CA Inter P2 · Chapter 11
The Limited Liability Partnership Act, 2008 MCQs with Answers
11 multiple-choice questions on The Limited Liability Partnership Act, 2008 for CA Inter P2 Corporate and Other Laws. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Under section 3 of the Limited Liability Partnership Act, 2008, a limited liability partnership is:
- A) A body corporate formed and incorporated under the Act, being a legal entity separate from its partners
- B) An association of persons with no legal existence apart from its partners
- C) A company limited by guarantee registered under the Companies Act, 2013
- D) A firm registered under the Indian Partnership Act, 1932 with limited liability
Show answer & explanation
Answer: A) A body corporate formed and incorporated under the Act, being a legal entity separate from its partners
Section 3(1) provides that an LLP is a body corporate formed and incorporated under the LLP Act and is a legal entity separate from its partners. Section 3(2) gives it perpetual succession, and any change in partners does not affect its existence, rights or liabilities. Section 4 states that the Indian Partnership Act, 1932 does not apply to an LLP.
Question 2
Alpha LLP had two partners. One partner died, and the LLP continued its business with only the surviving partner for nine months. Under section 6(2), the surviving partner, who knew of the situation, is:
- A) Not personally liable, as an LLP partner's liability is always limited
- B) Personally liable for all obligations of the LLP since its incorporation
- C) Liable only to the extent of his agreed contribution
- D) Personally liable for the obligations of the LLP incurred during the period after the first six months
Show answer & explanation
Answer: D) Personally liable for the obligations of the LLP incurred during the period after the first six months
Section 6(1) requires every LLP to have at least two partners. Under section 6(2), if the number falls below two and the LLP carries on business for more than six months while so reduced, the sole partner who knows of this is personally liable. The liability covers the LLP's obligations incurred during the period after those six months.
Question 3
As per section 7(1), every LLP must have at least:
- A) One designated partner who is resident in India
- B) Two designated partners who are individuals, at least one of whom is resident in India
- C) Two designated partners, both of whom must be resident in India
- D) Two designated partners, who may be bodies corporate
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Answer: B) Two designated partners who are individuals, at least one of whom is resident in India
Section 7(1) requires every LLP to have at least two designated partners who are individuals, at least one of whom must be a resident in India. Where all partners are bodies corporate, or some are individuals and some bodies corporate, individuals or nominees of the bodies corporate act as designated partners.
Question 4
Under section 5, which of the following is NOT capable of becoming a partner of an LLP?
- A) A non-resident individual
- B) An individual who has been found to be of unsound mind by a court of competent jurisdiction
- C) A company incorporated under the Companies Act, 2013
- D) An LLP incorporated under the LLP Act, 2008
Show answer & explanation
Answer: B) An individual who has been found to be of unsound mind by a court of competent jurisdiction
Section 5 allows any individual or body corporate to be a partner. An individual is not capable if found by a competent court to be of unsound mind, is an undischarged insolvent, or has applied to be adjudicated insolvent and the application is pending. Companies and LLPs are bodies corporate, and residence is not a condition for being a partner.
Question 5
In the absence of an LLP agreement on the matter, the First Schedule to the LLP Act provides that the partners shall share the capital, profits and losses of the LLP:
- A) Equally
- B) In the ratio of their contributions
- C) In the ratio decided by the designated partners
- D) In the ratio of the time devoted to the business
Show answer & explanation
Answer: A) Equally
Under section 23(4), where no LLP agreement exists or it is silent on a matter, the First Schedule applies. Paragraph 1 of the First Schedule provides that the mutual rights and duties of the partners are determined so that all partners are entitled to share equally in the capital, profits and losses of the LLP.
Question 6
Unless the LLP agreement provides otherwise, which of the following is correct under the First Schedule?
- A) No person may be introduced as a partner without the consent of all the existing partners
- B) Every partner is entitled to remuneration for acting in the business
- C) A majority of partners may expel any partner without a power in the agreement
- D) A change in the nature of business can be made by a simple majority of partners
Show answer & explanation
Answer: A) No person may be introduced as a partner without the consent of all the existing partners
The First Schedule provides that no person may be introduced as a partner without the consent of all existing partners. No partner is entitled to remuneration for acting in the business. No majority may expel a partner unless the agreement expressly gives that power. Ordinary matters are decided by a majority, but a change in the nature of business needs the consent of all partners.
Question 7
In the absence of any agreement with the other partners, under section 24(1) a partner may cease to be a partner of an LLP by giving a notice in writing to the other partners of not less than:
- A) Fifteen days
- B) Ninety days
- C) Thirty days
- D) Sixty days
Show answer & explanation
Answer: C) Thirty days
Section 24(1) states that a person may cease to be a partner in accordance with an agreement with the other partners. In the absence of an agreement, he may do so by giving a notice in writing of not less than thirty days to the other partners of his intention to resign. A person also ceases to be a partner on death, dissolution of the LLP, or on being declared of unsound mind or insolvent.
Question 8
Partner P of Beta LLP negligently caused a loss to a client while acting in the course of the LLP's business. Partner Q had no role in it. Under sections 27 and 28, which is correct?
- A) Only Beta LLP is liable, and P cannot be made personally liable
- B) Only P is liable; the LLP is not liable for acts of its partners
- C) Beta LLP is liable to the client, P is personally liable for his own wrongful act, and Q is not personally liable merely because he is a partner
- D) Beta LLP, P and Q are all jointly and severally liable without limit
Show answer & explanation
Answer: C) Beta LLP is liable to the client, P is personally liable for his own wrongful act, and Q is not personally liable merely because he is a partner
Under section 27(2), an LLP is liable if a partner is liable to any person as a result of a wrongful act or omission in the course of the LLP's business or with its authority. Section 28(1) provides that a partner is not personally liable for an obligation of the LLP solely because he is a partner. Section 28(2) preserves a partner's personal liability for his own wrongful act or omission.
Question 9
Under section 30, where an act is carried out by an LLP or any of its partners with intent to defraud its creditors:
- A) Only the LLP is liable, up to the value of its assets
- B) All partners become liable without limit, whether or not they took part in the fraud
- C) The liability of the LLP and of the partners who acted with that intent is unlimited for all or any of the debts or liabilities of the LLP
- D) The partners who acted with that intent are liable only up to their contribution
Show answer & explanation
Answer: C) The liability of the LLP and of the partners who acted with that intent is unlimited for all or any of the debts or liabilities of the LLP
Section 30(1) provides that where an act is carried out 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 for all or any of the LLP's debts. Partners who were not involved are not made liable without limit. Section 30(2) also provides punishment for those who were knowingly parties to the act.
Question 10
Under section 34(2), every LLP must prepare a Statement of Account and Solvency for each financial year within:
- A) Six months from the end of the financial year
- B) Nine months from the end of the financial year
- C) Thirty days from the end of the financial year
- D) Sixty days from the end of the financial year
Show answer & explanation
Answer: A) Six months from the end of the financial year
Section 34(2) requires every LLP to prepare a Statement of Account and Solvency within six months from the end of each financial year. It must be signed by the designated partners and filed with the Registrar. The annual return under section 35 is filed within sixty days of the close of the financial year.
Question 11
Under section 56 read with the Third Schedule, a private company may apply to convert into an LLP only if:
- A) At least seventy-five per cent of its shareholders agree to become partners of the LLP
- B) There is no security interest in its assets subsisting or in force at the time of application, and the partners of the LLP will comprise all the shareholders of the company and no one else
- C) It has obtained the approval of the Tribunal and its creditors
- D) It has been in existence for at least five years
Show answer & explanation
Answer: B) There is no security interest in its assets subsisting or in force at the time of application, and the partners of the LLP will comprise all the shareholders of the company and no one else
The Third Schedule permits a private company to convert into an LLP only where there is no security interest in its assets subsisting or in force at the time of application. The partners of the LLP must comprise all the shareholders of the company and no one else. On conversion, the company's property, rights and liabilities vest in the LLP and the company is deemed dissolved.