Definition of pro rata

The phrase "pro rata" is a Latin term that translates to "proportionally" or "in proportion." Originating from the legal traditions of the Roman Empire, the term "pro rata" is commonly used in modern-day business and financial contexts to indicate proportionate shares or amounts. In legal and financial settings, "pro rata" refers to adjusting the share of an obligation, expense, profit, or benefit among parties in proportion to their relative shares or contributions. For instance, if a company's profits are divided among shareholders pro rata, each shareholder receives a portion of the profits proportional to the number of shares they own. Similarly, if a group of people share a common expense, such as rent or electricity bills, the cost is calculated and shared pro rata based on the proportionate ownership of the property. The fundamental idea of "pro rata" is to ensure fairness and proportionality among parties involved in a transaction or agreement. By applying this principle, all parties receive a proportion that is commensurate with their shares or contributions in the matter. Therefore, "pro rata" plays a crucial role in preventing unfair situations and differences that may arise due to asymmetric contributions or benefits.