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CSEET · Fundamentals of Accounting · Partnership and LLP Accounts

Ravi and Meena are partners in Sunrise Traders LLP. Ravi, who has no authority to act for the LLP, signs a purchase contract with a supplier who knows that Ravi has no such authority. Under the LLP Act, 2008, what is the position of the LLP?

The LLP is not bound by the contract. Under Section 27(1) of the LLP Act, 2008, an LLP is not bound where the partner actually had no authority to act and the other party knew this. Both conditions exist here, so the supplier cannot hold the LLP liable.

  1. AThe LLP is bound because Ravi is a partner
  2. BThe LLP is bound only to the extent of Ravi's capital contribution
  3. CThe LLP is not bound, since Ravi had no authority and the supplier knew itCorrect
  4. DThe LLP is bound, but Meena alone becomes personally liable

Explanation

Section 27(1) says an LLP is not bound by a partner's act if the partner in fact has no authority and the other person knows he has no authority. Both conditions are met here. The option saying the LLP is bound because Ravi is a partner ignores the supplier's knowledge.

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