# How to allocate profit and loss in partnership where one partner's activities are profitable and the other's aren't? [closed]

Suppose a two-member LLC taxed as a partnership has a set of projects that are joint initiatives of the members, as well as projects that are solo initiatives of one or the other member. For example, the same corporate entity handles a shared venture and solo consulting work by each member.

What is the right way to calculate the allocations for profit, loss, and capital?

Consider only the solo projects for now. Easy case: both members have net positive income from their projects, or both have net negative income. Then the percentage split of profit or loss is clear.

Challenging case: member A's project has net positive income: gross revenue is \$50k, expenses are \$5k. But member B's project has net negative income: gross revenue \$45k, expenses \$50k.

The business as a whole has net positive income: \$40k. But one partner's project is in the red, while the other is in the black. What is the standard way to calculate the profit and loss percentage splits?

Should A receive a 50/95 share of profit and a 5/55 share of loss? This strikes me as incorrect, because net negative income would be recorded as a negative profit for form 1065. If so, then how can profit and loss be allocated fairly in this situation?

## closed as primarily opinion-based by mhoran_psprep, Brythan, Dheer, MD-Tech, JoeTaxpayer♦Aug 14 '17 at 12:14

Many good questions generate some degree of opinion based on expert experience, but answers to this question will tend to be almost entirely based on opinions, rather than facts, references, or specific expertise. If this question can be reworded to fit the rules in the help center, please edit the question.

• There is no "right way". It's whatever you agree on. If you are 50/50 partners, then the norm would be to assign salaries appropriately and then split profits or losses 50/50 regardless of what happens, just like when you're married. There's an infinite number of ways to deviate from the "norm"; just make sure all parties agree to it, and I'd recommend signing a contract in case someone decides to disagree later. – TTT Aug 13 '17 at 23:45
• @TTT I'd argue that the only "right" way is what's spelled out in the partnership agreement and anything else is wrong. – iheanyi Aug 15 '17 at 6:29