# Liability Architecture of an LLP
An LLP combines the flexibility of a partnership with the limited liability of a company. Sections 26 to 31 build the liability architecture: who acts for whom, who pays for what, and when limited liability is lost.
## 1. Partner as Agent (Section 26)
Every partner is an agent of the LLP for the purpose of its business — but NOT of other partners.
> Compare with the Indian Partnership Act, 1932 where partners are agents of both the firm AND of each other.
## 2. Extent of LLP's Liability (Section 27)
1. The LLP is liable for wrongful acts or omissions of a partner done in the course of LLP business or with its authority.
2. Escape clause — LLP is NOT bound if:
- The partner acts beyond authority; AND
- The third party either knows of the lack of authority OR does not know/believe the person to be a partner.
3. All obligations of the LLP (contract or otherwise) are solely the LLP's and met out of LLP's property.
## 3. Extent of Partner's Liability (Section 28)
- A partner is not personally liable for an obligation of the LLP merely because he is a partner.
- But he IS personally liable for his own wrongful act or omission.
- He is NOT liable for the wrongful act/omission of another partner.
> This is the heart of "limited liability" — joint and several liability of the classical partnership is replaced by individual responsibility for one's own wrongs.
## 4. Holding Out (Section 29)
A person who, by words, conduct, or writing, represents himself (or knowingly permits himself to be represented) as a partner is liable to a third party who has, on the faith of that representation, given credit to the LLP — regardless of whether he knew the representation reached that party.
- If credit is received by the LLP as a result, the LLP is liable to the extent of credit received or financial benefit derived.
- Continued use of a deceased partner's name does NOT, by itself, make his legal representative or estate liable.
## 5. Unlimited Liability for Fraud (Section 30)
This is the piercing-the-veil provision of the LLP Act.
### When does unlimited liability arise?
If an act is done by the LLP or any partner:
- With intent to defraud creditors or any other person; OR
- For any fraudulent purpose;
Then, the LLP and the partners who acted with that intent face unlimited liability for all such debts/liabilities.
### LLP's escape route
Where a partner alone commits the fraud, the LLP can escape liability only by proving the act was without its knowledge or authority.
### Criminal Punishment
Any person knowingly party to such fraudulent business is punishable with:
- Imprisonment up to 5 years; AND
- Fine: not less than ₹50,000, may extend to ₹5,00,000.
### Civil Compensation
The LLP and the offending partner/designated partner/employee shall pay compensation to any person who suffered loss. The LLP escapes if the partner/employee acted fraudulently without LLP's knowledge.
## 6. Whistle Blowing (Section 31)
The Court or Tribunal may reduce or waive any penalty against a partner/employee of an LLP if:
1. He has provided useful information during investigation; or
2. His information leads to conviction of the LLP or another partner/employee.
### Protection from Retaliation
No whistle-blower may be discharged, demoted, suspended, threatened, harassed or discriminated against the terms of his employment merely for providing such information.
## Summary Diagram (Liability Ladder)
```
Normal acts (in course of business) ──▶ LLP liable, partner not personally
Own wrongful act of partner ──▶ That partner personally liable
Act beyond authority + third party knew ▶ Neither LLP nor partner liable to TP
Fraud with intent ──▶ UNLIMITED liability + criminal
Holding out (false representation) ▶ Person liable; LLP liable to extent of benefit
```