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CMA Intermediate · Business Laws and Ethics · Limited Liability Partnership Act, 2008

Kavya, a partner of Orion LLP, has no authority to buy a machine for the LLP. She buys one from Sharma Engineers, which knows she lacks authority. Which statement is correct?

The LLP is not bound by the purchase. The Act provides that an LLP is not bound by a partner's act where the partner in fact had no authority and the other party knew of that lack of authority. Here Sharma Engineers knew, so the LLP escapes liability.

  1. AThe LLP is bound because Kavya is a partner
  2. BThe LLP is not bound, since she had no authority and Sharma Engineers knew itCorrect
  3. CThe LLP is bound but may recover from Kavya later
  4. DThe LLP is bound if the machine benefits the business

Explanation

Under section 27(1), the LLP is not bound if the partner has no authority for the act and the person knows this (or does not know or believe her to be a partner). Both conditions are met in the case, as Sharma Engineers knew of the lack of authority.

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