partners in the form of dividends, and each partner has this right.
2. Sharing of risks: The losses incurred by the partnership when it encounters operational risks are the operating losses incurred by the partnership property, which should also be shared by the partners, i.e., the co-owners.
3. The method of determining the distribution of benefits and the sharing of losses is as follows: (1) It shall be handled in accordance with the provisions of the partnership contract. (2) If there is no agreement in the partnership contract on the method of profit distribution and loss sharing or the agreement is not clear, the partners shall decide through consultation and handle it in accordance with the agreement reached through negotiation. (3) If the negotiation fails, the partners shall distribute and share according to the proportion of the paid-in capital contribution. (4) If the proportion of capital contribution cannot be determined, it shall be equally distributed and shared by the partners.
4. Cases
Chen, Wang, and Liao in a partnership agreement dispute case
Facts: Plaintiff Chen, Wang and Liao agreed to invest in the development and construction of a shopping mall in partnership. The three agreed that the three partners would make a capital contribution of not less than 400,000 yuan under the principle of voluntary capital contribution, and that after the completion of the construction of the project and the sale of the business house, they would repay the principal and dividends in proportion to the amount of capital contribution. In the distribution of profits, 10% of the profits were distributed to Chen as various expenses in the early stage of the project. The amount of capital contributed by the partners without objection is: Chen 256,160 yuan, Liao 273,570 yuan, and Wang 743627 yuan. In addition, Chen had settled the project transfer fee with his own debt of 610,000 yuan. Now Chen is suing to confirm that his 610,000 yuan is also a partnership contribution, and his capital contribution ratio is 51.38%. The court of first instance held that Chen's transfer fee should be used as the amount of his partnership capital contribution to repay the principal and interest, which is in line with the agreed principle of partnership capital contribution and the principle of partnership profit distribution. The court of second instance held that Chen's desire to use his 610,000 yuan of debt as a partnership capital contribution required the unanimous consent of the remaining partners, and the other partners in this case did not recognize it, so it could not be used as a partnership contribution, but could only be used as a joint debt of the partnership organization, and the partners should bear the responsibility for repayment. The profit distribution ratio of the three should be: Chen 20.12%, Liao 21.48%, and Wang 58.40%.
5. Analysis
This case concerns the provisions of Article 972 of the Civil Code on the distribution of profits and the sharing of losses of partnerships. According to this provision, the distribution of profits and losses of a partnership shall be handled in accordance with the provisions of the partnership contract; if there is no agreement in the partnership contract or the agreement is not clear, the partners shall decide through consultation; if the negotiation fails, the partners shall distribute and share according to the proportion of paid-in capital contributions; and if the proportion of capital contribution cannot be determined, the partners shall distribute and share it equally. In this case, the parties agreed that the profit distribution should be carried out according to the proportion of capital contribution, and the focus of the dispute in the case was how to determine the proportion of capital contribution of each partner, and the three of them unanimously agreed that the amount of their respective capital contributions was: Chen 256,160 yuan, Liao 273,570 yuan, and Wang 743627 yuan. In addition, in the course of the operation of the partnership, Chen used his own creditor's rights of 610,000 yuan to repay the debts of the partnership, and he claimed that 610,000 yuan should also be recognized as his capital contribution to the partnership, but the determination of the proportion of capital contribution had a great impact on the other partners, and the unanimous consent of the partners must be obtained if the 610,000 yuan was to be recognized as a capital contribution to the partnership, otherwise, it would be unfair to the rights and obligations of the other partners.