Extent and limitation of liability of an LLP and its partners

Liability of the LLP. An LLP is a separate legal entity. It is liable to the full extent of its assets; its creditors are the creditors of the LLP alone. An obligation of the LLP, whether in contract or otherwise, is solely the obligation of the LLP, and the LLP is liable for a partner's wrongful act or omission in the course of its business or with its authority (ss. 27-28). It is not bound by a partner's act where the partner had no authority to act for it in that matter and the person dealing with him knew this, or did not know or believe him to be a partner (s. 27(1)).

Liability of the partners. Every partner is the agent of the LLP for its business, but not of the other partners, and the liability of each partner is limited to the contribution he agreed to make to the LLP, which may be tangible or intangible. A partner is not personally liable for the obligations of the LLP solely because he is a partner (s. 28), and no partner is liable for the independent or unauthorised acts of other partners; each partner is shielded from joint liability for another partner's wrongful decisions or misconduct. A partner remains liable for his own wrongful act or omission.

Limitation. The limited liability is lost in these cases:

1. Fraud (s. 30): where an act is done with intent to defraud creditors or for any fraudulent purpose, the liability of the LLP and of the partners who acted with that intent is unlimited; but where a partner carried out the act, the LLP escapes that liability if it establishes that the act was done without its knowledge or authority.
2. Holding out: a person who represents himself, or knowingly allows himself to be represented, as a partner is liable to anyone who gives credit to the LLP on the faith of it.
3. Business with one partner beyond six months (s. 6(2)): if the number of partners falls below two and the LLP goes on carrying on business for over six months so, the person who is its only partner, and who knows that it is carrying on business with him alone, is personally liable for the obligations of the LLP incurred during that period.