Indonesian Business Law: What to Know

Indonesia business law, home to 17,500 islands, is one of the world’s growing economies and is sometimes referred to as the world’s largest archipelago. It is also one of Southeast Asia’s greatest economies and is regarded as a young democratic country due to its political stability, which has been steadily maintained since emerging from decades of autocratic rule. This article will cover all information about Indonesia business law.

But the legal system in Indonesia is based on civil law and in civil law systems, codes and statutes are designed to cover all cases. There are various types of business entities in Indonesia, with a limited liability company, as known as a Perseroan Terbatas (PT).

Under a PT, the shareholder liability is limited to the extent of capital agreed to be contributed by the shareholders. The Indonesian Business Law divides the PT into 2 classes which are:

1. Local Company and PMDN Company
2. Perseroan Terbatas Penanaman Moda Asing (PT PMA)

What is a PT PMA in Indonesia?

Foreign investment in Indonesia is defined under Indonesian Law No. 25/2007 as an action carried out by a foreign investor to operate a business inside the country’s jurisdiction.

Hence, the PT PMA is a legal entity through which a foreign national, a foreign firm, or a foreign government agency can conduct business. Obviously, the formation of PT PMA is governed by the Company Law’s Law No. 40/2007 on Limited Liability Companies.

Meanwhile, this type of business might be held entirely or partially by foreigners. Ownership restrictions may apply in Indonesia due to certain industries being closed or partially closed to foreign investment.

Corporate Structure in Indonesia

As shareholders are considered the company’s owners, they hold the top position in the decision-making hierarchy through the General Meeting of Shareholders (GMS).

The Board of Commissioners is in charge of overseeing management policies and providing advice to the Board of Directors (BOD). According to Indonesian business law, the Board of Directors is primarily responsible for the firm’s management and operations.

Business Language

However, the official language of Indonesia is Bahasa Indonesia, which is utilised in both commerce and education. Even though English is extensively spoken in Indonesia, it is not generally spoken outside of the country’s major cities. Business owners and international staff, on the other hand, may want to consider taking Bahasa classes.

Business Incorporation and Set-up

Moreover, foreigners who want to incorporate a company in Indonesia must apply to the Indonesia Investment Coordinating Board for permission (BKPM). Foreign nationals can own PT PMA companies with at least two shareholders and IDR 10 billion in paid-up capital.

Also, the Indonesian LLC (Perseroan Terbatas) is the most prevalent type of business entity used by locals to do business in Indonesia.

Likewise, forms of business entities in Indonesia are:

• Civil partnership (Maatschap or Persekutuan Perdata),
• Firma partnership
• Representative office
• Permanent establishment
• Limited partnership (Comanditer Venootschap)

Filing Requirements for Business

Also, each financial year, companies in Indonesia must deliver their annual report to the General Meeting of Shareholders. Certain businesses, such as public firms and businesses with a turnover of more than IDR 50 billion, must have their financial statements audited by a public accountant.

Also, publicly listed companies must submit their financial reports to Indonesia’s financial services authority, Otoritas Jasa Keuangan (OJK).