Before you incorporate a company in Indonesia, understanding the various roles different individuals play in an organisation is crucial to ensure compliance as well as business success.
All limited liability corporations must have shareholders, a board of commissioners, and a board of directors, according to Indonesian company law. In the company, each of these roles has different obligations.
Any individual who put capital into a company are the owners of the company and run the business – these individuals are called shareholders in Indonesia.
Indonesia’s company law state that a foreign-owned PT PMA company must have at least a minimum of 2 shareholders at all times. The shareholders can either be individuals or legal entities of Indonesia or foreign countries. To be a shareholder in Indonesia, they must have at least 10 million rupiah worth of shares.
There are actions to be taken if the shareholders fall below the minimum of 2:
- Current shareholder is obliged to transfer part of their shares to other intended shareholders within a period of less than 6 months
- If this is not done, the company is to issue new shares to the other shareholders
What happens if 6 months have passed and there are less than 2 shareholders?
In this case, the remaining shareholder are to be personally liable for all agreements and legal matters, which may include company losses.
Shareholders for PT PMA Company
Foreign-owned PT PMA company does not require a local shareholder if the industry is not in the Positive Investment List.
The corporation is owned by its shareholders. A foundation, a firm, or a person can all be shareholders in an Indonesian corporation. When it comes to decision-making, the shareholder has the final say and approval must be made for any changes to the company. These activities include, among others:
Shareholders will be in control of appointing, replacing, and dismissing directors whenever the corporation needs to do so. Any of these changes must be decided at the annual meeting of shareholders. The shareholder’s general meeting must meet the following standards to ensure the legitimacy of the changes:
Indonesian company shareholders cannot be held liable for any legal relationships entered into on behalf of a company, by the company, or by the directors. They also cannot be held liable for any of the company’s losses that exceed the value of the shares they own. This safeguards the personal interests and the bank accounts of the shareholders.
Also, the liability of shareholders is determined by the capital statement letter (even if funds have not been actually transferred) – as per the issued shares as stated in the Articles of Association (AoA).
Board of Commissioners in an Indonesian Company
Every PT PMA is required to have at least one commissioner. The company’s shareholders can serve as commissioners. However, shareholding is not required to be a member of the commissioner.
Responsibilities of commissioners
What are the Requirements of Commissioners in Indonesia
As previously stated, all PT PMAs must have at least one commissioner. If a company has numerous commissioners, one of them will be chosen to serve as president commissioner. The president commissioner acts as the board of commissioners’ head, as implied by the title.
A commissioner does not need to be an Indonesian resident or citizen. If the prospective non-resident commissioner is not currently serving as a resident commissioner in another Indonesian corporation, a commissioner who is neither a resident nor a citizen may be chosen.
If the commissioner in question is a foreigner with a valid work permit in Indonesia who is sponsored by a different company, the commissioner will be required to get a new work permit.
Board of Commissioners’ Liability in Indonesia
Article 108, paragraph (1) of the Company Law specifies the liabilities of members of the board of commissioners. If the company suffers financial losses, the commissioners who were directly responsible for such losses will be held liable if it can be proven that they performed their duties in a way that was careless, reckless, unethical, or contradictory to the firm’s articles of organisation.
When more than one director is found to be at fault, this culpability is to be shared equally and jointly by all commissioners involved. However, if there is sufficient evidence that the commissioners performed their supervisory duties in the best interests of the company and in accordance with the company’s business objectives, had no vested interests in the board of directors’ actions, and they advised the board of directors to avoid losses, the commissioners will not be held liable for the losses.
Commissioners and Suspensions of Directors in Indonesia
Commissioners in an Indonesian corporation, acting through the board of commissioners, have the right to temporarily suspend any member of the board of directors if it is deemed appropriate. Indonesian Law Number 40 of 2007 governs such suspensions.
The director will be duly suspended and is therefore forbidden from carrying out any directorial duties during the duration of the suspension once the board of commissioners has presented the reasons for the director’s suspension and informed the director to be suspended in writing.
A general meeting of shareholders (GMS) must be held within 30 days of the suspension beginning. During this GMS, the director who has been suspended may make a personal defence. The commissioners will decide whether to keep or lift the suspension after GMS.
Directors in an Indonesian Company
Directors are members of the board of directors in an Indonesian corporation. The board of directors is in charge of overseeing all aspects of the company’s management. The company’s directors in Indonesia must make all decisions in accordance with the firm’s articles of association and all applicable Indonesian company regulations.
The articles of incorporation also specify how long a director will hold the office. During a GMS, members of the board of directors will be chosen, replaced, or even terminated.
What are the Requirements of Directors in Indonesia
Every company in Indonesia is required to have at least one director. When a corporation has more than one director, one of them must be chosen to act as the firm’s president director. The president of the board of directors, as mentioned, is the board’s leader.
Using the procedures of popular corporate structures in Indonesia, the obligations and responsibilities of an Indonesian company’s directors need to be determined. In many cases, these decisions are taken during a GMS.
Responsibilities of Directors
A company’s legal representatives are the directors. They must behave in accordance with the articles of incorporation. A director of an Indonesian company is also responsible for a number of crucial tasks, namely:
General Restrictions for Foreign Director in Indonesia
Company Law article No. 40 of 2007 on Limited Liability Companies provides general regulations regarding members of the Board of Directors. Article 93(1) of the Company Law regulates the restrictions of members of the Board of Directors in Indonesia.
According to this article prospective members of the Board of Directors cannot become members of the Board of Directors in the event, 5 years prior to their appointment, they:
- were declared bankrupt;
- have been declared at fault in a previous position as member of the Board of Directors or Board of Commissioners, which resulted in the bankruptcy of such Indonesian Company;
- Committed a financial crime or financial sector related crime for which they have been charged as guilty.
Apart from these general restrictions, both for a local director and a foreign director have specific restrictions stipulated in other regulations. This is in line with article 93(2) Company Law, which state that specific regulations may stipulate additional requirements.
Specific Restrictions of Foreign Directors in Indonesia
Restrictions of foreign directors in Indonesia based on unfair business competition
Additional requirements, as mentioned in article 93(2) Company Law, can be found in article 26 of Law number 5 of 1999 on Prohibition of Monopolistic Practices and Unfair Business Competition. The article basically states that a person who holds a position in the Board of Directors or Board of Commissioners in one Indonesian Company is not allowed to hold a similar position in the other company, in case the mentioned company:
- is operating in Indonesia in the same relevant market,
- conduct business activities which have a strong bond in the business field and or business type; or
- is capable to control the market share of certain goods and or services, which could lead to monopolistic practices and or unfair business competition.
The guidelines form a detailed and comprehensive instruction how to interpret article 26. For each individual situation these guidelines should be consulted in order to determine whether or not there is a violation of article 26 Law number 5 of 1999 in case a director holds or has the intention to hold multiple director positions in different companies.
Violation of any of the article may lead to severe criminal and/or administrative sanctions based on article 47, 48 and 49 of the same law, which may lead to:
- fines up to Rp. 25,000,000,000.-; and/or
- revocation of business license; and/ or
- prohibition for a business actor who held multiple director positions to hold such position for a minimum period of 2 years and a maximum period of 5 years; and/ or
- an order to stop activities or actions resulting in losses to other parties.
Restrictions of Foreign Director in Indonesia in the Capital Market
Apart from the restrictions based on monopolistic practices and unfair business competition, other restrictions for a foreign director can be found in regulations related to director positions in the capital market.
Attachment, article 2(a.1) of the regulations of the Securities and Exchange Commission number III.A.3, III.B.3 and III.C.3, requires that every director of the Stock Exchanges, Clearing and Guarantee Institution and Depository and Settlement must be an Indonesian national.
Therefore, these director positions are not available for foreigners.
Restrictions of Foreign Director in Indonesia in personnel positions
The ministry of manpower regulation number 40 of 2012 on certain positions which are prohibited for foreign workers prohibits foreigners to hold the following director positions:
- Personnel Director; and
- Chief Executive Officer
No specific restrictions for foreign directors in Indonesia
In the event specific restrictions of legislation is not applicable to a foreign director, a foreign director is allowed to hold multiple director positions.
This is also reaffirmed by article 33(3) jo. 33(2) of ministry regulation number 12 of 2013 on Procedures For Use Of Foreign Labour, which states:
- (Article 2) Employers of foreign workers are prohibited from employing foreign workers who are employed by other employers of foreign workers.
- (Article 3) The provisions referred to in paragraph (2) are exempted for foreign workers who occupy the post of the Director, or the Commissioner based on the General Meeting of Shareholders.
The shareholders have the right to terminate a commissioner or a director in the company. To terminate a commissioner or a director in the company, the shareholders must issue a letter of termination, a statement letter, and host a hearing
The process of terminating a commissioner or a director in the company is a hassle. Is there any way I can avoid the termination process?
Yes, there is a way to avoid the termination hassle. In the company’s articles of association, the shareholders can limit the term of office (one to five years) of the commissioner or the director. Once the commissioner or the director hit the maximum term, the commissioner or the director must vacate the role. In this way, the company does not have to go through the termination process.
Who is responsible for reviewing and approving the annual financial statement of the company? Board of Directors or Board of Commissioners?
The Board of Commissioners is responsible to review and approve the annual financial statement of the company.
As long as the foreigner possesses a work permit in Indonesia, he/she can be a commissioner in a foreign-owned company. However, any company which is completely owned by Indonesians is not allowed to hire a foreigner as the company’s commissioner.