LIABILITY OF PARTNERS
1. Nature & extent of liability of a partner of an LLP?
Every partner of an LLP would be, for the purpose of the business of the LLP, an agent of the LLP but not of the other partners. Liability of partners shall be limited except in case of unauthorized acts, fraud and negligence. But a partner shall not be personally liable for the wrongful acts or omission of any other partner. An obligation of the limited liability partnership whether arising in contract or otherwise, is solely the obligation of the limited liability partnership. The liabilities of LLP shall be met out of the property of the LLP.
2. What is the liability of a Partner upon reduction of minimum number of members in an LLP?
The Act provides for the minimum of two partners to carry on LLP. If at any time the number of partners of a limited liability partnership is reduced below two and the limited liability partnership carries on business for more than six months while the number is so reduced, the person, who is the only partner of the limited liability partnership during the time that it so carries on business after those six months and has the knowledge of the fact that it is carrying on business with him alone, shall be liable personally for the obligations of the limited liability partnership incurred during that period.
3. Whether a ‘partner by holding out’ will be liable under the Act?
The Act provides that any person (not being a partner in any LLP), who by words spoken or written or by conduct, represents himself, or knowingly permits himself to be represented to be a partner in a LLP (known as ‘partner by Holding out’) is liable to any person who has on the faith of any such representation given credit to the LLP, whether the person representing himself or represented to be a partner does or does not know that the representation has reached the person so giving credit.
It has further been provided that where any credit is received by the LLP as a result of such representation, the LLP shall, without prejudice to the liability of the person so representing himself or represented to be a partner, be liable to the extent of credit received by it or any financial benefit derived thereon.
The provisions have also been made in the Act to provide that where after a partner’s death the business is continued in the same LLP name, the continued use of that name or of the deceased partner’s name as a part thereof shall not of itself make his legal representative or his estate liable for any act of the LLP done after his death.
4. How penal action on errant partners who are not residents of India will be taken?
For statutory compliances provisions of at least one resident designated partner (DP) in every LLP is would ensure that at least one partner is available in India for at least six months for regulatory compliance requirements. The LLPs would have freedom to appoint more than one resident as DP. LLP as an entity would always remain liable for regulatory or other compliances. Civil liability on such a partner would be adjudicated by the courts under civil law which recognises ‘foreign awards’. Criminal liability would require adjudication/ enforcement by the courts including using the extradition process. Position would be similar to the cases of directors of companies who are foreign nationals.