Short answer. He is paid the value of his interest as of the date of dissolution. Article 1841 lets a retiring partner, or a deceased partner's estate, whose business is carried on without a settlement of accounts have that value ascertained and recover it as an ordinary creditor, with interest — or, at his option, the profits his share earned.
What the law says
he or his legal representative as against such person or partnership may have the value of his interest at the date of dissolution ascertained, and shall receive as an ordinary creditor an amount equal to the value of his interest in the dissolved partnership with interest
Civil Code, Article 1841 — Retiring/Deceased Partner's Interest When Business Continues. Read the full provision →
What the law says
at his option or at the option of his legal representative, in lieu of interest, the profits attributable to the use of his right in the property of the dissolved partnership
Civil Code, Article 1841 — Retiring/Deceased Partner's Interest When Business Continues. Read the full provision →
What the retiring or deceased partner is owed
Article 1841 applies to one specific situation: a partner retires or dies, the remaining partners continue the business, and they do so without any settlement of accounts with him or his estate. Rather than force an immediate liquidation, the Code lets the outgoing partner (or his legal representative) have the value of his interest at the date of dissolution ascertained. That value is then owed to him — the business goes on, but his stake in it is converted into a fixed money claim, measured as of the day the partnership dissolved, not the day it is finally paid.
Paid as an ordinary creditor, with interest
For the amount owed, the retired partner shall receive as an ordinary creditor an amount equal to the value of his interest in the dissolved partnership with interest. Two things follow. He is treated as a creditor of the continuing business, so he can pursue the claim like any other debt owed to him. And the default add-on is interest — compensation for being kept out of his money while the others use assets that were partly his. He does not automatically share in future growth; the base figure is fixed at the dissolution date.
The option: profits instead of interest
The article gives him a choice. Instead of interest, at his option or at the option of his legal representative, in lieu of interest, he may claim the profits attributable to the use of his right in the property of the dissolved partnership. This matters where the continuing business is highly profitable: interest on a fixed sum may be far less than the share of profits his capital actually helped generate. He elects one or the other — interest for certainty, or profits to capture the upside his assets produced while the others carried on trading with them.
Partnership creditors come first
The right is not absolute in ranking. The article protects the firm's creditors: the creditors of the dissolved partnership, as against the separate creditors or representative of the retired or deceased partner, shall have priority on any claim arising under this article. So the outgoing partner or his estate stands behind the partnership's own creditors. If the continuing business cannot pay everyone, the debts of the old partnership are satisfied before the retired partner's buy-out claim is met.
Related provisions
- Civil Code, Article 1841 — Retiring/Deceased Partner's Interest When Business Continues
- Civil Code, Article 1837 — Rights on Winding Up
- Civil Code, Article 1840 — Creditors When the Business Continues