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

Anita, who is not a partner in Kaveri Designs LLP, allows a vendor to believe she is a partner. Relying on this, the vendor supplies goods on credit to the LLP, and the LLP receives the goods. Which statement is correct?

Anita is liable to the vendor under the holding-out rule, and the LLP is also liable up to the credit it received or the benefit derived. Her liability does not depend on whether she knew the representation reached the vendor.

  1. AAnita is liable to the vendor, and the LLP is also liable to the extent of credit received or financial benefit derivedCorrect
  2. BOnly the LLP is liable, as Anita is not a partner
  3. CNeither is liable because Anita is not a partner
  4. DAnita is liable only if she knew the vendor had received the representation

Explanation

A person who represents herself or knowingly permits herself to be represented as a partner is liable to anyone who gave credit on the faith of that representation, whether or not she knows it reached that person. Where the LLP received credit as a result, it is also liable to the extent of the credit or financial benefit, without prejudice to her liability. The distractor requiring knowledge of the representation reaching the vendor is wrong.

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