Topic 31 Extent of Liability Section27

Module Overview

Section 27 is the provision that gives the LLP its fundamental commercial value — limitation of partners' personal liability. This topic comprehensively analyses the four sub-sections of Section 27, the nature of the full shield, protection from co-partners' acts, the obligations that remain with the LLP, and all exceptions to the limited liability principle.

Section 27(1) — LLP Liable for Partner's Acts

The limited liability partnership is liable if a partner of a limited liability partnership is liable to any person as a result of a wrongful act or omission on his part in the course of the business of the limited liability partnership or with its authority.

Section 27(2) — LLP Obligations Met from LLP Property Only

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 the limited liability partnership shall be met out of the property of the limited liability partnership.

Section 27(3) — Partner Not Personally Liable

A partner is not personally liable, directly or indirectly, for an obligation referred to in sub-section (2) solely by reason of being a partner of the limited liability partnership.

Section 27(4) — Personal Liability for Own Acts Only

The provisions of sub-sections (2) and (3) 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.

S.27(1)

LLP liable for partner's acts in course of business

S.27(2)

LLP obligations met from LLP property only

S.27(3)

Partner NOT personally liable for LLP obligations

S.27(4)

Partner liable only for OWN wrongful acts

Illustration — Three Partners, One Wrong

Setup: A, B, and C are partners in ABC LLP (an audit firm).

Wrong: Partner A negligently certifies fraudulent accounts causing Rs.10 crore loss.

LLP (Section 27(1)): ABC LLP is fully liable — act was in course of LLP business.

Partner A (Section 27(4)): Personally liable for their OWN wrongful act.

Partners B & C (Sections 27(3) & 27(4)): FULLY PROTECTED. Personal assets cannot be touched. This is the core commercial value of the LLP form.

Exception

Provision

Description

Partner's own wrongful act

Section 27(4)

Personal liability for own acts — full shield only for co-partners' acts

Fraudulent conduct

Section 30

Unlimited personal liability for knowing participants in fraudulent business

Statutory defaults

Section 10

Designated partners personally liable for penalties on non-filing defaults

Personal guarantees

General contract law

Partner who gives personal guarantee for LLP debt is liable on that guarantee

Sole partner > 6 months

Section 6(2)

Sole remaining partner loses limited liability for obligations incurred after 6-month grace period

Aspect

Section 25 IPA 1932

Section 27 LLP Act 2008

Basic rule

Every partner jointly and severally liable for ALL acts of ALL partners

LLP liable for partner acts; partners NOT personally liable for LLP obligations

Innocent partner

Fully exposed for rogue partner's acts

Fully protected — personal assets safe

Own act liability

Partner liable (within joint and several framework)

Partner liable for own wrongful acts only (Section 27(4))

Fraud

Same unlimited joint and several liability

Unlimited liability under Section 30 (specific provision)

Pre-condition for personal liability

Merely being a partner is sufficient

Personal wrongful act OR fraud required

⚖ Hamlyn v. John Houston & Co. [1903] 1 KB 81 (UK CA)

Held: A partner bribed a competitor's employee to obtain trade secrets while acting in course of partnership business. The firm was held liable. Applied to LLP Section 27(1): the LLP is liable when a partner acts in course of LLP business — even if the act was wrongful or unauthorised — as long as it was done in course of business.

Principle: LLP liability under Section 27(1) attaches whenever the partner acted in course of LLP business or with LLP authority — the wrongful nature of the act does not defeat LLP's liability to third parties.

⚖ Green v. Howell [1910] 1 Ch 495

Held: Established that the limited liability shield protects innocent members from others' acts — not the wrongdoer from personal accountability. This principle is embedded in Section 27(4): full shield for innocent partners; personal accountability for the partner who committed the wrong.

Principle: Limited liability is a shield for the innocent — not a sword for the wrongdoer.

📌 EXAM TIP: Section 27 generates the most examination questions in Pillar 4. Master all four sub-sections. Key test patterns: (1) "LLP is liable for a partner's wrongful act in course of business — which section?" S.27(1). (2) "LLP obligations met from LLP property only — which section?" S.27(2). (3) "Partner NOT personally liable for LLP obligations — which section?" S.27(3). (4) "Partner liable only for OWN acts, not co-partners' — which section?" S.27(4). Exceptions: Section 30 (fraud), Section 10 (filing defaults), Section 6(2) (sole partner).

Section

One-Line Rule

S.27(1)

LLP liable for partner's wrongful acts in course of business

S.27(2)

LLP obligations met from LLP property only

S.27(3)

Partner NOT personally liable for LLP obligations

S.27(4)

Partner liable for OWN acts only — NOT for co-partners' acts

S.30 exception

Fraud: unlimited personal liability for knowing participants

S.10 exception

Designated partners: personal liability for filing defaults

vs S.25 IPA

IPA: joint & several unlimited; LLP: fault-based, own-act liability only