Partnership Agreements in Indonesia

Before you register a company in Indonesia, understanding the type of business entities is important to set a solid foundation. Partnerships, although not as common as local PT or PT PMA companies (foreign-owned), is a type of business structure that one can consider.

What is Partnership Agreement?

A partnership agreement allows partners to agree on critical matters like dispute resolution in advance. This is important because, in any partnership, there will be disagreements. They frequently arise as a result of competing interests or beliefs about the company. As a result, it is critical that the partnership spell out what to do in the event of a disagreement.

When choosing to go for a partnership in Indonesia, partners should draft a partnership agreement as a legal document binding them in a business. The agreement establishes a specific set of regulations that must be documented and are drafted between 2 or more partners. While establishing a partnership agreement in Indonesia, partners should include certain information in it. These include:

  • Name of the partnership
  • Personal information of the partners
  • Responsibilities of each partner are among them, including the managerial roles

Meeting information must be given as well, which details:

  1. How each meeting will be held
  2. Identities of attendees and voters

An Indonesian company’s partnership agreement must specify each partner’s capital contribution, ownership proportion, share of profits, and method for resolving any disputes.

It may be more advantageous for a partnership to continue operating without one or more of its current members in certain circumstances. Although all partners create a company with the greatest of intentions, it is sometimes the case that some partners, whether purposefully or unwittingly, impair the firm’s development and prosperity.

A partnership agreement should specify how to treat such partners and when to remove them from the partnership.

Why are Partnership Agreements needed in Indonesia?

During the early stages of a partnership, partners require a certain measure of trust. Most new business owners trust one another and believe that they will smoothly operate the company until they update it, choose to disband it, or sell it for a significant profit.

1. Conflict of interest

Certain circumstances may result in arguments that are difficult to resolve among the owners or partners. Not only that, differences in expectations or conflicts of interest may intensify such a situation. With partnership agreements, such circumstances can be effectively prevented and mitigated.

2. Avoid infringing the country’s regulations

Indonesian company law states that before a partnership can begin operating in the country, the partners must first agree to describe the partnership’s operational methods and assist it in problem-solving.

Partnership agreements in Indonesia also allow the government to guarantee that the corporation is engaging in activities that are both lawful and consistent with its commercial objectives in Indonesia.

3. Detailed plan

Another reason partnerships require partnership agreements is that they contain provisions that address what happens if one of the owners dies, becomes disabled, or declares bankruptcy. Any of these occurrences will negatively impact the cooperation.

Therefore, if a business lacks a formal agreement to resolve such issues, the owners may need to dissolve it against their will.

4. Protects all partners

A formal partnership agreement will also include protections to safeguard all of the partnership’s partners. This is because minority and majority partners often have different interests. However, regardless of these disparities, the agreement should make no distinctions in this area and safeguard all of the partners’ interests equally.

As a result of these provisions, all partners receive the same buyout offers.

How does Indonesian Partnerships Use Partnership Agreements?

In Indonesia, partnership agreements are critical in building stronger and more stable alliances. Hence, in the day-to-day operations and management of their relationships, Indonesian partners employ partnership agreements.

Indonesian partners frequently use partnership agreements to resolve conflicts. Issues such as profit sharing, firm ownership, and company dissolution often cause disagreements. However, partnership agreements ensure that such conflicts are managed appropriately and resolved effectively.

Additionally, they also assist Indonesian partners with new partner entry and admission. This is because determining how to admit new partners simplifies the process when there is a need to in the future.

How Are Partnership Agreements Set Up in Indonesia?

Partners come together to develop partnership arrangements. Knowing that partners forming a partnership must agree on how the company will be handled and operated.

When drafting a partnership agreement, it’s important to stick to the rules. Partners should put their conditions of agreement in writing. These include the partnership’s name, conflict resolution methods, owner shares, ownership transfer details, and other crucial data.

Partnership owners typically draft partnership agreements to enable shared decision-making in various situations that could hinder the corporate growth of the partnership. Partners who are unsure about what to include in the contract should seek legal assistance.

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FAQs

What is the compulsory agreement for partnership?2021-11-22T11:23:03+08:00

A Partnership agreement must clearly specify the name of the partnership firm, the names of the partners, the capital to be contributed by each partner, the profit or loss sharing ratio between partners, the business of the partnership, the duties, rights, powers and obligations of each partner and other relevant documents. 

Are partnership agreements difficult to change?2020-04-02T15:30:52+08:00

Partnership agreements are often too rigid to be changed. Due to the fact that such agreements are in written form, the agreement will prevent the company from making immediate changes. This is one negative regarding partnership agreements. Nevertheless, all partners within the partnership are expected to adhere to the rigid guidelines as outlined within the agreement.

Is an agreement necessary for every partnership in Indonesia?2020-04-02T15:30:19+08:00

Partnership agreements highly recommended to be used by every partnership in Indonesia. Furthermore, the Articles of Association of most partnerships state that a clear agreement form be filled and attached during the process of registration. All Indonesian partnerships are expected to draft an agreement that will guide the operations of the partnership which also aids in the resolution of disputes.

How can partnership agreements be rescinded?2020-04-02T15:29:18+08:00

Partnership agreements can be rescinded either through a court order or the partners’ joint decision. The rescinding of a partnership agreement will lead to the dissolution of the partnership. This turn of events may take place when the partnership has completed all of its business objectives, when the partnership is no longer able to carry out its purposes, or when it has committed a violation of Indonesian laws.

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