In a partnership, profits are typically divided based on?

In a partnership, profits are typically divided based on the percentage of investment by each partner because this method reflects the financial risk each partner has taken in contributing to the business. When partners invest capital into the business, they are essentially sharing in both the responsibilities and rewards proportional to their financial contributions.

This approach ensures a fair distribution of profits as it aligns with the amount each partner has put at stake. For example, if one partner invests 70% of the total capital and another invests 30%, it is logical that the profit distribution reflects these investment proportions.

While the number of employees or the skills of each member may influence operational roles and responsibilities within the partnership, they do not directly affect profit distribution. Similarly, annual revenue represents the total income generated by the business but does not determine how profits are shared among partners. Therefore, the correct answer emphasizes the financial commitment of each partner as the basis for profit division.