Business, Legal & Accounting Glossary
(proh rat-ah or proh ray-tah) adj. from Latin for “in proportion,” referring to a share to be received or an amount to be paid based on the fractional share of ownership, responsibility or time used.
Examples: an heir who receives one-quarter of an estate may be responsible for one-quarter of the estate taxes as his/her pro-rata share. A buyer of a rental property will pay his/her pro-rata share of the property taxes for that portion of the year in which he/she holds title.
Pro-rata means in proportion to. Thus pro-rata is used when costs, proceeds, profits, etc. are divided among participants according to ownership or some other factor. For example, suppose daily usage charges for periods of less than one day are applied pro-rata based on hours. If the daily charge is $24, the pro-rata cost for three hours is $3. Or suppose a company makes a pro-rata cash distribution of $10 per share. If a shareholder has 200,000 shares, he or she receives $2,000,000. Pro-rata is used in many financial and legal contexts: insurance policies may have pro-rata clauses based on the assessed value of one property to the assessed value of all properties; legal settlements may be distributed pro-rata based on the proportion of an individual claim to all claims, and a retiree may receive pro-rata payments based on each year of service worked.
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This glossary post was last updated: 30th April, 2020 | 0 Views.