Pro Rata
Literal meaning: “In proportion; according to the rate”
What does the Latin term "Pro Rata" mean in law?
Pro rata means proportionally, according to a calculated share or rate. In bankruptcy law, when assets are insufficient to pay all creditors in full, distributions are made pro rata among creditors of equal priority, meaning each receives the same percentage of their claim. In insurance, a pro rata clause allocates liability among multiple insurers in proportion to their respective policy limits. In corporate law, shareholders may have pro rata rights to participate in new stock offerings to prevent dilution of their ownership percentage. The principle ensures mathematical fairness by distributing benefits or burdens in exact proportion to each party's share or interest.
Source: Contracts · Legal Latin
Legal Definition
Pro rata means proportionally, according to a calculated share or rate. In bankruptcy law, when assets are insufficient to pay all creditors in full, distributions are made pro rata among creditors of equal priority, meaning each receives the same percentage of their claim. In insurance, a pro rata clause allocates liability among multiple insurers in proportion to their respective policy limits. In corporate law, shareholders may have pro rata rights to participate in new stock offerings to prevent dilution of their ownership percentage. The principle ensures mathematical fairness by distributing benefits or burdens in exact proportion to each party's share or interest.
How It's Used
Lawyers use pro rata calculations in bankruptcy distributions, insurance coverage disputes, partnership dissolutions, and corporate transactions. The concept is essential whenever benefits or burdens must be divided equitably among multiple parties according to their respective shares.
Example Sentences
The bankruptcy estate's assets were distributed pro rata among the unsecured creditors, with each receiving approximately 15 percent of their allowed claim.
Under the insurance policy's pro rata clause, each insurer was liable for a share of the loss proportional to the ratio of its policy limits to the total available coverage.
The partnership agreement provided that profits and losses would be allocated pro rata based on each partner's capital contribution.