Sole Proprietorship in Indonesia: Pros, Cons & Steps to Setup

6 min read|Last Updated: December 28, 2022|

Sole proprietorship is a type of company in which one person incorporates and runs the business personally and there is no legal distinction between owner and business entity. In Indonesia, a Usaha Dagang (UD) is equivalent to a sole proprietorship; it is the simplest form of company in Indonesia.

Incorporating a sole proprietorship in Indonesia has its advantages and risks, which must be carefully considered before registering your company.

What is Usaha Dagang (UD) in Indonesia?

A company is considered a foreign company if there is a foreign investor or shareholder in the company. Such companies must get approval from the board coordinating capital investment before engaging in Indonesia’s business activity.

The amount of capital invested in a particular business will define the business company’s size and the eligibility to sponsor foreign employees’ work permits. Indonesia allows total foreign ownership in industries that are not categorised under the Positive Investment List.

If you are a foreign business owner who wants to register your company for full ownership, you have the following options:

What are the Advantages of Owning a Sole Proprietorship?

There are many advantages to owning a sole proprietorship in Indonesia. Some advantages are:

  • Control of the company

    The main advantage in owning a sole proprietorship is that the owner of the company has complete control. The owner does not have to pay any unnecessary loss or penalty. The owner is also fully responsible for the success or failure of the sole proprietorship.

  • All profits received by the owner

    This is the most important advantage in owning a sole proprietorship. The owner of the sole proprietorship will receive all profits earned does not have to pay anything from this profit to anyone.

  • Low starting cost

    Those who start a sole proprietorship in Indonesia will find that the starting cost is very low. There is also no need to pay any extra costs for registration or any other fixed costs.

  • Privacy

    A sole proprietorship has a level of privacy unrivalled by any other type of business. Information which the owner does not want to be shared with anyone else can be kept confidential. All profit and loss information can also be kept secret.

  • Ease of winding up

    Those whose sole proprietorships are making losses instead of profits may want to close down the business. Such people can easily wind up the business without any restrictions.

  • Knowledge of all business circumstances

    People who own their own sole proprietorship will know all the possible circumstances their business might face.

What are the Risks of Owning a Sole Proprietorship in Indonesia?

There is always a risk to every business venture. Everyone who runs a business must understand the risks involved and strike a balance between risks and profit ratios. The following are risk factors which are involved in owning a sole proprietorship:

  • Personal liability

    The owner is personally liable for the company’s losses.

  • No safety nets

    The owner does not have any safety net to protect the business and firm because the owner often does not have any idea about the risks that may arise in the future.

  • No health insurance

    UDs are often not equipped with health insurance.

  • Loss of investments

    UD owners are at risk of losing their investments because they own the business by themselves. Therefore, they face such losses in certain circumstances.

  • Injury liability

    There is a high risk of injury liability because if the owner gets injured, there is a possibility that no one could be around to operate the business.

  • Lost opportunities

    Owning any business, including a sole proprietorship, takes up much of the owner’s time and effort. Therefore, the business owner will have to lose out on other opportunities which the owner could otherwise have accepted.

What Documents are required to Set up a Sole Proprietorship in Indonesia?

Documents are the most important objects for verification and for the incorporation of an Indonesian company such as sole proprietorship. These are the following documents which are necessary to set up UD:

  • Name: The name must be identified. One must register with that name to make the name the brand of the company.
  • Employer Identification Number: Sole proprietorship owners have to register for an Employer Identification Number.
  • Trademark: Trademarks are very important in setting up a sole proprietorship in Indonesia. By choosing an appropriate name and getting a trademark to keep the business secure and safe, other competitors will not be able to use the proposed name after the business has been registered. Trademarking also keeps a business owner safe from competitors if the business name becomes a brand.

  • Business Licenses: Those who are starting a new business must have a license for that business. The license allows a business owner to become responsible for the business’s product or services which the owner provides as a sole proprietor

What Steps Should Be Taken After the Sole Proprietorship Has Been Set up?

There are some steps that could be taken after setting up the new sole proprietorship in Indonesia. Every business has some plans before it begins operations. After the business has been started, the plans can be executed. After a sole proprietorship begins operations, the following steps must be taken:

1. Identifying the Target Audience

Before starting a sole proprietorship, the owner must identify which demographic is going to be targeted. The target audience and their needs will inform the marketing of the business’s products.

2. Reaching the Audience

After targeting the audience, the next step is how to reach the targeted audience. A decision about by which the audience is to be reached must be made.

3. Identifying the Problem

After reaching the audience, the sole proprietorship owner or sole proprietor must identify the problem to which the target audience would like a solution.

4. Confirming Product Validity

The product must be valid and authentic so that it will be useful for the target audience during the relevant time period.

5. Holding a Free Trial/Demonstration

The owner must hold a free trial or demonstration to the users of the product to help them know more the features and properties of the product.

6. Creating a brand slogan

The brand slogan must be created and advertised in such a way that users will remember it.

7. Offering Incentives

The owner must give incentives to the product users during the starting time period.

8. Testing and Updating the Product

This step is necessary in order to increase the performance of the product, and thus the company’s profitability, to its maximum level.


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Who gets the profit from a sole proprietorship?2021-10-29T11:15:55+08:00

A sole proprietorship is an unincorporated business with only one owner who pays personal income tax on profits earned. 

What are 3 disadvantages of a sole proprietorship?2021-10-29T11:15:22+08:00

No liability protection, unlimited liabilities and lack of financial control and difficulty tracking expenses. 

What are examples of sole proprietorship?2021-10-29T11:14:43+08:00

Examples of sole proprietors include small businesses such as, a local grocery store, a local clothes store, an artist, freelance writer, IT consultant, freelance graphic designer, etc. 

Who qualifies as a sole proprietor?2021-10-29T11:14:02+08:00

A sole proprietor is someone who owns an unincorporated business by himself or herself. However, if you are the sole member of a domestic limited liability company (LLC), you are not a sole proprietor if you elect to treat the LLC as a corporation. 

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