Extent of a partner's liability in an LLP

The Limited Liability Partnership Act, 2008 deals with a partner's liability chiefly in sections 26 to 30, with a further rule in section 6(2).

General rule: liability limited.

1. Agent of the LLP only (s. 26). For the purpose of the LLP's business, every partner is the agent of the LLP but not of the other partners. A partner's acts therefore bind the LLP, not his fellow partners personally. That is subject to section 27(1): the LLP is not bound by a partner's dealing with a person where the partner in fact lacks authority for that particular act and the person either knows this or does not know or believe him to be a partner.
2. Limited to the agreed contribution. A partner's liability is limited to the contribution he has agreed to make to the LLP, which may be tangible, intangible or both.
3. The LLP's obligations are its own (s. 27(3)-(4)). An obligation of the LLP, whether it arises in contract or otherwise, is solely the LLP's obligation, and the LLP's liabilities are met out of the LLP's property.
4. No personal liability merely for being a partner (s. 28(1)). A partner is not personally liable, directly or indirectly, for such an obligation of the LLP solely because he is a partner of it.

Partner's own wrongful act. Sections 27(3) and 28(1) do not affect a partner's personal liability for his own wrongful act or omission, but no partner is made personally liable for a wrongful act or omission committed by another partner (s. 28(2)). Where a partner is liable to someone for a wrongful act or omission in the course of the LLP's business or with its authority, the LLP is liable as well (s. 27(2)).

When a partner's liability goes further.

1. Holding out (s. 29). Anyone who, by spoken or written words or by conduct, represents himself as a partner of an LLP, or knowingly allows himself to be so represented, is liable to any person who has given credit to the LLP on the faith of that representation, whether or not he knows that the representation reached that person. Where the LLP itself received credit as a result, it is liable too, to the extent of the credit received or any financial benefit derived from it, without prejudice to the liability of the person so represented. After a partner's death, continuing the business under the same name, or using the deceased partner's name in it, does not by itself make his legal representative or his estate liable for the LLP's acts after his death.
2. Fraud (s. 30). Where an act is carried out by the LLP or any of its partners with intent to defraud the LLP's creditors or anyone else, or for any fraudulent purpose, the liability of the LLP and of the partners who acted with that intent or purpose is unlimited for all or any of the LLP's debts and other liabilities. If such an act is done by a partner, the LLP is liable to the same extent as the partner unless it proves that the act was done without its knowledge or authority (s. 30(1)). Every person knowingly a party to carrying on business in that way is punishable with imprisonment (now up to five years, after the 2021 amendment) and a fine of not less than ₹50,000 and up to ₹5 lakh (s. 30(2)). A partner, designated partner or employee who conducted the LLP's affairs fraudulently must also pay compensation to anyone who suffered loss or damage because of it, without prejudice to criminal proceedings. The LLP itself is liable to pay that compensation too, both where the LLP has conducted its affairs in a fraudulent manner and where such a person has, unless that person "acted fraudulently without knowledge of the limited liability partnership" (s. 30(3) and its proviso).
3. Carrying on with a single partner (s. 6(2)). Every LLP must have at least two partners. If the number drops to one and the LLP goes on trading in that state for more than six months, the person who is its only partner during the time it so carries on business after those six months, and who knows that it is carrying on business with him alone, is personally liable for the LLP's obligations incurred during that period.

Example. Ananya and Farhan each agree to contribute ₹5 lakh to Rangoli Interiors LLP. The LLP buys ₹30 lakh of furniture on credit and cannot pay: the supplier recovers only from the LLP's property, and neither partner loses more than the ₹5 lakh agreed. If Farhan negligently damages a client's flat while working on it, he and the LLP are liable to the client, but Ananya is not personally liable for his act. If both partners had kept placing orders after knowing the LLP could never pay, intending to cheat suppliers, their liability would be unlimited under section 30.