LLP-- Loan from Partner and Interest

Interest Payments in a Limited Liability Partnership (LLP) in Malaysia

When it comes to paying interest to partners in a Limited Liability Partnership (LLP) in Malaysia, there are specific guidelines and legal considerations you should be aware of, particularly in relation to the Moneylending Act and the terms of the partnership agreement.

Interest Payments to Partners

1. Interest Rate Limitations:

- According to common practice and various financial regulations, an LLP can pay interest to partners for advances made to the LLP. However, the interest rate typically should not exceed the guidelines set by the relevant authorities.

- In your case, the interest rate you mentioned—8.0% per annum or 3 times the Overnight Policy Rate (OPR), whichever is lower—is a reasonable approach.

2. Partnership Agreement:

- The terms regarding interest payments should ideally be stipulated in the LLP's partnership agreement. This agreement will guide how profits, losses, and advances are treated, including any interest payments to partners.

Compliance with the Money Lending Act

1. Definition of Money Lender:

- The Moneylenders Act 1951 in Malaysia regulates money lending activities. A "money lender" is defined as anyone who lends money at interest, and this act includes specific licensing requirements and restrictions on interest rates.

- If the LLP is simply paying interest to partners on advances made to the LLP, it typically does not fall under the definition of a money lender, provided that the partners are not engaging in money lending as a business.

2. Potential Offences:

- If the LLP were to charge excessively high interest rates that exceed the limits set under the Moneylenders Act, or if it were engaging in the business of lending money to the public (not just among partners), it could potentially violate this Act.

- The key is to ensure that the interest rate charged does not exceed what is considered reasonable and is compliant with the established legal framework.

Conclusion

To summarize, an LLP in Malaysia can pay interest to partners on advances, with a rate of 8.0% p.a. or 3 times the OPR, whichever is lower, provided that this is clearly outlined in the partnership agreement. It is essential to ensure that these arrangements do not inadvertently classify the LLP as a money lender under the Moneylenders Act. To avoid any legal issues, it is advisable to consult with a legal professional who specializes in Malaysian business law to ensure compliance with all relevant regulations.

If you have further questions or need assistance with drafting the partnership agreement, feel free to ask AmazingCFO!