A business entity is an organization created by one or more natural persons to carry on a trade or business. Business entities are subject to taxation and must file a tax return. Some business entities are considered for federal tax purposes to be not separate from their owners. In this article, you will be provided with the types of business entities that you can incorporate in Indonesia.
Perseroan Terbatas (PT)
Perseroan Terbatas (PT) is also known as a Limited Liability Company in Bahasa Indonesia. Hence, a PT is a legal entity to run a business that consists of capital shares, which is a part owner of shares owned. However, this is the case as every company’s capital consists of shares that can be traded in the market and the changes in the company can be done without the need to dissolve or strike off a company.
There are two different types of PT companies in Indonesia, i.e.:
- Local PT Company; and
- Foreign Owned PT PMA Company
Persero
A public company is also known as PT Aset Manajemen Company (PERSERO) in Bahasa Indonesia. It was established on 27th February 2004 through Government Regulation No. 10 of the Year 2004. A PERSERO company in Indonesia is a company that carries out the main task of managing the assets of the former Indonesian Bank Restructuring Agency (“IBRA”), both credit assets, shares and property.
However, the main objectives of establishing a PERSEROCompany are to seek profit and to provide services to the public. The start-up capital comes in part or in whole from the separated state assets in the form of shares. The company will be headed by the board of directors while the employee is categorized as a private employee from the PERSERO Company.
The examples of companies that are included as PERSERO are PT Bank Mandiri (Persero) Tbk and PT Bank Rakyat Indonesia (Persero) Tbk.
Public Company (PERUM)
A public company (PERUM) is a type of State-Owned Enterprise in Indonesia whose capital is still owned by the government but has a similar nature as a service company (partnership) and the rest is a PERSERO company.
A PERUM Company consists of the following features:
- it will be considered as a legal entity even if it was registered for non-profit reasons;
- its capital is entirely owned by the Indonesian state and will fall under the Civil Code;
- it is mostly used for socio-economic purposes, compared to the PERSERO company;
- the employees of such entity will be considered employees of the Indonesian state.
The State Agency Company (PERJAN)
The state agency company also known as PERJAN in Indonesia is a state-owned company. Unlike A PERUM, a PERJAN Company is set up with the main purpose of serving the interests of the community by paying attention to its efficiency, effectiveness, and economics and satisfying service. The amount of capital of the service company is determined through Indonesia’s State Budget. A PERJAN company is a State-Owned Enterprises (SOE) of Indonesia whose entire capital is included in the state budget which is the right of the department concerned.
Private-Owned Enterprises (BUMS)
A Private-Owned Enterprises are also known as Badan Usaha Milik Swasta (BUMS) in Bahasa Indonesia. As a result in Article 33 of the 1945 Constitution, this business entity is usually given to manage economic resources that are not strategic and vital or that do not control the sustenance of the citizens in Indonesia. In Indonesia, Private-Owned Enterprises can be differentiated into 3 different types. They are:
Firma (FA);
A FA business entity in Indonesia must be established by two or more people and also the advantages of setting up an FA in Indonesia are as follows:
- Clear legal status
- Greater financial capability
- Easier to establish
- Division of labour would be among the members by their skills and expertise
Commanditaire Vennootschap (CV); and
A CV is a limited liability partnership in Indonesia therefore the procedures for forming a CV company is the same as setting up a firm in Indonesia. The benefits of setting up a CV are as follows:
- Management can be verified
- Ability to get more credit
- Easier to establish
- Able to amass a larger amount of capital
Limited Company (PT).
As mentioned in point 1 above, a Perseroan Terbatas (PT) is also known as a Limited Liability Company in Bahasa Indonesia. Moreover, a PT is a legal entity to run a business that consists of capital shares, which is a part owner of shares owned. The advantages of forming a PT company in Indonesia are as such:
- Shares can be traded easily
- Limitation liability for the company’s debt
- Can attract capital from the public easily
- The company’s survival is guaranteed
FAQs
PT is the abbreviation for Perseroan Terbatas, and it means Limited Liability Company. Therefore, all company names in Indonesia must be preceded by “PT” once they are approved. This official name that starts with PT will be used in all permits, licenses and transactions owned by the company.
An LLC is a legal entity only and must choose to pay tax either as an S Corp, C Corp, Partnership, or Sole Proprietorship. Therefore, for tax purposes, an LLC can be an S Corp, so there is really no difference.
Yes, you can. You will need a local nominee director for your foreign local company incorporation.
The Negative Investment List was replaced by the Positive Investment List in 2021. The list details the restricted sectors that the government prohibits investors and entrepreneurs to invest in.
As of 4 March 2021, the Positive Investment List was introduced to significantly reduce the number of restricted sectors that prevents foreigners to enter from 350 to 46.
Articles of association form a document that specifies the regulations for a company’s operations and defines the company’s purpose. The document lays out how tasks are to be accomplished within the organization, including the process for appointing directors and the handling of financial records.
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