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CMA Foundation · Fundamentals of Financial and Cost Accounting · Four Frameworks of Accounting and Forms of Organization

Which of the following is a key difference between a Limited Liability Partnership (LLP) and a traditional partnership firm in India?

An LLP is a separate legal entity, and its partners' liability is limited to their agreed contribution, unlike partners in a traditional firm who have unlimited personal liability. An LLP needs at least two partners, so the single-member and hundred-member options are incorrect.

  1. AAn LLP is a separate legal entity and partners are not personally liable for the LLP's debts beyond their agreed contributionCorrect
  2. BAn LLP has only one member
  3. CAn LLP requires at least 100 members
  4. DAn LLP's partners have unlimited liability for the LLP's debts

Explanation

Under the LLP Act, 2008, an LLP is a body corporate with separate legal identity, and partners' liability is limited to their agreed contribution. A traditional firm is not a separate entity and partners have unlimited liability. An LLP needs at least two partners, not one or 100.

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