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CA Intermediate · Corporate and Other Laws · The Limited Liability Partnership Act, 2008

Meera and Rohit are the only two partners of Kaveri Design Studio LLP, Pune. Rohit, without the knowledge of Meera, signs a contract with a vendor in the LLP's name. The contract is within the usual business of the LLP. Rohit had no authority from the LLP to sign it, and the vendor did not know this. Which statement reflects the correct legal position under the LLP Act, 2008?

The LLP is bound by Rohit's contract. A partner is the agent of the LLP, and the LLP escapes liability for an unauthorised act only if the outsider knew of the lack of authority. Since the vendor was unaware, the LLP stays bound.

  1. AThe LLP is not bound because Meera, the other partner, did not consent to the contract
  2. BThe LLP is bound, because a partner is the agent of the LLP and the vendor dealt in good faith without knowing of the lack of authorityCorrect
  3. COnly Rohit is bound, as the LLP can never be bound by an unauthorised act of a partner
  4. DThe contract is void ab initio because an LLP can contract only through a resolution of all partners

Explanation

Under the LLP Act, a partner is the agent of the LLP, not of the other partners. The LLP is not bound by a partner's act only if the partner had no authority and the third party knew this or did not know or believe him to be a partner. Here the vendor did not know of the lack of authority, so the LLP is bound. The option saying the LLP is not bound fails because the vendor acted in good faith.

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