Indonesia

4 Chapter Establishment

    • Type of legal entity

       

       There are 3 type of legal entity in Indonesia :

       

      1.       Limited Liability Company (PT)

       

      According to the Section 1 Article 1 of the Law Number 40 of 2007 (Company Law) concerning Limited Liability Companies, limited liability company, hereinafter called company, means any legal entity that forms a partnership of capital, established by an agreement, perform business activities with all of its authorized capital devided into shares, and fulfills the requirements as provided for in this Law and its ancillary regulations.

      According to the Section 2 Article 1 of the Company Law, organs of the company means a General Meeting of Shareholders, the Board of Directors, and the Board of Commisioners.

      A Company must have objectives and purposes as well as the line of business that are not in contravention of the laws and regulations, public order, and/or propriety. A shareholder of a Company shall not be personally liable for a binding agreement entered into in the name of the Company and shall not be liable for the Company’s losses extending beyond the value of shares he/she owns. The provisions underscore the characteristics of a Company that a shareholder is liable only up to the value of all of the shares he/she owns, not including his/her personal assets. Provisions shall not apply if :

      a. the required status of a company as legal entity has not yet been or is not achieved.

      b. the relevant shareholder, either directly or indirectly, appropriates in bad faith the Company for his/her personal benefit;

      c. the relevant shareholder is complicit in an unlawful act committed by the Company; or

       

      d. the relevant shareholder, either directly or indirectly, unlawfully capitalizes on the Company’s assets, resulting in the Company’s assets being rendered insufficient to pay off the debts of the Company.

       

      The Company Law, the articles of association of the Company, and other laws and regulations shall apply to Companies.

       

      ·         Foreign Direct Investment (PMA)

       

      All direct foreign investment in ownership interests (share capital or otherwise) in a business operating within the territory of the Unitary State of the Republic of Indonesia must be conducted exclusively through an Indonesian limited liability company (Perseroan Terbatas - PT). A PT is a company with ownership represented through shares in the capital stock of the PT, with a minimum of two shareholders who are protected by a corporate veil through a shareholders agreement called a "Deed of Establishment" which contains the PT's statutory rules called "Articles of Association" or "AOA".

           Foreigners desiring to participate as a shareholder in a PT must submit a full set of documents in support of an application for a permit to invest which is granted through the Indonesian agency known as the Indonesian Capital Investment Coordinating Board (Badan Koordinasi Penanaman Modal - BKPM). The application, called Form Model IA, is basically a short business plan stipulating ownership interests, financial and sales projections, labor utilization, among other information.

           An Indonesian limited liability company with foreign equity participation formed through BKPM is known as a "PT PMA". PMA stands for "Penanaman Modal Asing" (foreign capital investment). Thus, a PT PMA is an Indonesian limited liability company formed within the regulatory framework governing foreign capital investments.

       

       

      ·         State Owned Entities

       

      According to the Article 1 of the Law Number 19 of 2003 (State Owned Entities Law), State Owned Entity (BUMN) means an entity, the capital of which is in part or in whole owned by the state through direct participation that is derived from the state’s separated assets.

      The objectives and purposes of establishment of a State-Owned Entity (BUMN) shall be to :

      a.        Make a contributions to national economic development in general and state revenues in particular;

      b.       Make a profit;

      c.        Establish public benefit through supply of high quality and affordable goods and/or services for the life of many people;

      d.       Become the pioneer of business activities that can not be performed by private sector and cooperatives.

       

      Activities of a State Owned Entities (BUMN) must be consistent with its objectives and purposes and shall not be against the laws and regulation, public order, and/or propriety. The Law Number 19 of 2003 concerning State Owned Entities, the articels of association, and other laws and regulations shall apply to State Owned Entities (BUMN). The capital of a State-Owned Entity (BUMN) constitutes and is derived from the state’s separated assets.

       

      2.       Representative Office

       

      Representative office means a representative office that established by foreigners with a purpose to maintain the interest of the company in Indonesia an/or other country and/or prepare the establishment and development of the company foreign direct investment. The application to get the permit for foreign direct investment and foreign citizens that work fot the company, shall submitted to the head of Indonesian Capital Investment Coordinating Board ( Badan Koordinasi Pasar Modal “BKPM”). It is not allowed to earn revenue in Indonesia but it can hire people and doesn't need to comply with capital and foreign ownership regulations.

      There are 3 types of representative office in Indonesia :

       

      a.        Foreign Representative Office

      Foreign Representative Office shall be led by one or more Indonesian or Foreign Citizen that considered being Representative Office Executives. The appointment of Representative Office Executives shall be based on the letter of appointment from the foreign company or groups of foreign companies.

       

      The activities of Foreign Representative Offices are limited to:

      a.        its role as supervisor, connector, coordinator, and to manage the interest of the company or affiliated companies in Indonesia and/or overseas;

      b.       will not looking for earnings from Indonesian Resources, that includes for not conducting activity or made a contract/sale and purchase of goods or services with domestic companies or personal;

      c.        will not participate in any other forms of the management of a company, subsidiary company or branch company that located in Indonesia.

       

      b.       Foreign Trade Representative Office

      Based on the Regulation of Minister of Trade No. 10/M-DAG/PER/3/2006 concerning Terms and Procedures of Issuance of Trade Representative Business License, the opening of Trade representative office may be in the form of Selling Agent and/or Manufactures Agent and /or Buying Agent.

       

      The Trade Representative Office is permitted to :

      1.       introduce, promote and improve the marketing of products that manufactured overseas by Foreign Company or Groups of Foreign Companies;

      2.       provide information or instruction regarding the usage and import of such products to the company or user; (In this regards, the Trade Representative Office shall appoint national company as an agent for the products that promoted, and the appointment shall be based on the approval from the Foreign Company or Groups of Companies);

      3.       conduct market search and supervise the sales of product in relation to the promotion of the products in Indonesia;

      4.       conduct market research in relation to supplying of products from Indonesia as required by the principal company;

      5.       liaise and provide information and guidelines to any prospective Indonesian counterpart on the requirements for the exportation of products;

      6.       conclude contracts with an Indonesian entity or business counterparts on behalf of the principal company in relations to exportation.

       

      Trade Representative Office is prohibited to conduct trade and sales transactions, in the initial phase up until the completion phase, such as conducting tender application, signing contract, conducting claims and others.

       

       

      c.        Foreign Construction Service Representative Office

      Based on the Minister of Public Works Regulation No. 28/PRT/M/2006 concerning license of Foreign Construction Service Representative Office, construction service is defined as consultation service in the construction working plan, service of the implementation of construction works, consultation service of supervising of the construction work.

       

      Foreign Construction Company shall obtain the License of Foreign Construction Representative Office (hereinafter referred as ‘License’), in order to implement its activities in Indonesia. The License considered to be has the same status as business license of the National Construction Service Company, and considered to be valid for 3 (three) years and can be renewed. Furthermore, the license may be obtained after the Foreign Construction Representative Office had obtained participation (penyertaan), competence, classification, qualification that stated in the form of certificate from the Institution of Construction Service Development (Lembaga Pengembangan Jasa Konstruksi).