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Partnership Agreements in Indonesia

5 min read|Last Updated: August 29, 2022|
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Before you incorporate 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, 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. 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, a partnership agreement should be drafted as a legal document that binds two or more partners in a business. The agreement establishes a certain set of regulations that must be written down. While establishing an agreement, there are certain information that should be included in them. They 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:

  • How each meeting will be held

  • Identities of attendees and voters

An Indonesian company’s partnership agreement must specify each partner’s capital contribution, ownership proportion, profit to be claimed, 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 such partners should be treated and when they should be removed from the partnership.

Why are Partnership Agreements needed?

During the early stages of a partnership, a certain measure of trust is required. Most new business owners who are partners have faith in one another and believe that the company will function smoothly until it is updated, disbanded by choice, or sold for a significant profit.

1. Conflict of interest

Certain circumstances may result in arguments that are difficult to resolve among the owners or partners. Differences in expectations or conflicts of interest may intensify such a situation. Partnership agreements, on the other hand, go a long way toward preventing such circumstances.

2. Avoid infringing country’s regulations

Indonesian company law expressly states that before a partnership can begin operating in the country, the partners must first come to an agreement 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 future 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 have a negative impact on the cooperation.  

As a result, if a business does not have a formal agreement in place to resolve such issues, the owners may be forced to dissolve the business against their will. 

4. Protects all partners

A formal partnership agreement will also include protections to safeguard all of the partnership’s partners. 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 since they are used to build stronger and more stable alliances. In the day-to-day operations and management of their relationships, Indonesian partners employ partnership agreements.

Partnership agreements are frequently used by Indonesian partners to resolve conflicts. Profit sharing, firm ownership, and dissolution are common issues for such disagreements; nevertheless, partnership agreements ensure that such disagreements are never too severe and are always resolved in a proper manner.

They also assist Indonesian partners with new partner entry and admission. When there is a need to add more partners to the partnership, determining how new partners will be admitted simplifies the process.

How Are Partnership Agreements Set Up in Indonesia?

Partners come together to develop partnership arrangements. Partners who have decided to form 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 are expected to put their conditions of agreement in writing. The partnership’s name, conflict resolution methods, owner shares, ownership transfer details, and other crucial data are all included in the conditions.

Partnership agreements are typically drafted by a partnership’s owners to allow for shared decision-making in a variety of situations that could obstruct the partnership’s corporate growth. Legal assistance should be sought by partners who are confused about what should be included in a contract.

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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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