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The New Indonesian Company Law
March 2008 | Indonesia Practice | Regional | Regional Reports
Mark LIN
The President of Indonesia recently passed the new Limited Liability Company Law on 16 August 2007 ("New Company Law"), superseding the earlier legislation, Law No. 1 of 1995. The New Company Law comprises 14 chapters and 161 articles and contains two additional chapters compared to the previous statute.
Several new and important provisions of the New Company Law are highlighted below.
In the past, many companies did not mention their complete addresses in deeds or letters, and instead merely stated the city of their domicile. Under the New Company Law, it is a requirement to state the complete address of a company in any letter, announcement, printed document or deed. The purpose of this provision is to eliminate "Paper Companies" which do not carry out any business activity.
Previously, to obtain legalisation the founders jointly, or their proxies, had to submit a written application by attaching the deed of the company's establishment. For greater ease and efficiency, the New Company Law has introduced the use of information technology. The founders, jointly, or their proxies (being a notary), shall submit the application through the website of the legal entity administration system (Sistem Administrasi Badan Hukum) ("Sisminbakum") at www.sisminbakum.com. Currently, however, only notaries can submit an application through Sisminbakum.
Under the New Company Law, legalisation of the deed of establishment, approval or acknowledgment of an amendment of articles of association, registration at the company registry (Daftar Perusahaan), and announcements in the State Gazette Supplement come under the Minister of Law and Human Rights.
The New Company Law stipulates that every amendment to the Articles of Association ("AoA") must be reported to the Minister of Law and Human Rights within 30 days after the date of the amendment in the form of notarial deed. No submission may be made after the end of the stipulated time period. This new provision aims to ensure the timely reporting of amendments to the AoA and improve the administration of companies.
A one year grace period has been given to existing companies to amend their AoA in accordance with new law. If an existing company fails to do so, the relevant district court may dissolve the company upon the application of the Attorney General or a related party.
The New Company Law has increased the minimum authorised capital from Rp$20 million to Rp$50 million. The New Company Law has also changed the formulation of the minimum paid up captial, from 50% of the issued capital to 25% of the authorised capital.
Shares which are repurchased by a company shall only be held for a maximum period of three years.
A company cannot issue bearer shares. This provision acts in conjunction with article 33 of the New Investment Law to prevent parties from making nominee arrangements.
The New Company Law provides that shares may be pledged or used as fiducia security. Previously, shares could only be used as collateral, in the form of a pledge.
A company which has assets and/or a total business circulation of at least Rp$50 billion must be audited by a public accountant.
Under the New Company Law, even though a company makes a net annual profit for the year, dividends cannot be distributed if, taking into account accumulated losses from previous years, the company is not profitable. With the approval of the board of directors and board of commissioners and subject to cash flow availability, the company may distribute an interim dividend. However, the shareholders must return such interim dividend if the company records losses at its year end profit and loss statement. As stipulated in article 72 of the New Company Law, the company's directors and commissioners shall be jointly and severally liable for the company’s losses if the shareholders are unable to repay such interim dividend.
If a company is wound up due to the fault or negligence of the board of commissioners in supervising the board of directors’ management of the company, and the company’s assets are insufficient to pay all of its obligations, the members of both the board of commissioners and the board of directors shall be jointly and severally liable to pay such obligations. Such liability shall extend to members of the board of commissioners who have ceased to hold their position within five years of the winding up order.
A member of the board of commissioners shall not be liable if it is proved that (a) the loss is not due to the member’s fault or negligence; (b) the member conducted the management of the company in good faith, exercised prudence and acted in the interest of, and in accordance with, the purpose and objective of the company; (c) the member has no direct or indirect personal interest in the board of directors’ management decision which caused the company’s loss; and (d) the member provided advice to the board of directors to prevent the occurrence of such loss.
The New Company Law has also introduced a new category of commissioners called the representative commissioner. The duties and authority of the representative commissioner shall be stipulated in the AoA. Such duties and authority shall not contravene those of the board of commissioners nor shall it reduce the management duties performed by the board of directors. Every company may have one representative commissioner for a maximum term to be stipulated in the AoA.
