Extent of liability of LLP

An LLP is not bound by anything done by a partner in dealing with a person if—

  1. the partner in fact has no authority to act for the LLP in doing a particular act; and
  2. the person knows that he has no authority or does not know or believe him to be a partner of the LLP.

The LLP is liable if a partner of an LLP is liable to any person as a result of a wrongful act or omission on his part in the course of the business of the LLP or with its authority.

An obligation of the LLP whether arising in contract or otherwise shall be solely the obligation of the

LLP The liabilities of the LLP shall be met out of the property of the LLP.

Extent of liability of partner

A partner is not personally liable, directly or indirectly for an obligation solely because of being a partner of the LLP. The provisions of sub-section (3) of section 27 and sub-section (1) of this section shall not affect the personal liability of a partner for his wrongful act or omission, but a partner shall not be personally liable for the wrongful act or omission of any other partner of the LLP.

Holding out

Any person, who by words spoken or written or by conduct, represents himself, or knowingly permits himself to be represented to be a partner in an LLP is liable to any person who has on the faith of any such representation given credit to the LLP, whether the person representing himself or represented to be a partner does or does not know that the representation has reached the person so giving credit. However, where any credit is received by the LLP as a result of such representation, the LLP shall, without prejudice to the liability of the person so representing himself or represented to be a partner, be liable to the extent of credit received by it or any financial benefit derived thereon.

Where after a partner’s death the business is continued in the same LLP name, the continued use of that name or the deceased partner’s name as a part thereof shall not of itself make his legal representative or his estate liable for any act of the LLP done after his death.

Unlimited liability in case of fraud

  • In the event of an act carried out by an LLP, or any of its partners, with intent to defraud creditors of the LLP or any other person, or for any fraudulent purpose, the liability of the LLP and partners who acted with intent to defraud creditors or for any fraudulent purpose shall be unlimited for all or any of the debts or other liabilities of the LLP. However, in case any such act is carried out by a partner, the LLP is liable to the same extent as the partner unless it is established by the LLP that such an act was without the knowledge or the authority of the LLP.
  • Where any business is carried on with such intent or for a fraudulent purpose, every person who was knowingly a party to the carrying on of the business in the manner aforesaid shall be punishable with imprisonment for a term which may extend to 2 years and with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 5 Lakhs.
  • Where an LLP or any partner or designated partner or employee of such LLP has conducted the affairs of the LLP fraudulently, then without prejudice to any criminal proceedings which may arise under any law for the time being in force, the LLP and any such partner or designated partner or employee shall be liable to pay compensation to any person who has suffered any loss or damage because of such conduct. However, such LLP shall not be liable if any such partner or designated partner or employee has acted fraudulently without knowledge of the LLP.

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