Contents of Company’s Articles of Association
Source: Law No. 40/2007
Legalization Application and Its Rate
Source: MoLHR Reg. No. 4/2014 jo. Appendix GR No. 28/2019.
Financing a Company
Obtaining a mode of financing is critical throughout the life of a company, whether to start a business, to expand it, or to maintain it. Generally, there are 2 (two) types of financing: (i) equity financing; and (ii) debt financing.
Equity Financing
Equity financing is the process of raising capital through the sale of shares. Equity financing involves the sale of common stock and the sale of other equity or quasi-equity instruments such as preferred stock, convertible preferred stock, and equity units that include common shares and warrants.
Venture Capital
A VC company is a financing institution partaking in equity participation and/or the financing of the development of the investee company for a certain period of time. Every business actor that conducts their business in the form of a VC company shall obtain their business license from OJK. Aside from the conventional one, OJK also recognizes the Syariah VC that runs VC activities based on Syariah principles and Islamic law. The VC company could secure several types of funding from:
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venture funds;
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loan;
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asset securitization in accordance with Indonesian capital market regulation;
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medium term notes issuance;
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bond issuance;
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subordinated loan or financing;
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shares issuance;
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donation; and/or
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grant
The abovementioned sources of funding could be given by the government, a state-owned company, a financing company, a bank, or any other business entity whether Indonesian and/or foreign. Furthermore, the investee company could enter into an agreement and benefit from the VC’s activities, these benefits include but are not limited to:
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Equity Participation
The VC could step in through direct equity participation for the investee incorporated as limited liability company. Thus, a VC could purchase shares and will possess an ownership in the early stage of an investee company. As for Indonesian VC companies, they are only allowed to engage in equity participation for no longer than 10 (ten) years, which can be extended 2 (two) times with a total extension period of 10 (ten) years.
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Quasi-equity Participation
Besides equity participation, the VC could make an investment through the purchase of convertible bonds issued by the investee incorporated as a limited liability company. This type of purchase by an Indonesian VC company must be set out in a notarial deed beforehand.
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Purchase of Start-up Bonds
The VC could also carry financing activity through the purchase of bonds issued by the start-up investee in its early and/or development stage.
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Productive Business Financing
This type of financing by a VC aims to increase the production of goods and/or services by investees for their own revenue growth.
However, it should be noted that VC activities are not intended to provide long-term funding. In a bigger picture, the idea of a VC is to invest in the investee’s balance sheet and infrastructure until it reaches the sufficient size and credibility to be sold to a corporation or so that institutional public-equity markets could step in.
Initial Public Offering
As businesses grow and aim for sustainability, obtaining additional financing sources has become increasingly important. IPO open the possibility of financing from public investors through the stock market. In IPO, the privately-owned company lists its shares on a stock exchange, making them available to be purchased by the general public. By going public, the company may receive a bundle of advantages where it could enhance the ability to maintain business sustainability, improves the image of the company, encouraging employee loyalty.
Further, Government of Indonesia has made an undertaking to make going public become more favorable toward the business players. Such undertaking is demonstrated by providing a tax incentive to public listed companies by reducing the income tax rate by 3% for listed companies and listed on the IDX.
In Indonesia, IPOs are now performed digitally through an E-IPO procedure. E-IPO is expected to increase public participation in public offerings by utilizing the development of information technology to improve efficiency, effectiveness, transparency, and accountability of public offerings. The distinctive feature between ordinary IPO and E-IPO is the incorporation of a digital system which handles the entire IPO process. There are several IPO processes and requirements to consider, these are demonstrated in the graph below:
IPO Process
Source: Bapepam Reg No. IX.A.2 and OJK Reg. No. 41/2020
In order to become a public company, a company should submit their shares-listing application to the IDX accompanied by the required documents, including: (i) company profiles; (ii)legal opinion and due diligence reports from legal consultant; (iii) the audited financial statement from public accountant, the appraisal report (if applicable); (iv) company’s AoA of Public Company which have been approved by MOLHR; (v) prospectus; (vi) financial projections.
The company should also submit the listing application to the KSEI. In this phase, the IDX could further require the company to present their company profile, IPO plan, and make a visit to the company. The IDX will approve the application within 10 (ten) days after the return of all completed documents.
Along with the share-listing application process, the company should also submit the IPO registration statement to OJK. In accordance with Art. 3 OJK Reg. No. 7/2017, the registration statement must be submitted along with the following supporting documents:
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cover letter of the registration statement;
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prospectus;
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prospectus summary;
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early prospectus (if any); and
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any other documents as part of the registration statement.
During the review, OJK may request for changes or additional information from the applicant-company to ensure that all the material facts regarding share offering, financial condition, and business activities of the company disclosed to the public are on the prospectus. The company should also obtain OJK’s permission to publish their prospectus summary and conduct book-building or early offering.
After the registration statement is made effective by the OJK, the company may disclose its summary prospectus in the newspaper, provide its prospectus to the public, and conduct an IPO. The company shall conduct the IPO no later than 2 (two) working days after the effectiveness of the registration statement, where the shortest IPO period is 3 (three) working days and the longest is 5 (five) working days The newly listed company will then be available on the IDX board.
Debt Financing
When a company borrows money to be paid back at a future date with interest it is known as debt financing. Debt financing itself could be in the form of a secured or an unsecured loan.
Loans
Loan is a form of debt incurred by an individual or other entity. The lender, usually a corporation, financial institution, or government, advances a sum of money to the borrower. In return, the borrower agrees to a certain set of terms including any finance charges, interest, repayment date, and other conditions. In loan arrangements, the lender is usually a corporation, financial institution, or government, which lends a sum of money to the borrower.
A loan agreement is classified into 2 (two) types: (i) a loan agreement with a single lender or a bilateral loan; and (ii) a group of lenders or a syndicated loan.
Bilateral Loan
A bilateral loan is a form of loan business in which one lender provides loans for one borrower for working capital, capital expenditure or general corporate purpose. The major advantage of a bilateral loan is that lender offers a relatively independent, flexible and customized scheme for the borrower.
Syndicated Loan
In contrast with a bilateral loan, syndicated loans involve two or more lenders who jointly provide a loan to a borrower. Every syndicate member has a separate claim on the borrower despite there being a single loan agreement contract. There are several parties involved in syndicated loan, such as:
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The Lenders
In a syndicated loan, 2 (two) or more lenders provide funds to a borrower or group of borrowers under the terms of a loan agreement.
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Arranger
With a syndicated loan, the borrower usually grants a mandate to an arranging bank setting out the financial terms of the proposed loan and authorizing the bank to find other suitable lenders in the market and arrange the syndication.
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Facility/Security Agent
The facility agent is the representative of the syndicated lenders under the loan agreement and can be seen as the primary point of contact between the borrower and the lenders. It carries out an administrative role in relation to the facility. Furthermore, if a loan is to be secured, the agent will also usually act as a security agent. The security agent will hold the security on behalf of all lenders and should enforcement become necessary, will be responsible for negotiating with the borrower, taking any enforcement action on behalf of the lenders.
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Borrower
The types of borrowers that might wish to borrow money include companies, limited liability partnerships, general partnerships, limited partnerships, individuals, unincorporated associations, and local authorities.
The process of arranging a syndicated loan has two principal phases which are the pre-mandate phase and post-mandate phase. The pre-mandate phase is the phase in which the borrower discusses the proposed facility with potential arrangers and then appoints one or more banks to act as an arranger. Meanwhile, the post-mandate phase is where the syndication of the loan takes place and loan agreements are negotiated.
In Indonesia, syndicated loans are subject to best practice in the banking and finance sector, and are also regulated in BIR No. 18/19/2016. Based on Article 16 BIR No. 18/19/2016, it can be understood that syndicated loans require the participation of a lead manager who acts as a coordinator for syndicated members.
Bond Issuance
Bonds, which are otherwise known as debt securities, are financing instruments issued to a financier or lender for funds. Since bonds are essentially debts, the issuing entity has to pay the principal debt at a certain maturity date, while the interest of the debt can be spread in intervals or fully at the maturity date. Moreover, the amount of debt to be repaid by the issuing company is also predetermined when issuing bonds.
From financiers’ perspective, considering that bonds will be repaid by the issuing entity with a predetermined repayment schedule and interest, investing in bonds is considerably safer and warrants a fixed income. Therefore, bonds are also referred to as fixed-income securities.
Under Indonesian capital market regulation, bonds can be issued either through a public offering in the primary market, or directly to financiers without public offering. In a public offering setting, bonds are issued as securities through an ordinary public offering mechanism. In contrast, the issuance of bonds without public offering is only allowed for certain types of bonds and is undertaken by issuing bonds only and directly to professional financiers.
With regards to bonds issued without public offering, the entities which are able to issue such bonds are: (i) issuers or public companies; (ii) business or legal entities which are neither issuers nor public companies; (iii) supranational institutions; and (iv) collective investment funds which are allowed to issue bonds according to the prevailing regulations.
Peer-to-Peer Lending
Another form of debt financing is peer-to-peer lending which, under Indonesian financial regulation is referred to as information technology-based co-funding services. For the purpose of this section, we will use the term “peer-to-peer lending” when referring to information technology-based co-funding services.
According to Article 1 (1) OJK Reg. No. 10/2022, peer-to-peer lending is defined as the provision of financial services to bring together funders and fund recipients in conducting conventional funding or based on sharia principles directly through an electronic system by using the internet. In a peer-to-peer lending arrangement, the relevant parties are:
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The Organizer, which is a limited liability company that provides, manages, and operates the peer-to-peer lending system.
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The Funders, which can be an individual, legal entity, or business entity, whether Indonesian or foreign.
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The Fund Recipient, which can be an individual, legal entity, or business entity, domiciled in Indonesia.
Furthermore, there will be 2 (two) agreements signed in a peer-to-peer lending arrangement: (i) between the Organizers and the Funder; and (ii) between the Funder and the Fund Recipient, signed digitally with an electronic signature. These are the limits of the lending amount the Organizer has to set:
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the limit for the lending received by the Fund Recipient is set at Rp2.000.000.000,- (two million rupiah);
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the limit for the lending to be provided by the Funders are:
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for Funders not overseen by the OJK, at most 25% (twenty-five percent) from the position of the Funding at the end of the month;
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for Funders overseen by the OJK, at most 75% (seventy-five percent) from the position of the Funding at the end of the month.
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The Name and Domicile of Limited Liability Company
Pursuant to Article 16 (1) Law No. 40/2007, companies shall not use names that:
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have been legally used by another company or are essentially the same as the name of another company;
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are contrary to public order and/or morality;
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are the same or similar to the names of state institutions, government agencies, or international institutions, except with the permission of those concerned;
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are not in accordance with the aims and objectives, as well as business activities, or only show the aims and objectives of the company without a personal name;
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consist of numbers or series of numbers, letters or a series of letters that do not form a word; or
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have the meaning of a company, legal entity, or civil partnership.
The name of the company must be preceded by the phrase “Perseroan Terbatas” or abbreviated as “PT”. As for public companies, the name of the company shall end with “Tbk”. If a company name does not include the abbreviation “Tbk”, the status of the company is a private (closed) company.
A company shall have a domicile in a city or regency within the territory of the Republic of Indonesia as stipulated in the AoA. However, it is possible for the company to have a domicile in a village or sub-district as long as the AoA includes the name of the relevant city or regency of the village or sub-district. The said domicile is also the head office of the company.
The Duration of a Limited Liability Company
A company is incorporated for a limited or unlimited period as stipulated in the AoA. If the company is incorporated for a limited period of time, the length of time shall be clearly stated. For instance, for a period of 10 (ten) years, 20 (twenty) years, or 35 (thirty-five) years. Likewise, if the company is incorporated for an indefinite period, this shall also be stated explicitly in the AoA.
However, in the event that the founders of a company intend to amend the duration of company’s establishment, an application for approval of amendments to the AoA regarding the extension of duration of the association shall be submitted to the MoLHR no later than 60 (sixty) days before the duration of the company lapses. After submitting the application, the MoLHR will grant approval to the application for the extension no later than the last date of duration of the company.
The Purposes and Objectives of Limited Liability Company
The company must state the purposes and objectives of the company as well as its business activities in the AoA. Specifically, business activities are activities carried out by the company in order to achieve its purposes and objectives, which must be clearly detailed in the AoA and must not be in conflict with the AoA.
The Amounts of Authorized, Issued, and Paid-Up Capitals of Limited Liability Company
There are 3 (three) types of capital which shall be elucidated in a company’s AoA – the authorized capital, issued capital, and paid-up capital. Authorized capital is the total amount of shares that a company can issue to its shareholders. According to Article 32 (2) Law No. 40/2007, the amount of authorized capital is determined by the company’s founders. However, for companies that conduct certain business activities, the minimum amount of authorized capital shall be in compliance with the provisions of the relevant laws and regulations.
Pursuant to Article 33 (1) Law No. 40/2007, at least 25% (twenty-five percent) of the authorized capital shall be subscribed and fully paid-up. The subscription and payment for capital shall be attested with legitimate proof of payment , and further issuance of shares which is made to increase the issued capital shall also be fully paid-up.
The Types of Shares and its Rights
Shares can give rights to its owner, which in this case, are the company’s shareholders. According to Law No. 40/2007, rights that can be granted to shareholders are as follows:
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the right to attend and cast a vote in the GMS;
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the right to obtain dividend payments and the remaining company’s assets from a liquidation process; and
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other rights as stipulated in Law No. 40/2007.
The provision mentioned above shall apply after the shares have been registered in the company’s shareholders list, on behalf of the relevant shareholders. It should be noted that although shares can grant rights to its shareholder, there are certain types of shares stipulated in Law No. 40/2007 that only grant rights to obtain dividend payments and the remaining company’s assets from the liquidation process.
A company’s AoA shall determine 1 (one) or more share classifications. In the event that there are more than 1 (one) share classifications, the AoA shall determine one of which as the ordinary shares. Law No. 40/2007 specifies the share classifications as follows:
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shares with or without voting rights;
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shares with special rights to nominate members of the BoD and/or BoC;
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shares which after a certain period, will be withdrawn or exchanged for other share classifications;
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shares that give the shareholders priority to receive dividends before the shareholders with other share classifications on either cumulative or non-cumulative dividend distribution; or
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shares that give the shareholders priority to receive the distribution of remaining company’s assets after the company’s liquidation before the shareholders with other shares classifications.
According to Article 54 (1) Law No. 40/2007, the AoA can also determine the fraction of a share’s nominal value. The holders of fractions of a share’s nominal value are not granted individual voting rights. This does not apply to the relevant shareholder(s), either individually or with other holder(s) of fractions of share’s nominal value whose shares classifications are the same, have a total nominal value amounting to 1 (one) nominal share of such classification.
The Provisions on Place and Procedures to Hold the General Meeting of Shareholders
Convening the General Meeting of Shareholders
Pursuant to Law No. 40/2007, GMS are divided into annual GMS and extraordinary GMS. The annual GMS shall be held at the latest 6 (six) months after the end of the fiscal year. On the other hand, extraordinary GMS may be conducted whenever it deems necessary for the interest of the Company.
The GMS shall be held at the company’s domicile or at the place where the company conducts its main business activities as provided in the AoA. As for the publicly listed company, the GMS shall be held at the domicile of the stock exchange in which the shares of the company are registered. The GMS can also be held through teleconference, video conference, or other electronic media facilities that allow all GMS participants to directly see and hear one another and participate in the meeting.
Both annual GMS and extraordinary GMS can be conducted at the request of the following parties:
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one or more shareholders who jointly represent 1/10 (one-tenth) or more of the total amount of shares with voting rights, unless the AoA provides for a lower amount; or
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the BoC.
The request to conduct a GMS shall be submitted to the BoD by registered mail in conjunction with its reasons. The BoD must convene the GMS no later than 15 (fifteen) days from the date of receiving the request to conduct the GMS. If the BoD does not convene a GMS at such specified time:
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a request for holding a GMS by shareholder(s) shall be resubmitted to the BoC; or
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the BoC shall summon the GMS.
Both annual and extraordinary GMS shall be preceded with summon of GMS by the BoD. In certain circumstances, such as where the BoD does not conduct the GMS, the BoD cannot conduct the GMS, or there is conflict of interests between the BoD and the company, the summons for the GMS can be undertaken by the BoC or the shareholders by virtue of a stipulation by the chairman of the district court.
The summons for the GMS shall be carried out within 14 (fourteen) days at the latest prior to the date on which the GMS is held, excluding the date of the summons and the date of the GMS. For the public company’s GMS, there should be an announcement specifying that there will be a summons for GMS within 14 (fourteen) days at the latest before the GMS summons. The information contained in the summons for the GMS shall include the date, time, venue, and agenda of the GMS, as well as notifications that the materials which will be discussed during the GMS are available at the company’s office from the date of summons until the date of the GMS. In relation to the means of conveyance, the summons for the GMS shall be conducted by registered mail and/or advertisements in newspapers.
The Quorum to Conduct the General Meeting of Shareholders
A GMS can be held if more than 1/2 (half) of the total shares with voting rights are present or represented in the GMS, except in circumstances where the laws and/or AoA specify larger quorum. In the event that the quorum requirements have not been reached, the summons for a second GMS may be conducted.
The summons for a second GMS shall mention that the first GMS has been held, but that the quorum requirement was not met. The second GMS may adopt resolutions if more than 1/3 (one-third) of the total shares with voting rights are present or represented in the GMS, except in circumstances where the AoA determines larger quorum.
If the quorum of the second GMS was also not satisfied, the company is entitled to propose an application to the chairman of the district court whose jurisdiction covers the domicile of the company, to determine the quorum of the third GMS. The summons for third GMS shall mention that as the second GMS has been held but the quorum was not satisfied, and the third GMS shall be conducted with a quorum stipulated by the chairman of the district court.
The Procedures for Utilization of Profit and Distribution of Dividends
Companies must set aside a certain amount of net profits every fiscal year as reserves if the company has a positive profit balance. Such allocation for net profit shall be carried out until the reserves reach 20% (twenty percent) of the total issued and paid-up capital. Reserves that have not reached 20% (twenty percent) of total issued and paid-up capital can only be used to cover losses which cannot be covered by other reserves.
The use of net profit, including the determination of allocation amount for reserves, shall be decided by the GMS. All net profits, after deductions for reserves, shall be distributed to shareholders as dividends (unless otherwise stipulated in the GMS) only if the company has a positive profit balance.
A company may also distribute interim dividends before the end of the fiscal year of the company, provided that this is set out under the AoA of the company. The distribution of interim dividends can be carried out if the amount of net assets of the company does not fall below the sum of the total of issued and paid-up capital and the statutory reserve. Additionally, the distribution of interim dividends shall not disrupt or cause the company’s failure to fulfil obligations to creditors or disrupt the activities of the company.
Furthermore, the distribution of interim dividends shall be determined based on the resolutions of the BoD after obtaining approval from the BoC with due regard to the provisions of Article 72 (2) and (3) Law No. 40/2007. If it is discovered that the company suffered a loss at the end of the fiscal year, the shareholders must return the distributed interim dividends to the company.
The Amendments to Articles of Association
The amendments to the AoA are determined by the GMS and shall be comprised or stated in a notarial deed written in the Indonesian language. The following amendments to the AoA shall be approved by the MoLHR:
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the name of the company and/or the domicile of the company;
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the purposes and objectives of the company as well as the company's business activities;
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the duration of association;
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the amount of authorized capital;
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the reduction of issued and paid-up capital; and/or
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the status of a non-publicly listed company seeking to become a public company or vice versa.
Amendments not mentioned above only need to be notified to the MoLHR as well as mentioned or stated in a notarial deed written in Indonesian.
In order to obtain the approval of amendments to the AoA, Article 21 (7) Law No. 40/2007 stipulates that the application for the approval on amendments to the AoA shall be submitted to the MoLHR no later than 30 (thirty) days as of the date of the notarial deed which comprises the AoA amendments. Such provision will also be applicable to the implementation of the notification of AoA amendments to the MoLHR.
Amendments to the AoA that are required to be approved by the MoLHR shall be effective from the issuance date of the ministerial decree concerning the approval of amendments to the AoA. On the other hand, the AoA amendments that need to be notified solely to the MoLHR shall be effective from the issuance date of the acceptance letter on notification of amendments to the AoA by the MoLHR.
The Organs of Limited Liability Company
A limited liability company has 3 (three) main organs – the GMS, the BoD, and the BoC. This section will briefly elaborate on their respective roles, obligations, and authorities as set out in Law No. 40/2007.
The General Meeting of Shareholders.
The GMS is a company organ that has authority not given to the BoD or the BoC, within limitations specified in Law No. 40/2007 and/or the AoA. The GMS is given authority to make shareholders’ resolutions that bind the company and its organs to:
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stipulate amendments to the AoA;
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increase or decrease the company’s capital;
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approve the annual report and validate the financial and BOC report;
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stipulate the usage of the company’s net profit for reserve and dividend allocation;
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approve of mergers, consolidations, acquisitions or separations;
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appoint and dismiss the BoD;
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appoint and dismiss the BoC;
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approve certain actions of the BoD (transferring company’s assets or providing company’s assets as collateral, up to more
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than 50% (fifty percent) of the company’s net assets in 1 (one) or more transaction(s), regardless of whether the
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transactions are related or not); and/or
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stipulate the company’s liquidation or request to file for insolvency.
The shareholders, either by themselves or being represented by a power of attorney, have the right to attend the GMS and use their voting rights according to the number of shares they own. However, during the voting process, the directors, commissioners, and employees of the company are prohibited to act as proxies for the shareholders.
Subsequently, the GMS’ resolutions are adopted based on an amicable consensus. In circumstances where an amicable consensus is not achieved, the resolutions shall be valid if they are approved by more than 1/2 (half) of the casted votes unless the laws and/or AoA require a higher number of approved votes.
Furthermore, Law No. 40/2007 regulates specific numbers of votes that shall be casted in the GMS to conduct certain legal actions:
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GMS to amend AoA
Unless the AoA requires a higher quorum of attendance and regulates the higher number of votes to adopt resolutions, a GMS to amend the AoA can be conducted if at least 2/3 (two-thirds) of all shares with voting rights attend or are represented in the meeting, and the resolutions of shareholders shall be valid if they are approved by at least 2/3 (two-thirds) of the casted votes.
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GMS to approve the merger, consolidation, acquisition, or spin-off, the submission of request for company’s insolvency, the extension of duration of the company, or the liquidation of company:
Unless the AoA requires a higher quorum of attendance and regulates the higher number of votes to adopt resolutions, GMS can be conducted if at least 3/4 (three-quarters) of all shares with voting rights attend or are represented in the meeting, and the resolutions of shareholders shall be valid if they are approved by at least 3/4 (three-quarters) of the casted votes.
In addition to the GMS, the shareholders of a company can also adopt binding resolutions outside of the GMS, namely circular resolutions. Such decisions can be undertaken without conducting a physical GMS, provided that all shareholders with voting rights shall agree in writing by executing the suggestion of circular resolutions.
The Board of Directors
The BoD is a company organ that has full authority and responsibility over management of the company for the company’s interest and in accordance with the purposes and objectives of the company, both inside and outside of court in accordance with the provisions of AoA. The BoD of a company consists of 1 (one) or more members that are appointed by the GMS for a specified period and can be reappointed. Persons that can be nominated as directors are individuals who are capable of conducting legal actions and have not in 5 (five) years prior to their nominations:
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been declared bankrupt;
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been the directors or commissioners who were declared guilty or incurred bankruptcy to a company; or
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been penalized due to their conduct of criminal actions which harmed state finances and/or related to financial sectors.
Further, Article 100 (1) Law No. 40/2007 governs the obligations of a BoD, which comprise of the following matters:
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making the register of shareholders, special list, minutes of the GMS, and minutes of the BoD meetings;
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making the company’s annual report and financial documents; and
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maintaining the company’s registers, minutes, and financial documents amongst other company documents.
Every member of the BoD shall be fully and personally liable for the loss the company’s losses resulting from their fault or negligence in fulfilling his or her duties, with exceptions:
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the loss is not caused by the fault or negligence of the relevant director;
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the relevant director has conducted the management with good faith and prudently for the interests and in accordance with the purposes and objectives of the company;
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the relevant director does not have any conflict of interests either directly or indirectly in conducting the management which caused the loss; and
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the relevant director has taken actions to prevent the occurrence or the continuance of the loss.
The Board of Commissioners
The BoC is a company organ assigned to supervise the company in general and/or specifically in accordance with the AoA and to provide advice to the BoD. The BoC consists of 1 (one) or more members that shall act through BoC resolutions. The company’s AoA can also regulate 1 (one) or more independent commissioners and 1 (one) representative commissioner. Independent commissioners are nominated based on GMS resolutions from a party that is not affiliated to the main shareholders, the members of BoD and/or any other members of the BoC.
Persons that can be nominated as commissioners are individuals who are capable of conducting legal actions, except in circumstances where in the 5 (five) years prior to their nominations, they have:
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been declared bankrupt;
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been the directors or commissioners who were declared guilty or incurred bankruptcy to a company; or
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been penalized due to their conduct of criminal actions which harmed state finances and/or related to financial sectors.
The BoC is appointed by the GMS for certain periods and can be reappointed. In general, the BoC is responsible for the supervision of a company. Every member of the BoC is personally responsible for loss endured by the company in the event that the relevant member of the BoC is found guilty or negligent in conducting his or her duties, with exceptions:
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the relevant commissioners have conducted the supervision in good faith and prudently for the interests of the company and in accordance with the purposes and objectives of the company;
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the relevant commissioners do not have personal interests, either directly and/or indirectly related to the management actions of the BoD which caused the loss; and
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the relevant commissioners have provided advice to the BoD to prevent the occurrence or continuation of loss.
Further, Article 116 Law No. 40/2007 stipulates that members of the BoC are obliged to:
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make minutes of the BoC meeting and to save its copies;
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report to the company on shares that they and/or their families possess in the company and other companies; and
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provide reports on supervisory tasks that have been conducted during the most recent financial year to the GMS.
The Authorization of Limited Liability Company
In order to obtain the MoLHR’s decree on the authorization of a company’s legal entity status, the company’s founders shall jointly submit an application to the MoLHR through the information technology services for the administration of legal entities. Such application shall be submitted to the MoLHR no later than 60 (sixty) days after the execution of the deed of incorporation along with the following supporting documents:
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the electronic statement from the applicant regarding the completeness of the company’s establishment documents;
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the copy of the deed of establishment of the company which is uploaded to the Legal Entity Administration System/Sistem Administrasi Badan Hukum (SABH);
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the minutes of deed of incorporation or the minutes of amended deed of company incorporation;
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the minutes of deed of consolidation in the event that the incorporation of company was undertaken for consolidation matters;
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the proof of payment for company’s capital;
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the statement letter of promoters’ abilities to obtain decrees, approvals, or recommendations from technical agencies for companies engaged in certain business sectors or the photocopies of decrees, approvals, and recommendations from related technical agencies for companies engaged in certain business sectors;
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the statement letter of promoters’ abilities to obtain NPWP and the receipt of report of annual tax notification letter; and
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the photocopy of statement letter regarding company’s complete address from the building manager or authorized agency, or the original of statement letter regarding the company’s complete address signed by all members of BoD in conjunction with all of the company’s promoters, and all members of BoC.
Afterwards, the applicant is obliged to pay a certain amount of money as the PNBP with the following conditions:
Incorporation of Limited Liability Company in Indonesia
The Requirements for the Incorporation of Limited Liability Company
There are several types of business entities utilized to conduct business activities in Indonesia. For business purposes, an entity in the form of a limited liability company is preferable as its owners are not personally liable for the company’s losses.
The Incorporation of Limited Liability Company
According to Article 7 (1) Law No. 40/2007, a company shall be incorporated by 2 (two) or more persons by virtue of a notarial deed written in the Indonesian language. The aforementioned “persons” comprises of individuals, either Indonesian or foreign citizens, as well as local or foreign legal entities. Such founders are obliged to subscribe to the company’s shares, except in circumstances where the companies are incorporated by consolidation.
However, after the enactment of Law No. 6/2023, the provision requiring a company to be incorporated by 2 (two) or more persons no longer applies to:
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companies whose shares are owned by the Government;
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BUMD;
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BUM Desa;
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companies that manage stock exchange, clearing and securities institutions, depository and settlement institutions, or any other companies as stipulated under capital market laws; or
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companies that satisfy the criteria of micro and small enterprises.
If a company has less than 2 (two) shareholders after the obtainment of its legal entity status, the relevant shareholder, no later than 6 (six) months since obtainment shall:
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transfer a portion of his or her shares to another party; or
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the company should issue new shares to other parties.
If the abovementioned 6 (six) month timeframe has lapsed and there are still less than 2 (two) shareholders in the company:
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the relevant shareholder shall be personally liable for all of the engagements and losses endured by the company; and
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the relevant district Court may dissolve the company upon the request of interested parties.
Particularly, the term “interested parties” include public prosecutors, shareholders, the BoD, the BoC, employees of the company, creditors, and/or other stakeholders.
The Deed of Incorporation and the Incorporation Statement Letter
A company is incorporated by virtue of a notarial deed in the Indonesian language , which shall accommodate the company’s AoA and other information related to the incorporation of the company. Specifically, the information shall at least comprise the following matters:
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full name, place and date of birth, occupation, address, and nationality of the founder- individual. Or name, address as well as the number and date of the MoLHR decree regarding the company’s legal entity;
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full name, place and date of birth, occupation, address, and nationality of the first appointed members of the BoD and BoC; and
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names of shareholders, details of the number of shares, and nominal value of the shares that have been issued and paid up.
In terms of micro and small enterprises, GR No. 8/2021 stipulates that companies which satisfy the criteria of micro and small enterprises consist of (i) companies incorporated by 2 (two) persons or more; and (ii) individual companies incorporated by 1 (one) person. Individual company (perseroan perorangan) shall be incorporated by Indonesian citizens (i) being at least 17 (seventeen) years old; and (ii) having the legal capacity , by filling out the statement of incorporation in Indonesian. To obtain legal entity status for individual companies, the statement of incorporation of the individual company shall be registered electronically to the MoLHR by filling out a form which includes the following information:
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name and domicile of individual company;
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the duration of individual company;
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the aims and objectives as well as the business activities of individual company;
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the amount of authorized capital, issued capital, and paid-up capital;
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nominal value and number of shares;
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the address of the individual company; and
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full name, place and date of birth, occupation, residence, resident registration number, and NPWP of the promoter, BoD, and shareholders of the individual company.
Mandatory Beneficial Owner Report
Under Article 2 (1) jo. Article 4 (1) of the MoLHR Reg. No. 15/2019, every corporation including the limited liability company is obliged to determine and report its beneficial owner. The beneficial owner shall be at least 1 (one) personnel who possesses each criterion in accordance with the form of the corporation.
This mandatory obligation to report the beneficial owner shall be conducted on:
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the application of establishment, registration, and/or authorization of the corporation; or
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during the corporation running its businesses or activities.
Articles of Association of a Limited Liability Company
In addition to the prevailing laws and regulations, the AoA is a legal document that provides information of the company, and the rules which shall be satisfied when managing the company.
The Contents of Limited Liability Company’s Articles of Association
According to Article 15 (1) of Law No. 40/2007, AoA must contain at least:
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the name and domicile of the company;
the objectives and purposes, as well as the line of business of the company;
the duration of the company’s establishment; -
the amount of authorized capital, issued capital, and paid-up capital;
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the number of shares, classes of shares, together with the number of shares for each class (if any), the rights attached to each share, and the nominal value of each share;
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the title and the number of members of the BoD and BoC;
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the setting of place and procedures for holding a GMS;
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the procedures for appointment, replacement, and dismissal of members of the BoD and BoC; and
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the procedures for the use of profits and the distribution of dividends.
Further, the AoA shall not contain: (i) provisions on the receipt of fixed interest on a share; and (ii) provisions on the grant of a personal benefit to a founder or other party. Pursuant to Article 15 (2) Law No. 40/2007, the AoA may also contain other provisions that are not contradictory to Law No. 40/2007.
