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The Importance of Resident Directors in Indonesia

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The Importance of Resident Directors in Indonesia

2020-07-10T16:04:46+08:00November 15th, 2019|0 Comments

All companies based in Indonesia, whether they be owned by locals, foreigners, or a combination of both, can attest to the importance of the resident director. No company in Indonesia may conduct any business operations if it does not have anyone serving as a resident director.

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Importance of Resident Directors

Indonesian company laws stipulate the statutory requirements for forming and running a company within the country. These laws specify that the management of any company in Indonesia must include at least one director, one commissioner, and two shareholders. Both foreign and local companies alike must fill those positions before the company may be considered to be legitimate. Directors are tasked with overseeing the daily operations of the company. In an Indonesian company with some level of foreign involvement, the role of the director is unique because such a company is required to have at least one resident director. In this regard, foreign involvement may include any form of direct action which can be or has been influenced by foreigners. Such involvement may be in the form of foreign ownership or involvement in the company’s board of directors.

 

Resident Directors in Indonesia

According to the Indonesian company laws, all limited liability companies in the country must appoint at least one resident director on their board of directors. The term implies that the person who takes up the role of resident director must be a resident of Indonesia. Resident directors are not considered to be employees of the company because their appointment and removal from office is determined and controlled by the shareholders of the company. A resident director may be a signatory to the company’s bank account. Resident directors’ liabilities may either be limited or unlimited depending on the type of company in question.

Resident directors are important people in a company’s managerial hierarchy. Their role is below those of the members of the company’s board of commissioners as well as the company’s shareholders. They are responsible for reporting the company’s overall performance to the shareholders. They must also ensuring that all strategic objectives approved by shareholders are fulfilled. The board of commissioners also plays an important role with regard to resident directors in Indonesia. Although every company in Indonesia is not required to have a board of commissioners, the board of commissioners plays an important role in company management because the commissioners perform an advisory role in relation to the activities carried out by the resident directors.

Therefore, it is evident that an Indonesian company cannot overlook the importance of a resident director in its operations. This is especially true for foreign companies who plan to start business operations in Indonesia because although Indonesian company laws allow every member of a company’s board of directors to be of foreign origin, one of these members is required to be a resident director.

As an aside, should you be interested in starting a company of your own in Indonesia, we at Paul Hype Page & Co will be able to be of assistance. We have been known to have helped many a prospective company owner begin their own business venture in Indonesia. Our incorporation services are held in high esteem by all who have used them.

Thinking of incorporating in Indonesia? Let’s get started. 
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Requirements for Becoming a Resident Director in Indonesia

A resident director can be any staff member of the board of directors of an Indonesian company as long as the resident director fulfills the conditions stipulated by Indonesian company laws. For foreign companies which have a board of directors completely staffed by foreigners, a nominee director must be selected to fill the position of resident director. This nominee may be chosen from the already existing board or chosen from outside the company. However, such resident directors are only partially, rather than completely, involved in the management of the company. Nevertheless, they must propagate the interests of the company instead of their own.

Incidentally, one of the services which we at Paul Hype Page & Co provide is that of supplying companies with nominee directors. If you choose to use our services to solve this issue, you will no longer have to spend time searching for a person to be hired as your company’s nominee director. This is because you can be assured that the person whom we will select will be one who is competent, efficient, and suitable for the position.

A resident director can be an Indonesian citizen, a foreign citizen who is an Indonesian resident, or a permanent resident expatriate who is based in Indonesia. For an Indonesian citizen to become a resident director, the citizen must possess a valid Indonesian national ID along with a tax ID (NPWP). Foreign companies that cannot fulfill the requirements for the resident directors must instead use a local resident director. A resident director who is a foreign director must possess a valid work permit and proof of permanent residency, which states that the foreign director is required to pay income tax to the Indonesian government. A foreigner is considered a permanent resident after residing in Indonesia legitimately for a period of at least than 183 continuous days.

 

Why Indonesian Companies Need Resident Directors

Resident directors are not only needed by companies as part of regulatory requirements; companies need them to perform certain duties as well. Whether the resident director is a nominee or an actual director, the resident director has a very important role to play.

Resident directors are involved in the day-to-day management of the company. They lead the employees towards the achievement of strategic goals and objectives. A resident director can also be a signatory to the company’s corporate accounts depending on the terms determined by shareholders.

Resident directors also serve as the company’s representatives. They represent the views and positions held by shareholders in the company. As such, they are eligible to sign contracts and agreements on behalf of the company. Without a functional board of directors, a company will not be able to interact with third parties such as suppliers, partners, creditors, and debtors. Resident directors can also take out loans and mortgage company assets in order to raise capital for the company.

Foreign companies conducting business operations in Indonesia may use the services of a qualified resident director to expedite the receiving of employment visas for new employees. Having a resident director partially proves the compliance of a company to Indonesian company law requirements.

 

How One Becomes a Resident Director

A person can become the resident director of an Indonesian company at any point after the incorporation of the company according to Indonesian company laws. However, all criteria specified by the laws must be fulfilled by the person who is to be selected for this important position. As has been mentioned, a resident director can be chosen from the board of directors of a foreign company. Local limited liability companies with local ownership have all their directors as residents by default because they reside in Indonesia. Therefore, a local may apply to be the resident director of a foreign company. The company’s shareholders will decide upon the terms and conditions that must be fulfilled by applicants for such a position.

Alternatively, one could become a resident director through recommendation. In Indonesia, there are many consultancy firms that select personnel at the request of firms which need them. Therefore, an organization may apply to select a resident director as recommended by a consultancy firm. Such directors are usually hired through a contract. They are usually professionals of various skill levels. However, a disadvantage of having such directors is that the terms of employment are dictated by the consultancy firm. Therefore, the shareholders might not have complete control over the actions of the resident director. Consequently, resident directors acquired on such a basis might not act with any interest in the company’s corporate objectives and goals.

 

Conclusion

Resident directors play a crucial role in the running of any company in Indonesia. On the surface, their roles may appear to be more regulatory than operational. For this reason, most resident directors tend to take on passive rather than active roles. Nevertheless, all limited liability companies in Indonesia must have at least one resident director as a member of their board of directors. This matter is especially important for foreign-owned companies which are seeking to establish a greater corporate presence in Indonesia. For such companies, having a resident director is not only important to meet regulations; doing so also proves the company’s commitment to the Indonesian economy. The standards placed on resident directors by the Indonesian government indicate the level of supervision which the government also places on foreign companies.

The Importance of Resident Directors in Indonesia FAQs

Can a company have mroe than one resident director?2020-04-02T15:48:32+08:00

Indonesia’s company laws specify that all companies in the country are to have at least one resident director. However, these laws do not mention a maximum number of resident directors which a company may have. Therefore, it can be concluded that a company in Indonesia may have as many resident directors as desired or needed.

Can an Indonesian Company operate without a resident director?2020-04-02T15:48:03+08:00

Resident directors are crucial to the operation of any company in Indonesia. According to Indonesia’s current company laws, every company in the country is required to have a minimum of one resident director. Thus, an Indonesian company may not be operational if it does not have a resident director.

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