Indonesian Business Law: What to Know

Indonesia, home to 17,500 islands, is one of the world’s growing economies and 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.

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:

A foreign investment in Indonesia is defined under Indonesian Law No. 25/2007 as an action carried out by a foreign investor with the goal of operating a business inside the country’s jurisdiction.

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

This type of business might be held entirely or partially by foreigners. Due to the fact that certain industries in Indonesia are totally or partially closed to foreign investment, ownership restrictions may apply depending on the business.

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.

The official language of Indonesia is Bahasa Indonesia, which is utilised in both commerce and education. Despite the fact that 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.

Foreigners who want to incorporate a company in Indonesia must apply to the Indonesia Investment Coordinating Board for permission (BKPM). Foreign nationals can own wholly owned corporations, such as a PT PMA company, which requires at least two shareholders and IDR 10 billion in paid-up capital.

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

Other forms on business entities in Indonesia are:

After the completion of each financial year, every company in Indonesia is required to deliver its annual report to its General Meeting of Shareholders (GMS). 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, public listed companies must submit their financial reports to Indonesia’s financial services authority, Otoritas Jasa Keuangan (OJK).