# Extent of Liability: LLP, Partners, Holding Out, Fraud, Whistle-blowing

This cluster of sections defines who pays when things go wrong — and how the limited-liability shield is pierced in cases of fraud.

## Section 27 — Extent of Liability of LLP

### (1) When LLP is NOT bound

The LLP is not bound by a partner's act if:

the partner had no authority to do that act, AND
the third party knew he had no authority, OR did not know/believe him to be a partner.

### (2) Wrongful acts

The LLP is liable for any wrongful act or omission by a partner in the course of business of the LLP.

### (3) Obligation is the LLP's alone

The obligation is solely that of the LLP.

### (4) Source of payment

Liabilities are met out of the property of the LLP.

## Section 28 — Extent of Liability of a Partner

### (1) No personal liability merely for being a partner

A partner is not personally liable — directly or indirectly — for an obligation of the LLP solely by reason of being a partner.

### (2) Personal liability for own wrongful act

A partner is personally liable for his own wrongful act/omission, but not for the wrongful act/omission of another partner.

## Section 29 — Holding Out

### (1) Liability of one who holds out

A person who, by words spoken, written, or by conduct, represents himself (or knowingly allows himself to be represented) as a partner of an LLP is liable to anyone who gave credit to the LLP on the faith of that representation — whether or not the holding-out partner knew the credit was given to the LLP.

The LLP that received the credit is also liable to the extent of credit received.

### (2) After a partner's death

If business continues in the same LLP name after a partner's death, the legal representative or estate of the deceased is NOT liable merely because the name continues.

## Section 30 — Unlimited Liability in case of Fraud

### (1) Piercing the LLP shield

When an act of the LLP or any partner is carried out with intent to defraud any creditor or other person:

Liability of the LLP and the responsible partners is unlimited for all debts and other liabilities of the LLP.

If the fraudulent act is done by a partner, the LLP's liability equals the partner's liability unless the partner acted without authority.

### (2) Punishment

Every person knowingly involved is punishable with:

Imprisonment up to 5 years, AND
Fine of ₹5,000 to ₹5 lakhs

### (3) Compensation

If the LLP, a partner, or an employee has conducted business fraudulently, they must compensate any person who suffered loss/damage. However, the LLP is not liable if its partners/employees acted without the LLP's knowledge.

## Section 31 — Whistle-blowing Protection

### (1) Reduction or waiver of penalty

The Court/Tribunal may reduce or waive the penalty against a partner or employee if it is satisfied that he:

provided useful information during the investigation, or
gave information that led to the conviction of the LLP or any partner/employee.

### (2) Protection from retaliation

No partner or employee may be:

Discharged, Suspended, Demoted, Threatened, or Harassed

merely because he provided information to the Court/Tribunal.

Worked example

### Example 1

Example — Section 27(1): Partner X, acting beyond his authority and clearly indicating to creditor Y that he has no authority, takes a loan in the LLP's name. Result: The LLP is not bound — Y knew of the lack of authority.

### Example 2

Example — Section 29 holding out: A retired partner, P, lets himself be introduced to a creditor as 'one of the partners' of the LLP without correcting it. The creditor extends credit on the strength of this. Result: P is personally liable to the creditor under the holding-out principle, even though he is no longer a partner.

### Example 3

Example — Section 30 fraud: Two partners of an LLP knowingly create false invoices to defraud the LLP's bank. Result: The LLP and both partners face unlimited liability for the LLP's debts, and each partner involved faces up to 5 years' imprisonment plus a fine of ₹5,000–₹5 lakhs.

⚠️ Common exam mistakes

Saying that an LLP partner is always protected by limited liability — Section 30 specifically pierces the shield for fraud.
Confusing Sec 27 (LLP's liability) with Sec 28 (partner's liability) — the former defines when the firm is bound; the latter limits the partner's personal exposure.
Forgetting that under Sec 29(2), the LR/estate of a deceased partner is not liable merely because the LLP name continues.
Missing that holding out makes the LLP liable too — but only to the extent of credit received (Sec 29(1)).

Bare-Act text Sections 27–31 · Limited Liability Partnership Act, 2008 · click to expand

Section 28(1) A partner is not personally liable, directly or indirectly, for an obligation referred to in sub-section (3) of section 27 solely by reason of being a partner of the limited liability partnership. (2) The provisions of sub-section (3) of section 27 and sub-section (1) of this section shall not affect the personal liability of a partner for his own wrongful act or omission, but a partner shall not be personally liable for the wrongful act or omission of any other partner of the limited liability partnership.

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Liability of LLP and Partners (Sections 27–31)

Worked example

⚠️ Common exam mistakes