Chapter 12: The Limited Liability Partnership Act, 2008 - Test 4: answer key

Question 1 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · hard

Scenario. Narmada Industrial Systems LLP, an engineering consultancy based in Pune, closed its financial year on 31 March 2026. Its designated partners, Aditi and Sameer, reviewed the accounting system at a meeting held on 20 September 2026. The accounts team maintained books on the accrual basis using a double-entry system through an electronic ledger hosted by an outside service provider. However, the primary records were accessible only at the provider's office, not at the LLP's registered office. The finance manager also proposed destroying source vouchers three years after creation because scanned copies were available. The designated partners were unsure whether the accounting method and record arrangements met the LLP Rules. On 28 September, the LLP prepared its Statement of Account and Solvency for the year ended 31 March 2026. It was signed by both designated partners and approved at the meeting. The compliance executive filed Form 8 with the Registrar on 4 November 2026 after assuming that a 60-day period applied. No extension had been obtained. An internal report also showed that the failure to file continued for 300 days before the form was ultimately submitted. The finance controller argued that acceptance of the delayed form erased the earlier default and that the designated partners could not be penalised once filing was completed. The partners asked their adviser to distinguish the deadline for preparing the Statement from the deadline for filing it, and to explain the obligations concerning the location and preservation of books, the prescribed accounting system and the consequences of delayed filing.

The accounts team maintains books using the accrual basis and double-entry system. However, the primary records remain at an outside service provider's office and the finance manager proposes destroying them after three years. Which compliance assessment is correct?

1. The LLP must use the cash basis exclusively and may preserve accounting records for only three years.
2. The LLP may use either accounting basis and a single-entry system, provided the designated partners approve the financial statements.
3. The accounting basis is permissible, but books must be maintained at the registered office and preserved for the prescribed eight-year period. (correct answer)
4. The LLP may maintain records exclusively outside its registered office if electronic copies are available and vouchers are preserved for five years.

Answer: C — The accounting basis is permissible, but books must be maintained at the registered office and preserved for the prescribed eight-year period.

Explanation. Section 34(1) permits books of account to be maintained on either cash basis or accrual basis, but double-entry accounting is compulsory and the books must be maintained at the registered office. Rule 24(3) requires preservation of the books for eight years from the date on which they are made. Therefore, Narmada's accounting method is acceptable, but its storage arrangement and proposed three-year destruction policy are not. The primary distractor incorrectly assumes that electronic availability outside the registered office replaces the statutory location requirement.

Where it goes wrong. Remembering the flexibility of cash or accrual accounting but overlooking double entry, registered-office maintenance and the eight-year preservation period.

Authority. Section 34(1) of the Limited Liability Partnership Act, 2008; Rule 24(1), Rule 24(2) and Rule 24(3) of the Limited Liability Partnership Rules, 2009

Question 2 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · medium

Narmada Industrial Systems LLP closed its financial year on 31 March 2026 and prepared its Statement of Account and Solvency on 28 September 2026. Both designated partners signed the Statement. Which conclusion correctly determines whether the preparation and signing requirements have been satisfied?

1. The preparation is timely because the Statement must be prepared within six months from the financial year-end and signed by the designated partners. (correct answer)
2. The preparation is delayed because the Statement must be prepared within 60 days from the financial year-end and signed by every partner.
3. The preparation is timely only if the Statement is also filed with the Registrar on or before 30 September 2026.
4. The preparation is delayed because the Statement must be prepared within three months from the financial year-end and signed by the auditor.

Answer: A — The preparation is timely because the Statement must be prepared within six months from the financial year-end and signed by the designated partners.

Explanation. Section 34(2) requires every LLP to prepare its Statement of Account and Solvency within six months from the end of each financial year, as at the last day of that financial year. The Statement must be signed by the designated partners. For a year ending on 31 March 2026, the six-month preparation period ends on 30 September 2026. Preparation on 28 September is therefore timely. The primary distractor confuses the preparation requirement with the separate filing deadline.

Where it goes wrong. Confusing the six-month preparation period with the additional 30-day period allowed for filing Form 8.

Authority. Section 34(2) of the Limited Liability Partnership Act, 2008

Question 3 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · hard

Narmada Industrial Systems LLP filed its Statement of Account and Solvency in Form 8 on 4 November 2026. Its financial year closed on 31 March 2026. The compliance executive contends that the filing was timely because the LLP had 60 days from preparation of the Statement. Which statement correctly determines the prescribed filing deadline?

1. Form 8 must be filed within 60 days from the financial year-end, making 30 May 2026 the relevant deadline.
2. Form 8 must be filed within six months from the financial year-end, making 30 September 2026 the relevant deadline.
3. Form 8 must be filed within 90 days from the date the designated partners signed the Statement.
4. Form 8 must be filed within 30 days from the end of six months of the financial year, making 30 October 2026 the deadline. (correct answer)

Answer: D — Form 8 must be filed within 30 days from the end of six months of the financial year, making 30 October 2026 the deadline.

Explanation. Rule 24(4) requires every LLP to file Form 8 within 30 days from the end of six months of the financial year to which the Statement relates. For a financial year ending on 31 March 2026, the six-month period ends on 30 September 2026, and the additional 30-day filing period ends on 30 October 2026. Filing on 4 November is consequently delayed. The primary distractor incorrectly substitutes the 60-day annual return deadline for the Form 8 deadline.

Where it goes wrong. Confusing the Form 8 filing deadline with the 60-day deadline applicable to Form 11.

Authority. Section 34(3) of the Limited Liability Partnership Act, 2008; Rule 24(4) of the Limited Liability Partnership Rules, 2009

Question 4 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · hard

Narmada Industrial Systems LLP failed to file Form 8 within the prescribed period. Assume that the contravention continued for exactly 300 days before the form was filed. Applying Section 34(5), what is the correct penalty position for the LLP and each of its two designated partners?

1. The LLP is liable to ₹30,000, while the designated partners are not liable once the form has been filed.
2. The LLP and each designated partner are liable to ₹30,000 because the calculated amounts are within their respective statutory ceilings. (correct answer)
3. The LLP is liable to ₹1,00,000 and each designated partner is liable to ₹50,000 irrespective of the number of default days.
4. The LLP is liable to ₹50,000 and each designated partner is liable to ₹30,000 because the LLP has the lower penalty ceiling.

Answer: B — The LLP and each designated partner are liable to ₹30,000 because the calculated amounts are within their respective statutory ceilings.

Explanation. Section 34(5) prescribes a penalty of ₹100 for each day during which the failure continues. For 300 days, the calculated penalty is ₹30,000. The LLP's maximum penalty is ₹1 lakh, while the maximum for each designated partner is ₹50,000. Since ₹30,000 is below both ceilings, the LLP and each designated partner are liable for ₹30,000. Subsequent filing does not erase the liability for the period during which the default continued. The primary distractor incorrectly treats filing as a complete cure of the earlier default.

Where it goes wrong. Assuming that subsequent filing eliminates the accrued penalty or applying the maximum penalty automatically instead of calculating the actual default period.

Authority. Section 34(3) of the Limited Liability Partnership Act, 2008; Section 34(5) of the Limited Liability Partnership Act, 2008

Question 5 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · hard

Scenario. Sahyadri Agri Processing LLP and Kaveri Nutraceutical LLP operate from the same industrial estate but have different financial profiles. Their management teams placed the following figures before the partners at meetings held in May 2026. Sahyadri reported turnover of ₹39.50 lakh for the financial year ended 31 March 2026 and total contribution of ₹28 lakh. Kaveri reported turnover of ₹44 lakh for the same year and contribution of ₹26 lakh. Neither LLP has received an exemption by a separate Central Government notification. Sahyadri's partners voted to obtain a voluntary audit because a new lender requested statutory financial statements. Its managing partner suggested appointing a retired finance executive who was not a practising Chartered Accountant. Kaveri's partners, by contrast, proposed to avoid audit expenditure and argued that the contribution amount alone should determine whether audit is compulsory. Both LLPs also had to complete their annual statutory filings. Their finance teams proposed filing the annual return on 15 June 2026, believing that the annual return deadline was the same as the Statement of Account and Solvency deadline. One designated partner further argued that the annual return was unnecessary because both LLPs had already prepared financial statements. The auditors and compliance officers were asked to advise on the separate audit exemption tests, the effect of partners voluntarily deciding to audit, the required qualification of an auditor and the annual return filing obligation applicable to every LLP.

Sahyadri Agri Processing LLP has turnover of ₹39.50 lakh and contribution of ₹28 lakh. Its partners argue that audit is compulsory because its contribution exceeds ₹25 lakh. Which conclusion correctly applies Rule 24(8) of the LLP Rules, 2009?

1. The LLP is not required to obtain a statutory audit because its turnover does not exceed ₹40 lakh, although the partners may voluntarily decide to obtain an audit. (correct answer)
2. The LLP must obtain a statutory audit because exceeding either the turnover or contribution threshold independently makes audit compulsory.
3. The LLP must obtain a statutory audit because contribution exceeding ₹25 lakh always overrides the turnover exemption.
4. The LLP is exempt from audit only when both its turnover and contribution remain below their respective prescribed thresholds.

Answer: A — The LLP is not required to obtain a statutory audit because its turnover does not exceed ₹40 lakh, although the partners may voluntarily decide to obtain an audit.

Explanation. Rule 24(8) provides that an LLP whose turnover does not exceed ₹40 lakh, or whose contribution does not exceed ₹25 lakh, is not required to obtain an audit. The word 'or' is important: satisfying either exemption condition is sufficient. Sahyadri's turnover is within the prescribed threshold even though its contribution exceeds ₹25 lakh. It is therefore exempt from compulsory audit, although its partners may voluntarily decide to get the accounts examined under statutory audit. The primary distractor incorrectly interprets either threshold being exceeded as automatically requiring audit.

Where it goes wrong. Misreading the word 'or' in the audit exemption and assuming that exceeding either threshold automatically makes audit compulsory.

Authority. Section 34(4) of the Limited Liability Partnership Act, 2008; Rule 24(8) of the Limited Liability Partnership Rules, 2009

Question 6 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · medium

Kaveri Nutraceutical LLP has turnover of ₹44 lakh and contribution of ₹26 lakh for the relevant financial year. Its partners propose dispensing with audit because the LLP Agreement permits them to determine their own internal financial procedures. Which conclusion correctly applies the prescribed audit requirement?

1. The LLP is exempt because audit is optional whenever the partners unanimously approve unaudited accounts.
2. The LLP is exempt because the contribution threshold is applicable only when turnover exceeds ₹50 lakh.
3. The LLP may dispense with audit because filing Form 8 is an alternative to obtaining an audit.
4. The LLP must obtain an audit because neither the turnover nor the contribution satisfies the applicable exemption threshold. (correct answer)

Answer: D — The LLP must obtain an audit because neither the turnover nor the contribution satisfies the applicable exemption threshold.

Explanation. The audit exemption under Rule 24(8) applies where turnover does not exceed ₹40 lakh or contribution does not exceed ₹25 lakh. Kaveri has turnover of ₹44 lakh and contribution of ₹26 lakh, so neither exemption is available. Its accounts must therefore be examined under statutory audit in accordance with the prescribed rules. The LLP Agreement cannot override this statutory audit requirement. The primary distractor incorrectly assumes that partners can waive a compulsory audit through unanimous contractual approval.

Where it goes wrong. Applying the audit exemption when both turnover and contribution exceed their respective limits.

Authority. Section 34(4) of the Limited Liability Partnership Act, 2008; Rule 24(8) of the Limited Liability Partnership Rules, 2009

Question 7 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · hard

Sahyadri Agri Processing LLP is exempt from compulsory audit under Rule 24(8), but its partners have voluntarily decided to obtain an audit because a bank requires statutory financial statements. Its managing partner proposes appointing a retired finance executive who is not a practising Chartered Accountant. Which statement correctly determines the position?

1. The appointment is valid because a finance executive may audit an exempt LLP whenever all partners approve the appointment.
2. The appointment is invalid because an LLP auditor must be a Chartered Accountant in practice, even when the audit is voluntary. (correct answer)
3. The appointment is valid because an LLP auditor may be any qualified accountant who has experience in industrial finance.
4. The appointment is valid because the requirement of a practising Chartered Accountant applies only to unlisted public companies.

Answer: B — The appointment is invalid because an LLP auditor must be a Chartered Accountant in practice, even when the audit is voluntary.

Explanation. The second proviso to Rule 24(8) permits partners of an exempt LLP to decide to obtain an audit voluntarily. However, when an audit is undertaken, it must comply with the LLP Rules. Rule 24(9) provides that a person is not qualified for appointment as an LLP auditor unless the person is a Chartered Accountant in practice. Consequently, the retired finance executive cannot be appointed merely on the basis of experience or unanimous approval. The primary distractor confuses audit exemption with exemption from auditor qualification requirements.

Where it goes wrong. Assuming that voluntary audit removes the professional qualification requirements applicable to an LLP auditor.

Authority. Rule 24(8) of the Limited Liability Partnership Rules, 2009; Rule 24(9) of the Limited Liability Partnership Rules, 2009

Question 8 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · medium

Both Sahyadri Agri Processing LLP and Kaveri Nutraceutical LLP have prepared their Statements of Account and Solvency. Their finance teams propose filing Form 11 on 15 June 2026 and argue that financial statements already filed through Form 8 satisfy the annual filing requirement. Which statement is correct?

1. Form 11 must be filed within 30 days from the end of six months of the financial year, and Form 8 replaces the annual return.
2. Form 11 must be filed within 90 days from the financial year-end, but only when the LLP is required to obtain an audit.
3. Every LLP must separately file its annual return in Form 11 within 60 days of financial year closure, making 30 May 2026 the deadline. (correct answer)
4. Form 11 is required only when the turnover exceeds ₹40 lakh and the contribution exceeds ₹25 lakh during the financial year.

Answer: C — Every LLP must separately file its annual return in Form 11 within 60 days of financial year closure, making 30 May 2026 the deadline.

Explanation. Section 35(1) requires every LLP to file an annual return within 60 days of closure of its financial year. Rule 25(1) prescribes Form 11 for this purpose. Where the financial year closes on 31 March 2026, the annual return must be filed by 30 May 2026. This requirement is separate from filing the Statement of Account and Solvency in Form 8. The primary distractor wrongly treats preparation or filing of financial statements as a substitute for the annual return.

Where it goes wrong. Confusing Form 8 with Form 11 and assuming that filing the Statement of Account and Solvency eliminates the annual return obligation.

Authority. Section 35(1) of the Limited Liability Partnership Act, 2008; Rule 25(1) of the Limited Liability Partnership Rules, 2009

Question 9 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · medium

Scenario. Sethi, Nair, Kapoor & Das is a registered partnership firm carrying on civil engineering and project-management work in Jaipur. The firm has four partners, all of whom have agreed to convert the business into an LLP. The proposed LLP will have the same four partners and no additional person. During due diligence, the partners identify a bank loan of ₹32 lakh and two construction contracts entered into before the proposed conversion. One of the contracts is already the subject of pending arbitration proceedings. The partners assume that all the firm's assets, contracts and liabilities will automatically move to the LLP once the Registrar issues the certificate of registration. They also believe that the conversion will release them from personal responsibility for every liability of the old firm, including the bank loan and obligations under the earlier contracts. The Registrar issues the certificate of registration on 5 November 2026. The partners plan to inform the Registrar of Firms after completing their first LLP annual filing, which they expect to undertake in the following year. At a meeting on 10 November, the compliance adviser explains that the conversion procedure has a specific eligibility test, a separate intimation deadline and special treatment for liabilities incurred before conversion. The partners seek advice on the identity of persons who must become LLP partners, continuation of proceedings and contracts, vesting of assets and obligations, the timing of notice to the Registrar of Firms and the personal liability that survives conversion.

Sethi, Nair, Kapoor & Das proposes to convert its registered partnership firm into an LLP. All four existing partners are proposed to become partners of the LLP, and no additional person is included in the proposed LLP. A prospective investor has separately requested admission after conversion. Which arrangement satisfies the eligibility requirement for conversion under the Second Schedule?

1. The conversion is valid only if three of the four existing partners become LLP partners and the investor joins simultaneously.
2. The conversion is valid if the LLP contains at least two existing partners, irrespective of whether the remaining partners are excluded.
3. The conversion is valid if all four existing partners and any number of additional investors become LLP partners.
4. The conversion is eligible because the proposed LLP comprises all existing partners of the firm and no one else at the time of conversion. (correct answer)

Answer: D — The conversion is eligible because the proposed LLP comprises all existing partners of the firm and no one else at the time of conversion.

Explanation. Paragraph 3 of the Second Schedule permits conversion of a firm into an LLP only where the partners of the LLP comprise all the partners of the existing firm and no one else. The proposed LLP satisfies this condition because all four existing partners are included and no outsider is included at the conversion stage. The prospective investor may be considered for admission subsequently in accordance with the LLP Agreement. The primary distractor incorrectly permits an outsider to be included as an LLP partner at conversion.

Where it goes wrong. Confusing the eligibility conditions at the time of conversion with the general ability to admit new partners after conversion.

Authority. Section 55 of the Limited Liability Partnership Act, 2008; Paragraph 3 of the Second Schedule to the Limited Liability Partnership Act, 2008

Question 10 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · hard

Sethi, Nair, Kapoor & Das has an outstanding bank loan of ₹32 lakh and liabilities arising from contracts entered into before its conversion into an LLP. The partners believe that the certificate of registration automatically releases them from personal liability for every pre-conversion obligation. Which statement correctly determines their continuing liability?

1. The partners are discharged from all earlier liabilities because the LLP automatically assumes every obligation on registration.
2. Every partner remains personally liable jointly and severally with the converted LLP for liabilities and obligations incurred before conversion or arising from contracts entered into before conversion. (correct answer)
3. Only the designated partners remain personally liable because the LLP Agreement automatically transfers earlier obligations to them.
4. The partners remain personally liable only for liabilities arising after registration and not for earlier contractual obligations.

Answer: B — Every partner remains personally liable jointly and severally with the converted LLP for liabilities and obligations incurred before conversion or arising from contracts entered into before conversion.

Explanation. Paragraph 16(1) of the Second Schedule specifically provides that every partner of a firm converted into an LLP continues to be personally liable, jointly and severally with the LLP, for liabilities and obligations incurred before conversion or arising from contracts entered into before conversion. Therefore, the bank loan and relevant earlier contractual obligations are not extinguished by conversion. Paragraph 16(2) grants a partner who discharges such an obligation a right to obtain full indemnification from the LLP, subject to any contrary agreement. The primary distractor incorrectly assumes that automatic vesting of liabilities removes the partners' pre-conversion personal liability.

Where it goes wrong. Assuming that conversion into an LLP automatically extinguishes the personal liability of partners for pre-conversion firm debts.

Authority. Section 58(4) of the Limited Liability Partnership Act, 2008; Paragraph 16(1) and Paragraph 16(2) of the Second Schedule to the Limited Liability Partnership Act, 2008

Question 11 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · hard

After registration of the converted Sethi, Nair, Kapoor & Das LLP, a creditor questions whether the old firm's construction contracts and pending arbitration proceedings can continue in the LLP's name. The creditor argues that the original partnership firm has ceased to exist and all earlier proceedings must therefore be restarted. Which statement correctly reflects the effect of conversion?

1. All earlier contracts automatically terminate, and every pending proceeding must be initiated afresh against the LLP.
2. Only tangible assets transfer to the LLP, while contractual obligations and pending proceedings remain exclusively with the dissolved firm.
3. Existing contracts continue as if the LLP were a party, and pending proceedings may be continued, completed and enforced by or against the LLP. (correct answer)
4. Existing contracts continue only after obtaining fresh consent from every creditor, while pending arbitration proceedings automatically abate.

Answer: C — Existing contracts continue as if the LLP were a party, and pending proceedings may be continued, completed and enforced by or against the LLP.

Explanation. The Second Schedule provides that pending proceedings by or against the firm may continue, be completed and be enforced by or against the converted LLP. Existing agreements and contracts also continue in force as though the LLP had been substituted for the firm. Further, the firm's assets, interests, rights, liabilities and obligations vest in the LLP upon registration without requiring separate transfer deeds. The primary distractor incorrectly assumes that dissolution of the old firm automatically terminates its contracts and pending proceedings.

Where it goes wrong. Confusing dissolution of the original firm with termination of its contractual relationships and pending legal proceedings.

Authority. Section 58(4) of the Limited Liability Partnership Act, 2008; Paragraph 9, Paragraph 11 and Paragraph 12 of the Second Schedule to the Limited Liability Partnership Act, 2008

Question 12 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · medium

The Registrar issued the certificate of registration converting Sethi, Nair, Kapoor & Das into an LLP on 5 November 2026. The partners propose informing the Registrar of Firms only when the LLP files its first annual return in May 2027. Which statement correctly identifies the required intimation deadline?

1. The LLP must inform the concerned Registrar of Firms within 15 days of registration, namely by 20 November 2026. (correct answer)
2. The LLP must inform the concerned Registrar of Firms within 30 days of registration, namely by 5 December 2026.
3. The LLP must inform the concerned Registrar of Firms within 60 days of registration, namely by 4 May 2027.
4. The LLP may inform the concerned Registrar of Firms when it files its first annual return because no separate deadline applies.

Answer: A — The LLP must inform the concerned Registrar of Firms within 15 days of registration, namely by 20 November 2026.

Explanation. Section 58 and Paragraph 5 of the Second Schedule require the converted LLP to inform the concerned Registrar of Firms of the conversion and the particulars of the LLP within 15 days from registration. Since the certificate was issued on 5 November 2026, the statutory period expires on 20 November 2026. Waiting until the following annual filing season would be a contravention. The primary distractor incorrectly substitutes the separate 60-day annual return deadline.

Where it goes wrong. Confusing the 15-day post-conversion intimation requirement with the 60-day annual return filing deadline.

Authority. Section 58(1) of the Limited Liability Partnership Act, 2008; Paragraph 5 of the Second Schedule to the Limited Liability Partnership Act, 2008

Question 13 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · hard

Scenario. Vardhan Packaging Private Limited and Triveni Power Limited are considering conversion into LLPs as part of a restructuring exercise. Vardhan Packaging is a private company with five shareholders. All five shareholders are willing to become partners of the proposed LLP, and no additional investor is proposed. However, a bank charge over the company's factory and machinery remains registered on the date of its proposed conversion application. The bank has issued a letter agreeing in principle to release the charge, but the release has not yet taken effect. Triveni Power Limited is an unlisted public company. It has eight shareholders, all of whom are proposed to become partners of the LLP, and its assets are free from any subsisting security interest at the time of application. The board of a separate listed company, Shakti Motors Limited, also asks whether it can use the same conversion route merely because all its shareholders support the proposal. During the restructuring meeting, the finance director states that the company's assets and liabilities will remain with the old company until individual transfer deeds are executed after conversion. The company secretary disagrees and points to the statutory effect of registration. The directors also ask how soon the Registrar of Companies must be informed after conversion and whether pending proceedings and existing contracts will continue. They seek an opinion distinguishing the eligibility requirements for a private company and an unlisted public company, the position of a listed company, and the legal consequences flowing from the certificate of registration.

Vardhan Packaging Private Limited proposes to convert into an LLP. All five shareholders are proposed to become partners, and no outsider is included. However, a bank charge remains subsisting over its factory and machinery on the date of application. The bank has only agreed in principle to release it. Which conclusion correctly applies the Third Schedule?

1. The company is eligible because the shareholders are unanimous and the bank has agreed in principle to release the charge.
2. The company is presently ineligible because there must be no security interest in its assets subsisting or in force at the time of application. (correct answer)
3. The company is eligible because security interests affect conversion only when the lender has initiated recovery proceedings.
4. The company is eligible because the absence of additional shareholders is sufficient even when an existing charge remains in force.

Answer: B — The company is presently ineligible because there must be no security interest in its assets subsisting or in force at the time of application.

Explanation. Paragraph 2(2) of the Third Schedule prescribes two cumulative conditions for conversion of a private company into an LLP: no security interest in its assets must be subsisting or in force at the time of application, and the LLP partners must comprise all shareholders of the company and no one else. Vardhan satisfies the shareholder condition but fails the security-interest condition because the bank charge remains in force. An agreement in principle to release the charge does not mean that it has actually ceased to subsist. The primary distractor incorrectly treats lender consent as equivalent to actual release.

Where it goes wrong. Confusing an agreement to release a charge with the actual absence of a subsisting security interest on the application date.

Authority. Section 56 of the Limited Liability Partnership Act, 2008; Paragraph 2(2)(a) and Paragraph 2(2)(b) of the Third Schedule to the Limited Liability Partnership Act, 2008

Question 14 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · medium

Triveni Power Limited is an unlisted public company with eight shareholders, all of whom are proposed to become partners of the LLP. Its assets have no subsisting security interest. Shakti Motors Limited, however, is a listed public company whose shareholders also unanimously support conversion. Which statement correctly identifies the companies eligible to use the LLP conversion provisions?

1. Both companies may convert because shareholder consent alone determines eligibility for conversion into an LLP.
2. Neither company may convert because the LLP Act permits conversion exclusively from private companies.
3. Triveni may convert under the Fourth Schedule, whereas the same conversion route is not available to the listed company. (correct answer)
4. Shakti may convert because listed public companies receive preference over unlisted companies under Section 57.

Answer: C — Triveni may convert under the Fourth Schedule, whereas the same conversion route is not available to the listed company.

Explanation. Section 57 permits an unlisted public company to convert into an LLP in accordance with the Fourth Schedule. The Schedule defines an unlisted public company as a company that is not listed and requires the absence of a subsisting security interest and the inclusion of all shareholders, and no one else, as LLP partners. Triveni satisfies the stated conditions. A listed public company does not fall within this conversion provision. The primary distractor incorrectly treats unanimous shareholder consent as sufficient to overcome the statutory distinction between listed and unlisted companies.

Where it goes wrong. Confusing an unlisted public company with a listed public company while applying Section 57.

Authority. Section 57 of the Limited Liability Partnership Act, 2008; Paragraph 1 and Paragraph 3 of the Fourth Schedule to the Limited Liability Partnership Act, 2008

Question 15 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · hard

Assume Vardhan Packaging Private Limited subsequently satisfies all the eligibility conditions, and its conversion into an LLP is registered by the Registrar. The finance director insists that the company's assets, liabilities and undertaking will continue to belong to the private company until separate transfer deeds are executed. Which conclusion correctly describes the effect of registration?

1. All tangible and intangible property, assets, rights, liabilities and obligations vest in the LLP without further assurance, act or deed, and the company is deemed dissolved. (correct answer)
2. Only the company's movable assets vest in the LLP, while immovable property and liabilities remain with the company.
3. The company continues to exist as a subsidiary of the LLP until every creditor separately approves the transfer of liabilities.
4. The company's assets vest immediately, but liabilities remain with the company until individual contractual novations are executed.

Answer: A — All tangible and intangible property, assets, rights, liabilities and obligations vest in the LLP without further assurance, act or deed, and the company is deemed dissolved.

Explanation. Paragraph 6 of the Third Schedule provides that from the date of registration, all tangible and intangible property, assets, interests, rights, privileges, liabilities, obligations and the whole undertaking of the private company are transferred to and vest in the LLP without further assurance, act or deed. The private company is deemed dissolved and removed from the Registrar of Companies' records. Individual transfer deeds are therefore not necessary to produce the statutory vesting effect. The primary distractor incorrectly separates the transfer of assets from the transfer of liabilities.

Where it goes wrong. Assuming that separate conveyance or novation documents are always necessary for statutory vesting on conversion.

Authority. Section 58(4) of the Limited Liability Partnership Act, 2008; Paragraph 6 of the Third Schedule to the Limited Liability Partnership Act, 2008

Question 16 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · medium

Assume Triveni Power Limited completes its conversion into an LLP and receives its certificate of registration on 5 November 2026. Its company secretary proposes informing the Registrar of Companies only after the LLP prepares its first annual return. Which statement correctly determines the post-registration intimation obligation?

1. The LLP must inform the Registrar of Companies within 60 days from the close of its first financial year.
2. The LLP must inform the Registrar of Companies within 30 days from the date of the conversion application.
3. The LLP is not required to inform the Registrar of Companies because the Registrar already issued the registration certificate.
4. The LLP must inform the concerned Registrar of Companies within 15 days from the date of registration of conversion. (correct answer)

Answer: D — The LLP must inform the concerned Registrar of Companies within 15 days from the date of registration of conversion.

Explanation. Section 58(1) and Paragraph 5 of the Fourth Schedule require the converted LLP to inform the concerned Registrar of Companies within 15 days from the date of registration. The requirement applies separately from the Registrar's issuance of the certificate of registration. Since Triveni received its certificate on 5 November 2026, it must provide the prescribed intimation by 20 November 2026. The primary distractor incorrectly assumes that registration by one Registrar automatically completes every post-conversion intimation requirement.

Where it goes wrong. Assuming that the certificate of registration eliminates the separate 15-day intimation obligation.

Authority. Section 58(1) of the Limited Liability Partnership Act, 2008; Paragraph 5 of the Fourth Schedule to the Limited Liability Partnership Act, 2008

Question 17 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · hard

Scenario. Aster Consultants LLP closed its financial year on 31 March 2026. It duly prepared its Statement of Account and Solvency and filed Form 8 within the prescribed period. The compliance officer now argues that no further annual filing is necessary because the financial information has already been submitted. Which statement correctly determines the LLP's remaining annual filing obligation?

Aster Consultants LLP closed its financial year on 31 March 2026. It duly prepared its Statement of Account and Solvency and filed Form 8 within the prescribed period. The compliance officer now argues that no further annual filing is necessary because the financial information has already been submitted. Which statement correctly determines the LLP's remaining annual filing obligation?

1. The LLP must file another Form 8 within 60 days of financial year closure because Form 11 is optional.
2. The LLP need not file any further document because filing the Statement of Account and Solvency automatically satisfies every annual filing requirement.
3. The LLP must separately file its annual return in Form 11 within 60 days of closure of the financial year, namely by 30 May 2026. (correct answer)
4. The LLP must file Form 11 within 90 days of financial year closure, irrespective of the date on which Form 8 was filed.

Answer: C — The LLP must separately file its annual return in Form 11 within 60 days of closure of the financial year, namely by 30 May 2026.

Explanation. Section 35(1) requires every LLP to file an annual return within 60 days of closure of its financial year. Rule 25(1) prescribes Form 11 for this purpose. For a financial year closing on 31 March 2026, the deadline is 30 May 2026. Filing Form 8 under Section 34 is a separate obligation and does not replace the annual return. The primary distractor incorrectly treats the two statutory filings as interchangeable.

Where it goes wrong. Assuming that Form 8 and Form 11 are alternative filings rather than two separate annual compliance requirements.

Authority. Section 35(1) of the Limited Liability Partnership Act, 2008; Rule 25(1) of the Limited Liability Partnership Rules, 2009

Question 18 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · medium

Scenario. An LLP failed to file its Statement of Account and Solvency for 700 days after the prescribed deadline. Assume that the default continued for the entire period and that the LLP has two designated partners. Applying Section 34(5), calculate the penalty payable by the LLP and by each designated partner, after considering their separate statutory ceilings.

An LLP failed to file its Statement of Account and Solvency for 700 days after the prescribed deadline. Assume that the default continued for the entire period and that the LLP has two designated partners. Applying Section 34(5), calculate the penalty payable by the LLP and by each designated partner, after considering their separate statutory ceilings.

1. The LLP is liable to ₹70,000, while each designated partner is liable to ₹50,000. (correct answer)
2. The LLP is liable to ₹50,000, while each designated partner is liable to ₹70,000.
3. The LLP is liable to ₹1,00,000, while each designated partner is liable to ₹1,00,000.
4. The LLP and each designated partner are independently liable to ₹70,000 without application of any ceiling.

Answer: A — The LLP is liable to ₹70,000, while each designated partner is liable to ₹50,000.

Explanation. Section 34(5) imposes a penalty of ₹100 for each day during which the failure continues. For 700 days, the calculated amount is ₹70,000. The maximum penalty is ₹1 lakh for the LLP and ₹50,000 for every designated partner. Therefore, the LLP pays ₹70,000, while each designated partner's penalty is restricted to ₹50,000. The primary distractor incorrectly applies the LLP's higher ceiling to each designated partner.

Where it goes wrong. Failing to apply the different maximum penalty ceilings separately to the LLP and each designated partner.

Authority. Section 34(5) of the Limited Liability Partnership Act, 2008

Question 19 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · hard

Scenario. An LLP failed to file its annual return in Form 11, and the default continued for 1,200 days. Assume that no exemption or other statutory relief applies. Its partners argue that the penalty must remain below ₹50,000 because each designated partner has a separate penalty ceiling. Which statement correctly applies Section 35(2)?

An LLP failed to file its annual return in Form 11, and the default continued for 1,200 days. Assume that no exemption or other statutory relief applies. Its partners argue that the penalty must remain below ₹50,000 because each designated partner has a separate penalty ceiling. Which statement correctly applies Section 35(2)?

1. The LLP and each designated partner are liable to ₹1,20,000 because the daily penalty has no maximum ceiling.
2. The LLP is liable to ₹50,000, while each designated partner is liable to ₹1,00,000 under the annual return provisions.
3. The LLP is liable to ₹50,000 in total, and the designated partners share that same maximum collectively.
4. The LLP is liable to ₹1,00,000, while each designated partner is liable to ₹50,000 after applying their separate statutory ceilings. (correct answer)

Answer: D — The LLP is liable to ₹1,00,000, while each designated partner is liable to ₹50,000 after applying their separate statutory ceilings.

Explanation. Section 35(2) prescribes a penalty of ₹100 for every day during which the failure to file the annual return continues. For 1,200 days, the calculated penalty is ₹1.20 lakh. The LLP's maximum is ₹1 lakh, while the maximum for each designated partner is ₹50,000. Accordingly, the LLP pays ₹1 lakh and each designated partner is liable to ₹50,000. The primary distractor incorrectly treats the designated partners' maximum as a collective ceiling for the LLP and all its partners.

Where it goes wrong. Confusing the separate statutory ceilings for the LLP and designated partners when calculating delayed annual return penalties.

Authority. Section 35(1) of the Limited Liability Partnership Act, 2008; Section 35(2) of the Limited Liability Partnership Act, 2008

Question 20 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · hard

Scenario. An LLP has turnover of ₹35 lakh and contribution of ₹20 lakh for the relevant financial year. Its partners decide not to obtain an audit under the exemption available in Rule 24(8). The finance manager argues that the LLP can omit any responsibility declaration from Form 8 because an audit has not been conducted. Which statement correctly describes the additional requirement?

An LLP has turnover of ₹35 lakh and contribution of ₹20 lakh for the relevant financial year. Its partners decide not to obtain an audit under the exemption available in Rule 24(8). The finance manager argues that the LLP can omit any responsibility declaration from Form 8 because an audit has not been conducted. Which statement correctly describes the additional requirement?

1. The LLP must obtain an auditor's certificate confirming that its accounts are exempt from audit under Rule 24(8).
2. The Statement of Account and Solvency must contain the partners' acknowledgement of their accounting responsibilities and the prescribed certificate in Form 8. (correct answer)
3. The LLP must obtain written approval from the Registrar before using the audit exemption and omit the partners' declaration.
4. The LLP must file a special audit exemption application signed by every partner instead of its Statement of Account and Solvency.

Answer: B — The Statement of Account and Solvency must contain the partners' acknowledgement of their accounting responsibilities and the prescribed certificate in Form 8.

Explanation. The third proviso to Rule 24(8) requires an LLP that is eligible for audit exemption and whose partners decide not to obtain an audit to include in its Statement of Account and Solvency an acknowledgement that the partners accept responsibility for complying with the Act and Rules concerning preparation of books of account. The prescribed certificate in Form 8 must also be included. Audit exemption does not remove the other financial disclosure obligations. The primary distractor incorrectly treats exemption from audit as exemption from the responsibility declaration.

Where it goes wrong. Assuming that exemption from statutory audit also eliminates the prescribed responsibility statement and certificate in Form 8.

Authority. Section 34(4) of the Limited Liability Partnership Act, 2008; Rule 24(8) of the Limited Liability Partnership Rules, 2009

Question 21 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · medium

Scenario. A professional LLP reports turnover of exactly ₹40 lakh and contribution of exactly ₹25 lakh for the relevant financial year. Its partners wish to avoid compulsory statutory audit. The finance manager argues that the LLP fails the exemption because the figures are not strictly below the prescribed thresholds. Which conclusion is correct under Rule 24(8)?

A professional LLP reports turnover of exactly ₹40 lakh and contribution of exactly ₹25 lakh for the relevant financial year. Its partners wish to avoid compulsory statutory audit. The finance manager argues that the LLP fails the exemption because the figures are not strictly below the prescribed thresholds. Which conclusion is correct under Rule 24(8)?

1. The LLP must be examined under statutory audit because both figures must be strictly below their prescribed thresholds to qualify for exemption.
2. The LLP must be examined under statutory audit because contribution equal to ₹25 lakh does not satisfy the exemption condition.
3. The LLP is not required to obtain a statutory audit because both figures do not exceed their respective thresholds. (correct answer)
4. The LLP is exempt only if its turnover and contribution are both reduced by at least one rupee.

Answer: C — The LLP is not required to obtain a statutory audit because both figures do not exceed their respective thresholds.

Explanation. Rule 24(8) uses the expression 'does not exceed' ₹40 lakh for turnover or ₹25 lakh for contribution. Therefore, amounts exactly equal to the thresholds satisfy the corresponding exemption conditions. Since the LLP meets both thresholds, it is not required to obtain an audit, although the partners may voluntarily decide to obtain one. The primary distractor incorrectly substitutes a strict 'less than' test for the statutory 'does not exceed' wording.

Where it goes wrong. Ignoring the distinction between 'does not exceed' and 'strictly below' while interpreting monetary thresholds.

Authority. Rule 24(8) of the Limited Liability Partnership Rules, 2009

Question 22 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · hard

Scenario. A manufacturing LLP reports annual turnover of ₹48 lakh and contribution of ₹32 lakh. The partners conclude that statutory audit is compulsory. However, they propose appointing an experienced finance manager who is not a Chartered Accountant in practice as their auditor. Which conclusion correctly applies the LLP Rules?

A manufacturing LLP reports annual turnover of ₹48 lakh and contribution of ₹32 lakh. The partners conclude that statutory audit is compulsory. However, they propose appointing an experienced finance manager who is not a Chartered Accountant in practice as their auditor. Which conclusion correctly applies the LLP Rules?

1. The audit is compulsory, and the person appointed as auditor must be a Chartered Accountant in practice. (correct answer)
2. The audit is optional, and the partners may appoint any finance professional with suitable industrial experience.
3. The audit is compulsory, but any Chartered Accountant, whether in practice or not, may be appointed as auditor.
4. The audit is optional because the LLP Agreement permits partners to determine their own audit requirements.

Answer: A — The audit is compulsory, and the person appointed as auditor must be a Chartered Accountant in practice.

Explanation. The LLP exceeds both audit exemption limits: turnover exceeds ₹40 lakh and contribution exceeds ₹25 lakh. Consequently, the accounts must be examined under statutory audit. Rule 24(9) additionally provides that a person is not qualified for appointment as an LLP auditor unless the person is a Chartered Accountant in practice. Experience in finance or accounting alone is insufficient. The primary distractor ignores the statutory professional qualification requirement and treats an experienced finance employee as an eligible auditor.

Where it goes wrong. Correctly identifying compulsory audit but overlooking the separate requirement that the auditor must be a practising Chartered Accountant.

Authority. Section 34(4) of the Limited Liability Partnership Act, 2008; Rule 24(8) and Rule 24(9) of the Limited Liability Partnership Rules, 2009

Question 23 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · medium

Scenario. Orchid Advisory LLP maintains computerised accounting records and proposes changing from cash-basis accounting to accrual-basis accounting. Its finance manager also proposes adopting a single-entry system and keeping the only accounting records on a personal laptop outside the registered office. Which statement correctly identifies the statutory accounting requirements that continue to apply after the change of accounting basis?

Orchid Advisory LLP maintains computerised accounting records and proposes changing from cash-basis accounting to accrual-basis accounting. Its finance manager also proposes adopting a single-entry system and keeping the only accounting records on a personal laptop outside the registered office. Which statement correctly identifies the statutory accounting requirements that continue to apply after the change of accounting basis?

1. The LLP must retain cash-basis accounting because the accrual basis is not recognised under the LLP Rules.
2. The LLP may use accrual accounting, but it must continue double-entry accounting and maintain the books at its registered office. (correct answer)
3. The LLP may use single-entry accounting if the designated partners approve the system and preserve annual financial statements.
4. The LLP may maintain its books at any location because computerised accounting removes the registered-office requirement.

Answer: B — The LLP may use accrual accounting, but it must continue double-entry accounting and maintain the books at its registered office.

Explanation. Section 34(1) permits an LLP to maintain books on either cash basis or accrual basis. However, it expressly requires the double-entry system of accounting and maintenance of books at the registered office. Changing from cash basis to accrual basis is therefore permissible, but adopting single-entry accounting or moving the books exclusively outside the registered office would violate the statutory requirements. The primary distractor incorrectly assumes that flexibility regarding the accounting basis extends to the accounting system and location.

Where it goes wrong. Confusing flexibility in choosing the accounting basis with freedom to adopt single-entry accounting or maintain books outside the registered office.

Authority. Section 34(1) of the Limited Liability Partnership Act, 2008; Rule 24(1) of the Limited Liability Partnership Rules, 2009

Question 24 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · hard

Scenario. A private company has a subsisting bank charge on its machinery on 1 November 2026. The charge is fully released on 10 November 2026, and all its shareholders agree to become partners of the proposed LLP, with no additional person being included. The company submits its conversion application on 11 November 2026. Assuming other statutory requirements are satisfied, which conclusion is correct?

A private company has a subsisting bank charge on its machinery on 1 November 2026. The charge is fully released on 10 November 2026, and all its shareholders agree to become partners of the proposed LLP, with no additional person being included. The company submits its conversion application on 11 November 2026. Assuming other statutory requirements are satisfied, which conclusion is correct?

1. The conversion is invalid because any security interest created before the conversion application permanently disqualifies the company.
2. The conversion is invalid because only unlisted public companies are permitted to convert into LLPs under the LLP Act.
3. The conversion is valid even if the charge remains subsisting on the application date, provided the lender has consented to conversion.
4. The conversion satisfies the specified eligibility conditions because no security interest subsists at the application date and all shareholders become LLP partners. (correct answer)

Answer: D — The conversion satisfies the specified eligibility conditions because no security interest subsists at the application date and all shareholders become LLP partners.

Explanation. Paragraph 2(2) of the Third Schedule requires that no security interest in the company's assets be subsisting or in force at the time of application. It also requires that all shareholders, and no other persons, comprise the partners of the converted LLP. Here, the charge was fully released before the application on 11 November, and the proposed LLP includes all shareholders without any outsider. The historical existence of a charge does not independently disqualify the company once it has ceased to subsist by the application date. The primary distractor incorrectly treats any earlier charge as a permanent bar to conversion.

Where it goes wrong. Applying the security-interest test to the company's entire history instead of examining whether any security interest subsists on the date of application.

Authority. Section 56 of the Limited Liability Partnership Act, 2008; Paragraph 2(2)(a) and Paragraph 2(2)(b) of the Third Schedule to the Limited Liability Partnership Act, 2008

Question 25 · 2 marks · Chapter 12: The Limited Liability Partnership Act, 2008 · hard

Scenario. A private company converts into an LLP after satisfying the Third Schedule conditions. On the registration date, a commercial suit involving the company is pending before a civil court, and several supply agreements remain in force. The company secretary argues that conversion dissolves the company and therefore terminates the suit and contracts. Which statement correctly describes the statutory consequences?

A private company converts into an LLP after satisfying the Third Schedule conditions. On the registration date, a commercial suit involving the company is pending before a civil court, and several supply agreements remain in force. The company secretary argues that conversion dissolves the company and therefore terminates the suit and contracts. Which statement correctly describes the statutory consequences?

1. The pending suit terminates automatically, while the supply agreements continue only after fresh execution by the LLP.
2. The pending suit continues only if every opposing party consents, while the supply agreements are automatically terminated.
3. The pending proceedings may continue by or against the LLP, and existing agreements and contracts continue as though the LLP had replaced the company. (correct answer)
4. The pending proceedings remain exclusively against the dissolved company, while the LLP becomes responsible only for future contracts.

Answer: C — The pending proceedings may continue by or against the LLP, and existing agreements and contracts continue as though the LLP had replaced the company.

Explanation. Paragraph 8 of the Third Schedule provides that proceedings pending by or against the private company on the registration date may be continued, completed and enforced by or against the LLP. Paragraphs 10 and 11 provide for continuation of existing agreements, deeds and contracts as though the LLP were substituted for the company. Consequently, dissolution of the original company does not automatically terminate pending litigation or existing contractual relationships. The primary distractor incorrectly equates dissolution of the company with termination of its legal proceedings and commercial contracts.

Where it goes wrong. Assuming that the dissolution of the converting company extinguishes pending proceedings and existing contractual arrangements.

Authority. Section 58(4) of the Limited Liability Partnership Act, 2008; Paragraph 8, Paragraph 10 and Paragraph 11 of the Third Schedule to the Limited Liability Partnership Act, 2008