Question 5 (b)
Liability limited to agreed contribution; allocation of profits in a conflict
6 marks
- Time to write
- About 12 minutes
- Notes
- Crux notes
Question
Question 5 (b) · 6 marks"All the partner are liable to the extent of the contribution they agreed in the LLP". With the help of an example, discuss how profits are allocated among the partners when they are in conflict, under the Limited Liability Partnership Act, 2008.
Reworded from the university paper; the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- discussTie the answer to the quoted statement: say what it means first, and come back to it at the end.
- exampleExamples are asked for: one short example with each point.
Write it in this order
- Read; underline the asks; jot your points 1 min
- 1 Liability limited to agreed contribution 2 marks 3 min
- 2 Allocation of profits: LLP agreement and First Schedule 2½ marks 4 min
- 3 Example 1½ marks 3 min
- Check: every ask answered, key terms underlined 1 min
Short on time? Trim steps 1–3 evenly rather than skip one: each is capped at its own marks.
Try it first. About 12 minutes for 6 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
Discussion. The statement is correct. The liability of the partners of an LLP is limited to their agreed contribution in the LLP, which may be tangible or intangible or both; every partner is the agent of the LLP, not of the other partners. Limited liability does not extend to wilful fraud.
Allocation of profits. The mutual rights and duties of the partners, including how profits are shared, are governed by the LLP agreement: the written agreement between the partners, or between the LLP and its partners, which determines their mutual rights and duties. Where the LLP agreement makes no provision on a matter, the First Schedule to the Act applies to it; it deals with the mutual rights and duties of partners in the absence of a formal agreement. Under it, all the partners “are entitled to share equally in the capital, profits and losses of the” (s. 2) LLP.
Example. A, B and C form an LLP with contributions of ₹5 lakh, ₹3 lakh and ₹2 lakh. If the LLP agreement provides for profits in the ratio of 5:3:2, a profit of ₹6 lakh is shared ₹3 lakh, ₹1.8 lakh and ₹1.2 lakh. If the agreement says nothing about sharing profits, the First Schedule applies and each receives ₹2 lakh. In either case, if the LLP cannot pay its debts, each partner's loss is limited to his agreed contribution.
Where the 6 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Liability limited to agreed contribution | 2 |
| 2 | Allocation of profits: LLP agreement and First Schedule | 2.5 |
| 3 | Example | 1.5 |
| Total | 6 |
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