Setting Up of Business, Industrial and Labour Laws · Limited Liability Partnership

Extent of Liability and Financial Disclosures of an LLP

Updated 11 October 2026 · Fact-checked

Under Section 27 of the LLP Act, 2008, an LLP is a separate entity. Its obligations are solely its own and are met from its own property. It is liable for a partner's wrongful acts in the course of business. It must keep books, file a Statement of Account and Solvency and an annual return, and get accounts audited as prescribed.

Understand Extent of Liability and Financial Disclosures

An LLP is a separate legal entity. So when it deals with the world, the LLP is the one that owes and is owed. Section 27(3) says an obligation of the LLP, whether in contract or otherwise, is solely the obligation of the LLP. Section 27(4) says its liabilities are met out of the property of the LLP. This is why partners enjoy limited liability.

But an LLP acts only through its partners. Section 27 therefore also deals with when the LLP is bound by a partner's acts. Under Section 27(1), the LLP is not bound if two things are both true: (a) the partner in fact had no authority for that act, and (b) the other person knew he had no authority, or did not know or believe him to be a partner. If either condition fails, the LLP stays bound. For example, an outsider who did not know the person was a partner cannot hold the LLP to a deal, but only if the partner also had no actual authority.

Section 27(2) covers wrongful acts. If a partner is liable to any person for a wrongful act or omission in the course of the LLP's business or with its authority, the LLP is also liable. Note the wording: the section makes the LLP liable for the partner's wrong. It does not by itself say anything about the wrongdoer's personal liability or about fraud. For fraud and personal liability of partners, you must also use the other provisions of the Act on partner liability, which are covered under Partners, Designated Partners and LLP Agreement.

The second half of this topic is disclosure. Section 34 requires proper books of account on cash or accrual basis and double entry system. It requires a Statement of Account and Solvency within six months of the financial year end, signed by the designated partners. The statement is filed with the Registrar. Accounts are audited as per prescribed rules, and the Central Government may exempt classes of LLPs. Section 35 requires an annual return within sixty days of the close of the financial year. Section 36 makes filed documents open to public inspection.

Key rules to remember

LLP not bound by partner's act (S.27(1)): Not bound only if: (a) partner had no actual authority AND (b) person knew of no authority OR did not know/believe him to be a partner; Both limbs (a) and (b) are needed. Limb (b) itself has two alternatives.
Liability for wrongful act (S.27(2)): Partner liable for wrongful act or omission in course of LLP business or with its authority ⇒ LLP is liable; The wrong must be in the course of business or with authority.
Obligations and assets (S.27(3) and (4)): Obligation = solely the LLP's; liabilities met out of LLP property; This is the basis of limited liability of partners.
Books of account (S.34(1)): Proper books, cash or accrual basis, double entry, kept at registered office; Form of books and period of retention are as prescribed.
Statement of Account and Solvency (S.34(2),(3)): Prepare within 6 months from end of financial year; signed by designated partners; file with Registrar; Filing time, form and fee are as prescribed.
Annual return (S.35(1)): File with Registrar within 60 days of closure of financial year; Form, manner and fee are as prescribed.
Penalty for late filing (S.34(5), S.35(2)): ₹100 per day of default; maximum ₹1,00,000 for LLP and ₹50,000 for each designated partner; Applies to default in filing the Statement (S.34(3)) and the annual return.
Fine for failure under S.34(1), (2), (4): LLP: ₹25,000 to ₹5,00,000; each designated partner: ₹10,000 to ₹1,00,000; Covers books of account, preparing the Statement and audit.
Tribunal winding up for default (S.64(e)): Default in filing Statement of Account and Solvency or annual return for any five consecutive financial years; One of the grounds for winding up by the Tribunal.

How to solve Extent of Liability and Financial Disclosures questions

Use this method for any question on LLP liability or financial disclosures. Decide first which half of the topic is tested.

1Identify the issue: is it about who is bound or liable (Section 27), or about books, filings, audit and penalty (Sections 34, 35, 36)?
2For liability, name the party: the LLP, the partner who acted, or the outsider.
3For authority questions, test Section 27(1): did the partner have actual authority? If yes, the LLP is bound. If no, did the outsider know this, or not know or believe him to be a partner? The LLP escapes only if both limbs are met.
4For wrongs, test Section 27(2): was the act or omission in the course of the LLP's business or with its authority? If yes, the LLP is liable along with the partner who is personally liable.
5For compliance, list the document, the time limit and the person who must sign or file. Count the days or months from the financial year end.
6If there is a default, apply the penalty: ₹100 per day with the caps for late filing, or the fine range for failure under Section 34(1), (2) or (4). Mention Section 64(e) for five years of default.
7Write the conclusion in one clear line stating who is liable or what penalty applies.

Quickest way: Authority-and-time check

When to use it: Use it when the question is short and gives facts with dates or a partner's act, and you have little time.

Write the section number first: 27 for liability, 34 for accounts, 35 for return.
For Section 27(1), write the two limbs and tick each against the facts.
For filings, write: Statement within 6 months of year end; annual return within 60 days.
For penalty, write ₹100 per day, cap ₹1,00,000 (LLP) and ₹50,000 (each designated partner).
Finish with a one-line conclusion.

Common mistakes in Extent of Liability and Financial Disclosures

Saying the LLP is not bound whenever the partner had no authority.
Students remember limb (a) and forget limb (b).
Fix: Both limbs must be present. The outsider must know of the lack of authority, or not know or believe him to be a partner.
Mixing up the two time limits: 60 days and 6 months.
Both relate to the financial year end and look alike.
Fix: Annual return: 60 days (Section 35). Statement of Account and Solvency: prepared within 6 months (Section 34).
Saying the LLP is not liable for a partner's wrongful act.
Students carry over the idea of limited liability and apply it to the LLP itself.
Fix: Under Section 27(2) the LLP is liable for wrongs in the course of its business or with its authority. Limited liability protects partners' personal assets, not the LLP.
Stating the penalty as a flat amount without the per-day rule and caps.
Students remember only the figures.
Fix: Write: ₹100 for each day of default, maximum ₹1,00,000 for the LLP and ₹50,000 for each designated partner.
Saying all LLPs must be audited, or quoting a turnover limit from memory.
Students mix the audit rule with limits found in rules and notifications.
Fix: Section 34(4) says accounts are audited as per prescribed rules, and the Central Government may exempt classes of LLPs. Quote the limits only if you are sure of the current rules, and say they are prescribed.
Confusing the Statement of Account and Solvency with the annual return.
Both are yearly filings with the Registrar.
Fix: The Statement covers accounts and solvency, signed by designated partners (Section 34). The annual return is a separate filing under Section 35.

Worked examples

Example 1

Ravi, a partner of Sunrise Traders LLP, has no authority to buy machinery. He buys machinery worth ₹8,00,000 from Kumar Engineers, who know he has no authority. Is Sunrise Traders LLP bound? Would your answer change if Kumar Engineers did not know of this lack of authority and believed him to be a partner?

Show the solution

Provision: Section 27(1) of the LLP Act, 2008. The LLP is not bound if (a) the partner in fact has no authority for the act, and (b) the other person knows he has no authority, or does not know or believe him to be a partner.
Facts, first case: Ravi has no authority, so limb (a) is met. Kumar Engineers know this, so limb (b) is met.
Both limbs are met, so the LLP is not bound by the purchase.
Facts, second case: Limb (a) is still met. But Kumar Engineers did not know of the lack of authority and believed Ravi to be a partner. Limb (b) is not met, since they neither knew of the lack of authority nor failed to believe him a partner.
As both limbs are not met, the protection in Section 27(1) is not available, and the LLP would be bound.

Answer: In the first case, Sunrise Traders LLP is not bound under Section 27(1). In the second case, it is bound, because the outsider neither knew of the lack of authority nor disbelieved that Ravi was a partner.

Example 2

Meera Associates LLP closed its financial year on 31 March. It has not filed its annual return and files its Statement of Account and Solvency late. The annual return is filed 40 days after the due date. What is the due date for each filing, and what penalty applies to the annual return default?

Show the solution

Provision for annual return: Section 35(1) requires filing within sixty days of the closure of the financial year.
Due date of annual return: 60 days from 31 March. April has 30 days and May has 30 days, so the 60th day is 30 May.
Provision for the Statement: Section 34(2) requires it to be prepared within six months from the end of the financial year, signed by designated partners, and Section 34(3) requires it to be filed within the prescribed time.
Penalty on the annual return: Section 35(2) imposes ₹100 for each day of default, subject to a maximum of ₹1,00,000 for the LLP and ₹50,000 for designated partners.
Computation: 40 days × ₹100 = ₹4,000. This is below the cap, so it applies in full.
The penalty falls on the LLP and also on its designated partners, each subject to the cap above.

Answer: The annual return was due by 30 May. For a 40-day delay the penalty is ₹4,000, payable by the LLP and its designated partners as stated in Section 35(2). The Statement of Account and Solvency must be prepared within six months of year end and filed within the prescribed time.

Exam tips

Always start a Section 27 answer by quoting the two limbs of Section 27(1). Examiners look for both.
Memorise the time limits as a pair: 60 days for the annual return and 6 months for the Statement of Account and Solvency.
In penalty questions, compute days × ₹100 and compare with the caps before writing the final figure.
For audit and turnover-limit questions, state that audit is as per prescribed rules and the Government may exempt classes. Do not invent limits.
End each answer with a clear conclusion naming the Act and section.

Practice questions from Limited Liability Partnership

Extent of Liability and Financial Disclosures in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Extent of Liability and Financial Disclosures: frequently asked questions

What does Section 27 of the LLP Act say in short?

It says the LLP is not bound by an unauthorised act of a partner only if the partner had no authority and the outsider knew this or did not know or believe him to be a partner. The LLP is liable for a partner's wrongful acts in the course of its business. Its obligations are solely its own and are met from its own property.

Are partners personally liable for the LLP's debts?

Under Section 27(3) and (4), the LLP's obligations are solely its own and are paid from its property. This is the basis of limited liability for partners. A partner can still be liable for his own wrongful act, and fraud has separate provisions covered under partners' liability.

What is the penalty for not filing the LLP annual return on time?

Under Section 35(2), the LLP and its designated partners face a penalty of ₹100 for each day of default. The maximum is ₹1,00,000 for the LLP and ₹50,000 for designated partners.

Is audit compulsory for every LLP?

Section 34(4) says accounts are audited in accordance with prescribed rules. The Central Government may exempt classes of LLPs by notification. The exact limits are in the rules, so check the current rules before quoting a figure.

Can an LLP be wound up for not filing returns?

Yes. Under Section 64(e), the Tribunal may wind up an LLP that defaults in filing the Statement of Account and Solvency or the annual return for any five consecutive financial years.