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CMA Intermediate · Business Laws and Ethics · Limited Liability Partnership Act, 2008

Rohan and Meera are partners in Kaveri Traders LLP. Rohan, who has no authority to bind the LLP for a particular purchase, buys goods from Sunil, who knows that Rohan has no such authority. What is the position of the LLP?

The LLP is not bound by Rohan's act. Rohan in fact had no authority for that purchase, and Sunil knew it, so the statutory protection for the LLP applies. Being a partner alone does not bind the LLP when the third party knows authority is lacking.

  1. AThe LLP is bound because Rohan is a partner
  2. BThe LLP is bound only to the extent of Meera's personal property
  3. CThe LLP is not bound by Rohan's actCorrect
  4. DThe LLP is bound, but Rohan alone is liable to pay Sunil from the LLP's property

Explanation

Under section 27(1), 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 (or does not know or believe him to be a partner). Both conditions are met in the facts as Sunil knew of the lack of authority. Hence the LLP is not bound.

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