Pro Rata Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Pro Rata, written in plain English, along with examples of how it is used.

What is Pro Rata?

Latin word meaning Proportionate. It means the division of assets or amount in terms of certain rates, percentage or share in proportion of ownership. Say for instance, if a debtor goes bankrupt, each creditor is entitled to the remainings of the assets of the debtors, proportionately divided according to their debts.

History and Meaning of Pro Rata

Pro Rata is a Latin term that means proportionate. The term is mainly used in the financial world to signify a proportional allocation or distribution of funds, assets, or obligations. It means that each involved party is entitled to a share of the whole based on their ownership or merits.

The concept of Pro Rata has been used for centuries in various fields, including finance, law, and insurance. In finance, it plays a crucial role in calculating dividends, interests, and taxes, while in law, it's used in bankruptcy and liquidation proceedings. In insurance, Pro Rata is used to apportion the insurance risk among multiple insurers.

Examples of Pro Rata

  1. Let's say a company issues a dividend to its shareholders. If a shareholder owns 1% of the company's shares, they will be entitled to 1% of the total dividend paid - this is a Pro Rata distribution.

  2. In a bankruptcy case, a Pro Rata distribution would involve dividing a debtor's remaining assets among creditors based on the size of their claims. If one creditor is owed 20% of the debt, they would receive 20% of the remaining assets.

  3. If an employee is hired on a part-time basis and decides to work full-time mid-year, their vacation pay is calculated on a Pro Rata basis. This means that they would be entitled to receive vacation pay proportional to the number of days they worked as a full-time employee for that year.

Legal Terms Similar to Pro Rata

  1. Prima facie - A legal term which means "at first glance" in Latin. It's a preliminary legal judgment based on the first impression before examining the facts.

  2. Ad hoc - Latin for "to this," meaning something is created for a specific purpose or situation.

  3. De facto - Latin word meaning "in fact" or "in practice". It refers to something that exists in reality but not necessarily by law or via official channels.