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CA Foundation · Business Laws · The Limited Liability Partnership Act, 2008

Nitin and Seema are the only partners of Brightpath Consulting LLP. The LLP owes Rs 8 lakh to a creditor and has only Rs 3 lakh in assets. Nitin had contributed Rs 1 lakh to the LLP, and neither partner acted fraudulently. Which statement is correct?

The partners' liability is limited to their agreed contribution. The LLP's debts are met from its own assets, and with no fraud involved the creditor cannot recover the Rs 5 lakh shortfall from the partners' personal assets, unlike in an ordinary partnership.

  1. ANitin and Seema are each personally liable for the remaining Rs 5 lakh jointly and severally
  2. BOnly Nitin is liable, as he is the older partner
  3. CThe liability of the partners is limited to their agreed contribution, and the creditor cannot recover the Rs 5 lakh shortfall from their personal assetsCorrect
  4. DEach partner is liable personally for Rs 2.5 lakh

Explanation

An LLP's liability is its own and is met from its own assets. A partner's liability is limited to the agreed contribution, absent fraud or an act outside his authority. The shortfall of Rs 8 lakh minus Rs 3 lakh, i.e. Rs 5 lakh, cannot be recovered from personal assets. Treating partners as jointly liable confuses LLP with ordinary partnership.

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