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Companies in Indonesia, including foreign-owned ones, must follow a corporate structure. This article will give you an overview of the corporate structure in Indonesia. We will explain the different roles within the corporate structure. We will also shed light on some notable regulations in relation to corporate governance.
The corporate structure in Indonesia applies to all limited liability companies.
Indonesia allows foreign investment in most industries. Watch the video below to learn more about foreign-owned company (PT PMA) registration in Indonesia.
As stated in Indonesia’s Company Law, the corporate structure of a limited liability company consists of the following:
- Board of Commissioners
- Board of Directors
Shareholders own the company. Meanwhile, commissioners and directors oversee different areas of the business. We will discuss these roles in further detail below.
Shareholders own the company. As such, they hold the highest position when it comes to decision making. A shareholder is an entity that holds an equity stake in the company.
Who can be a shareholder in Indonesia?
Any of the following can be a shareholder in a company in Indonesia:
- An individual;
- A company;
- A foundation
Previous regulations required companies in Indonesia to have at least two shareholders. However, with the Omnibus Law, it is now possible to have one shareholder for a small company.
Liability of Shareholders in Indonesia
Shareholders are not personally liable for any of the company’s legal relationships. Shareholders are also not liable for the company’s losses that exceed the value of the shares they own.
Rights and Obligations of Shareholders in Indonesia
Different shares grant different rights to the company’s shareholders. The company’s articles of association must define the classification of shares. IT must also state the rights that correspond to each classification. Some examples of classifications of shares include:
- Shares with or without voting rights;
- Shares with rights to propose directors or commissioners;
- Shares with rights to receive more dividends
Shareholders also have other rights as stated in the Indonesia Company Law (40/2007). Rights stated in this law are not transferable to the directors nor commissioners.
General Meeting of Shareholders
In most cases, any changes in the company must receive approval from its shareholders. Such changes include:
- Increasing of decreasing the paid-up capital of the company;
- Increasing or decreasing the authorized capital;
- Changing business activities;
- Changing the business location;
- The incorporation period for the company;
- Transferring shares;
- Changing the company’s status from private to public, and vice versa;
- Appointing and removing directors and commissioners
Shareholders decide on these changes during the general meeting of shareholders. The general meeting of shareholders must meet requirements for changes to be valid. The requirements are as follows:
- At least half of the shareholders with voting rights must be present. A representative with a valid power of attorney can attend on behalf of a shareholder;
- If not enough shareholders are able to attend, shareholders can hold another meeting. Only one-third of voting shareholders/representatives need to be present at this meeting. Note that the second meeting must happen between 10 to 21 days from the previous meeting.
PT PMAs in Indonesia must have at least one commissioner. The commissioner can own shares in the company. Shareholding, however, is not a requirement to be a commissioner.
Obligations of a Commissioner
The commissioner or board of commissioners’ task is to supervise the company. However, their actions must always be in accordance with the articles of association. The board of commissioners also supervises and gives advice to the board of directors. Commissioners are not part of the day-to-day management of the company.
If a company has more than one commissioner, one of them will have to be the president commissioner. The president commissioner is in charge of the board of commissioners.
Updated regulations on choosing your commissioners
Foreigners can be commissioners in a foreign-owned company in Indonesia. Note that foreign commissioners are subject to regulations on foreign workers. Foreigners must get work permits in Indonesia if they will be commissioners in a company.
On the other hand, Indonesian-owned companies cannot have foreign commissioners.
Like commissioners, all companies in Indonesia must have at least one director. Shareholders are in charge of appointing, replacing, and dismissing directors. If a company has two or more directors, one of them must take on the role of president director. The president director is in charge of the board of directors.
Rights of Company Directors
Directors are not considered as employees of the company. As such, employment laws do not apply to directors. The company’s shareholders decide on the director’s salary and benefits.
Obligations of a Company Director in Indonesia
Directors are in charge of managing the company. Specific tasks are in accordance with the Indonesian Company Law. The company’s articles of association may also specify directors’ tasks. The shareholders also decide how directors will share these responsibilities.
Directors also act as the company’s legal representative, per the articles of association. Their responsibilities as the legal representative include:
- Signing contracts between the company and third parties like vendors, suppliers, and clients;
- Submitting financial statements and yearly reports;
- Maintaining the shareholders’ list and minutes of general shareholder meetings;
- Preparing an annual work plan before the start of the upcoming fiscal year;
- Maintaining compliance with tax regulations and employment laws
Directors are also responsible for any losses suffered by the shareholders and the company.
Note that a non-resident director cannot sign documents on behalf of the company. As such, a foreign director must process their work and stay permits immediately after their appointment.
We detailed the difference between these two roles below.
Board of Directors
- General management of the company ensuring that actions are in the best interest of the company
- Official representation of the companyMaking decisions on behalf of the company (except for giving out loans to companies)
- Maintaining third-party relations and partnerships
- Reporting to the board of commissioners
- Make annual reports and company’s financial documents
- Maintaining the company’s documents
- Keeping minutes of general shareholder meetings and board of directors meetings
- Maintaining the shareholders’ list
Board of Commissioners
- Overall supervisory duties
- Reviewing and approving the annual financial statements
- Overseeing the budget for the succeeding financial year
Shareholders of a company can remove or terminate a director or commissioner in a company. Shareholders vote on these during the general meeting of shareholders. Note that terminating a director or commissioner follows a strict process.
How to Terminate a Director or Commissioner in Indonesia
- Letter of termination
Shareholders must provide a reason for the termination of the director or commissioner.
There will be a hearing so the director or commissioner can defend himself or herself.
- Statement letter
The letter must state that the director or commissioner had the opportunity to defend himself or herself.
A director or commissioner may immediately accept their termination, in effect, resigning from the post. To do this, they must sign a statement letter upon receipt of the termination letter. In such cases, the hearing will no longer be necessary.
How to Avoid Termination of a Director or a Commissioner
Given the strict process to terminate a director or commissioner, some companies may opt to avoid this process altogether. Below are two alternatives to avoid terminating a director or commissioner in Indonesia.
#1 Nominate a resident director or commissioner from Emerhub
One option is to appoint a commissioner or director from Emerhub. We will provide you with a resignation letter in advance. This allows shareholders to end the company’s relationship with the appointed person without doing the process.
Our team has a good understanding of corporate regulations, employment laws, tax compliance, and the like. As such, we would also be able to assist with the tasks and responsibilities of a director or commissioner.
#2 Limit the term of office
Another option is to specify a term limit in your company’s articles of association. It is possible to set a maximum term period for directors and commissioners. Directors and commissioners must vacate the role upon reaching the maximum term. There will be no need to go through the termination process.
You can set the maximum term period for as short as one year and as long as five years.
Emerhub provides director and commissioner services in Indonesia. Our consultants are ready to assist you with your concerns related to the corporate structure in Indonesia. Get in touch with us by filling out the form below. You can also send an email to [email protected].
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