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CA Foundation · Business Laws · The Limited Liability Partnership Act, 2008

Aarav, Bhavna and Chirag are partners in Trident Advisors LLP. Chirag, a designated partner, was found to have knowingly carried on the LLP's business with intent to defraud a creditor, Mehta Traders, without the knowledge of Aarav and Bhavna. Which statement best describes the liability position under the LLP Act, 2008?

Chirag is personally liable for his own fraud, and the LLP is also liable for acts done in its business. Aarav and Bhavna are not personally liable merely because of his act, since a partner in an LLP is the agent of the LLP and not of the other partners.

  1. AAarav and Bhavna are personally liable for Chirag's fraudulent act because every partner is an agent of the other partners
  2. BOnly the LLP is liable, and Chirag has no personal liability since an LLP is a separate legal entity
  3. CChirag is personally liable for the fraud, and the LLP is liable for his acts done in the course of its business, while Aarav and Bhavna are not personally liable merely because of his actCorrect
  4. DNeither the LLP nor Chirag is liable, because fraud is outside the scope of the LLP agreement

Explanation

In an LLP, a partner is the agent of the LLP, not of other partners. So Aarav and Bhavna are not personally liable for Chirag's independent wrongful act. The LLP is liable for acts done in the course of its business, but where the act is a fraud, the partner who acted with intent to defraud is personally liable for it as well. Option A wrongly applies the general partnership agency rule.

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