Limited Partnership Agreement and Profit Allocation

What profit amount should be allocated to a limited partner with 3% ownership if the total profit to be allocated is $4,500,000?

A. $99,000
B. $101,250
C. $103,500
D. $135,000

The correct option is A.

The profit amount allocated to the limited partner with 3% ownership is $54,000, which is closest to option A ($99,000) in the given choices. To solve the problem, we need to first calculate the profit allocated to the general partner using the given formula.

Ownership refers to the legal right of an individual, group, or organization to possess, use, and control a specific piece of property or asset. It gives the owner the power to make decisions about how the property or asset is used, as well as the right to benefit from any profits or gains that result from its use.

Ownership can take many forms, including private ownership, public ownership, and collective ownership. Private ownership refers to when an individual or group of individuals has exclusive rights to a property or asset. Public ownership refers to when the government or a public agency owns and controls a property or asset, while collective ownership refers to when a group of individuals collectively own and manage a property or asset.

In the given scenario, the profit allocation formula for the limited partnership agreement states that 20% of the first $1,000,000 of profit, 25% of the next $1,000,000 of profit, and 30% of profit over $2,000,000 shall be allocated to the general partner. Each limited partner and the general partner shall share equally in the remaining profit based on their relative percentages of ownership.

To calculate the profit allocated to the general partner, we follow the formula:
- 20% of the first $1,000,000 of profit = $200,000
- 25% of the next $1,000,000 of profit = $250,000
- 30% of profit over $2,000,000 = $450,000
Therefore, the total profit allocated to the general partner is $900,000. The remaining profit to be allocated among the limited partners and the general partner is $3,600,000.

Since the limited partner has a 3% ownership, the profit allocated to the limited partner is calculated as 3% of $3,600,000, which equals $108,000. Hence, the profit allocated to the limited partner is $54,000 after sharing equally with the general partner based on their ownership percentages.