Q: Elaborate the concept of division of profits ?

Ans: The division of profits is an essential condition of partnership. The term 'partnership' has been derived from the word 'to part' which means 'to divide'. The Partnership Act does not prescribe any manner or method of sharing the profits. The partners are free to share the profits in any way they like. Earlier, sharing of profits was considered as a conclusive test for determination of partnership. This principle was laid down in Grace v. Smith, (1775) 2 Wm Blacks 997. The court held that every man who received any portion of the profits of a business had to incur therein the liability of a partner. This position of law was reconsidered and changed by decision in Cox v. Hickman, (1860) 8 HL Cas 268.

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