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CMA Intermediate · Financial Accounting · Accounting of Limited Liability Partnership

Mehta & Rao Associates, a firm that is not incorporated as a limited liability partnership, begins trading under the name "Mehta & Rao Traders LLP". Under the LLP Act, 2008, what is the consequence for the persons carrying on that business?

A business not duly incorporated as an LLP that trades under a name ending in 'LLP' or 'Limited Liability Partnership' is punishable. Each person involved faces a fine of at least Rs 50,000, extendable to Rs 5 lakh. Merely using the words does not create an LLP.

  1. AThey are each liable to a fine of at least fifty thousand rupees, which may extend to five lakh rupeesCorrect
  2. BThey are treated as a registered LLP once the name has been used for six months
  3. CThey are liable only to a warning from the Registrar, with no fine
  4. DThey become partners with limited liability automatically, because the name ends in LLP

Explanation

The Act punishes any person who carries on business under a name ending in 'LLP' or 'Limited Liability Partnership' without being duly incorporated as an LLP. The fine is not less than Rs 50,000 and may extend to Rs 5 lakh. Using the name does not create an LLP, and no warning-only regime or six-month rule exists.

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