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CMA Intermediate · Financial Accounting · Accounting of Limited Liability Partnership

Kiran, a partner of Sundaram Enterprises LLP, has no authority to buy a machine for the LLP. He signs a purchase contract with a supplier who knows that Kiran has no authority. Under the LLP Act, 2008, the position is:

The LLP is not bound. The Act says an LLP is not bound by a partner's act where the partner actually lacks authority and the third party knows this, or does not know or believe him to be a partner. The supplier knew, so the LLP escapes liability.

  1. AThe LLP is bound, since Kiran is a partner
  2. BThe LLP is not bound, because Kiran has no authority and the supplier knows itCorrect
  3. CThe LLP is bound only if the machine is used in the business
  4. DThe LLP is not bound only if all other partners object in writing

Explanation

An LLP is not bound by a partner's act if the partner in fact has no authority and the other person knows that he has no authority, or does not know or believe him to be a partner. Both conditions of non-authority and the supplier's knowledge are met here. The Act does not require written objection or use of the machine.

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