Department of Agriculture and Cooperation, Ministry of Agriculture Government of India has iden...
There is no concept of profit sharing in a Pvt Ltd company, you cannot share profit in a profit sharing ratio in a private company.
The concept of sharing of profit arises only in case of Partnership Firms.
Before understanding the concept of profit sharing among partners you need to understand these things:
In companies, profit is distributed in the name of Dividends based on the percentage of Shares held by them.
To share profits means sharing dividend. It will be decided based on the % of the shareholding each of you holds.
If it is seen technically then it can be said that whole profit accruing to the company belongs to the shareholders of the Pvt ltd company and if the shareholders want they can declare a dividend as the distribution of profit subject to the legal compliances.
Private Limited Company an entity and it has to follow stipulated rules and regulations, starting with the registration of the firm. As a firm needs to establish and continue, there should be initial investment from the shareholders, and the people involved in its operations could be paid salaries, which will protect the firm and the investors as well. In due course of time if there is sufficient profit then in that case dividend could be paid to shareholders of the company, and that dividend shall be based on the number of shares they hold. This dividend shall be declared after setting aside the needed share of profit for the firm’s growth and expansion.
How much should be the initial investment of the Private Limited company is usually decided prior to the company’s registration, although it may also be revised based upon the suggestions as agreed upon in the Meetings of the Board and the Members.
Profit sharing can be done in many forms and the percentage of profit that shall be given to members/shareholders is mostly in a written form/agreement between the stakeholders in return for their respective contribution to the Pvt Ltd company.
In case of companies, sharing of profit is not a regular feature. In Companies, profit sharing is done in the form of dividend as recommended by Board of Directors and approved by the members (Shareholders). Shareholders may or may not increase the recommended dividend.