Indonesian Company Law: A Concise Guide

1. Introduction

Indonesias corporate legal framework is primarily governed by Law No. 40 of 2007 on Limited Liability Companies (the Company Law), supplemented by Law No. 25 of 2007 on Capital Markets, Law No. 17 of 2008 on Company Directors, and various regulations issued by the Ministry of Law and Human Rights and the Financial Services Authority (OJK). The system strives to balance investor protection, ease of doing business, and alignment with international standards.

2. Main Forms of Companies

The Company Law recognises several corporate structures. The most common are:

• Perseroan Terbatas (PT) Limited Liability Company: The default form for both domestic and foreign investors. Liability is limited to the amount of capital contributed.
• Perseroan Terbatas (PT) Tbk Publicly Listed PT: A PT that has issued shares to the public and is listed on the Indonesia Stock Exchange (IDX).
• Perseroan Komanditer (CV) Limited Partnership: Consists of general partners with unlimited liability and limited partners whose liability is confined to their contribution.
• Firma General Partnership: All partners have unlimited liability.
• Yayasan Foundation: Not a commercial entity but often used for charitable or social purposes; can own assets and engage in business activities to support its purpose.

For most commercial ventures, especially those seeking foreign capital, the PT is the preferred vehicle.

3. Incorporation Process for a PT

3.1 Preformation Steps

• Reserve a unique company name through the Ministry of Law and Human Rights online system (OSS Online Single Submission).
• Draft the articles of association (AOA). The AOA can follow the standard model or be customtailored, but must comply with mandatory provisions (minimum capital, shareholder rights, etc.).
• Secure the required minimum capital. For a regular PT the minimum is IDR 50million ( USD3,300). A PT Tbk must meet higher thresholds (IDR 5billion for the paidup capital).

3.2 Incorporation Steps

1. Notarisation: The deed of establishment (including AOA) is executed before a licensed notary.
2. Legalisation: The notary files the deed with the Ministry of Law and Human Rights for approval.
3. Tax Identification Number (NPWP) and Business Registration Number (NIB) are obtained through the OSS portal.
4. Licensing: Depending on the sector, additional licences (e.g., tourism, mining) may be required.

All steps can be completed online via the OSS platform, which has dramatically reduced processing time to a few days in most cases.

4. Corporate Governance and Management

4.1 Organs of a PT

• General Meeting of Shareholders (GMS): Ultimate decisionmaking body. Must hold an annual meeting within six months after the fiscal yearend.
• Board of Directors (BoD): Executes daytoday management. Minimum of one director; a PT Tbk must have at least three.
• Board of Commissioners (BoC): Supervisory body overseeing the BoD. Minimum of one commissioner; PT Tbk requires at least three, with independent commissioners representing at least 30% of the board.

4.2 Duties & Liabilities

Directors and commissioners owe fiduciary duties of care, loyalty, and confidentiality. Breaches can lead to civil liability to the company, criminal sanctions (up to five years imprisonment for grave abuse of powers), and disqualification from future board positions.

4.3 Shareholder Rights

Shareholders may attend GMS, vote on resolutions, inspect company books, and request dividends. Minority shareholders are protected by rules on preemptive rights, tagalong rights, and the ability to bring derivative actions.

5. Foreign Investment Considerations

Indonesia classifies business activities under the Negative Investment List (DNI) and the Positive Investment List (DPI). The current framework, the Indonesia Investment Coordinating Board (BKPM) Regulations, stipulates:

• Maximum foreign ownership percentages per sector (e.g., 100% in most services but limited to 67% in strategic sectors such as telecommunications).
• Mandatory establishment of a PT PMA (Penanaman Modal Asing) a PT with foreign capital.
• Minimum capital of US$ 100,000 for a PT PMA (higher for certain sectors).

Foreign investors must also obtain a Business License (Izin Usaha). The process is streamlined through the OSS, and the OJK supervises listed PTs, ensuring compliance with market disclosure rules.

6. Dissolution, Liquidation and Bankruptcy

6.1 Voluntary Dissolution

A PT may be dissolved by a GMS resolution followed by a liquidation process. The steps include:

1. Appointment of a liquidator (often a director or external professional).
2. Notification to creditors and publication of a notice in the State Gazette.
3. Settlement of debts, realization of assets, and distribution of any surplus to shareholders.

6.2 Involuntary Dissolution

Grounds include failure to hold a GMS for two consecutive years, insolvency, or a court order following a bankruptcy petition.

6.3 Bankruptcy

Bankruptcy procedures are governed by Law No. 37 of 2004 on Bankruptcy and Suspension of Debt Payments. Creditors may file a petition; the court appoints an administrator to oversee the liquidation of assets and payment of claims.

7. Recent Developments and Trends

• Omnibus Law No. 11/2020: Consolidated many regulatory regimes, simplifying licensing and reducing the minimum paidup capital for PTs from IDR 50million to virtually zero for certain small businesses.
• Digital Business Regulations: New rules (2023) address ecommerce platforms, fintech, and data protection, requiring companies to appoint a Data Protection Officer and comply with the Personal Data Protection Act (PDPA).
• Environmental, Social, and Governance (ESG): The OJK issued ESG disclosure guidelines for listed companies, pushing greater transparency on sustainability practices.

8. Practical Tips for Companies Operating in Indonesia

1. Engage Local Counsel: Indonesian corporate law is complex and rapidly evolving; a local law firm can navigate licensing, tax, and employment matters.
2. Maintain Proper Corporate Records: Minutes of GMS, shareholder registers, and accounting books must be kept for at least ten years.
3. Comply with OJK Reporting: Public companies need quarterly and annual financial statements, plus disclosures on material events.
4. Plan for Taxation: Corporate income tax is 22% (effective 2024) with various incentives for investment in designated zones or sectors.
5. Understand Labour Law: The Manpower Law imposes strict rules on termination, severance, and employee benefits.