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CA Intermediate · Corporate and Other Laws · The Limited Liability Partnership Act, 2008

Zenith LLP has total contribution of Rs 40 lakh. It is found that its partners carried on business with intent to defraud creditors of Mr Shah. The Tribunal is considering the consequences. Partner Kunal was knowingly a party to the conduct, while partner Leena was unaware. Which statement matches the LLP Act, 2008?

Kunal, who knowingly took part in the fraudulent conduct, becomes personally liable without limit for the LLP's liabilities, while Leena, who was unaware, keeps her liability limited to her agreed contribution. The test is knowing participation, not whether a partner is designated.

  1. ALiability of both partners remains limited to their agreed contribution
  2. BOnly the designated partners can be made liable without limit, whether or not they knew
  3. CLiability of Kunal for the LLP's liabilities is unlimited, while Leena's remains limited to her contributionCorrect
  4. DBoth partners become personally liable without limit as the LLP's veil is lifted entirely

Explanation

If any business of the LLP is carried on with intent to defraud creditors of the LLP or any other person, or for a fraudulent purpose, those who knowingly were party to the conduct are personally liable without limit for all or any of the LLP's debts. A partner who did not know is not hit by this provision, so Leena's liability stays limited to her contribution. Designated status is not the test; knowledge and participation are.

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