Indonesia Omnibus Law – Changes to the Company Law

Indonesia's closely watched omnibus jobs creation bill recently became law. The stated aim of the Omnibus Law is to bolster investment and create jobs by streamlining regulations and simplifying the licensing process to improve the ease of doing business in Indonesia.

The Omnibus Law revises various provisions in laws across numerous sectors, including Law No. 40 of 2007 on Limited Liability Companies (the "Company Law"), which helps regulate the norms and practice of doing business in Indonesia.

One of the changes under the Omnibus Law is the minimum capital requirement for limited liability companies (perseroan terbatas or "PTs"). The Omnibus Law also pays special attention to micro and small businesses and how their rights are exercised in tandem with the Company Law. Article 109 of the Omnibus Law contains three important amendments to the Company Law aimed at supporting micro and small businesses operating in Indonesia.

No Minimum Authorized Capital

Limited liability companies in Indonesia are required to have authorized capital of at least IDR 50 million, as per Article 32 of the Company Law. Article 109(3) of the Omnibus Law removes this minimum authorized capital requirement for PTs. Instead, the Omnibus Law stipulates that the authorized capital of a PT will "be determined by the decisions of the company's founders."

With this change, a limited liability company potentially could have authorized capital below IDR 50 million. However, the Omnibus Law also provides that the capitalization of a PT shall be further implemented by a Government Regulation. So it remains to be seen whether a PT will in fact be able to have authorized capital of less than IDR 50 million.

No Minimum Number of People for Company Establishment

Article 7 of the Company Law stipulates that a PT can only be established by two or more people, with people in this case including legal entities. The Omnibus Law amends that requirement for some PTs. While it is understood that one shareholder is sufficient for state-owned entities, all of whose shares are owned by the state-, regional- or village-owned entities, Article 109(2) of the Omnibus Law now stipulates that there is no minimum number of people required to establish a micro or small business. The same also applies to a PT that manages the stock exchange, clearing and guarantee institutions, securities depositories, settlement institutions and other institutions under the Capital Market Law.

So, with this change under the Omnibus Law, a PT categorized as a micro or small business can be established by a single person/legal entity. This is further confirmed by Article 153A(1) of the Omnibus Law.

Special Provisions for Micro and Small Businesses

The Omnibus Law contains a special section in Article 109(5) that outlines general provisions for limited liability companies categorized as micro or small businesses ("MSBs"), which are as follows:

• MSBs may be established by one person based on a statement of establishment made in Bahasa Indonesia. This statement of establishment must consist of the MSB's purposes and objectives, business activity, authorized capital and other information related to the establishment of the company. The statement of establishment will be registered electronically with the Ministry of Law and Human Rights ("MOLHR").
• Any amendments to the statement of establishment must be approved by a General Meeting of Shareholders ("GMS") and be informed to the MOLHR electronically.
• The Board of Directors ("BOD") of an MSB will manage the company in line with the purposes and objectives of the company, and administer policies that are deemed correct and within the confines of the Omnibus Law and/or the statement of establishment. The BOD must also prepare a financial report for the MSB.
• The shareholders of an MSB must be individuals (not legal entities). The company founders, which may be the shareholders, can only establish one MSB per year. Further, the shareholders are not personally liable for agreements made under the name of the MSB unless any of the following events occur:

1. 1. The MSB does not fulfill the requirements to be a legal entity;
   2. The shareholder in question utilizes, directly or indirectly, the MSB for their own interests;
   3. The shareholder in question is involved in an unlawful act conducted by the MSB; or
   4. The shareholder in question unlawfully uses the assets of the company, directly or indirectly, which causes the MSB to be unable to repay its debts.

• The liquidation of an MSB must be conducted by a GMS through a written statement of liquidation, which must be informed electronically to the MOLHR. MSBs can be liquidated as follows:

1. 1. Based on a decision of the GMS;
   2. End of the MSB's period of establishment;
   3. Based on a court decision;
   4. Based on the repeal of a legally binding commercial court decision, the MSB's assets are not sufficient to repay all of its debts that are subject to bankruptcy;
   5. The assets that are subject to a bankruptcy proceeding are in a situation of insolvency; or
   6. The MSB's business license is repealed, requiring the company to initiate liquidation proceedings.

• If an MSB no longer fulfills the criteria of a micro or small business, it must convert its status to a regular limited liability company.

It should be noted that the above will be further implemented by Government regulations.

Conclusion

The above amendments to the Indonesian Company Law under the Omnibus Law have a special focus on the rights and obligations of micro and small businesses. Most of these provisions revolve around the enablement, establishment, functioning and liquidation of MSBs. Although technical regulations must still be issued to implement these changes, the amendments under the Omnibus Law are likely to have a significant impact on Indonesian company law, especially for micro and small businesses.

This publication is intended for informational purposes only and does not constitute legal advice. Any reliance on the material contained herein is at the user's own risk. All SSEK publications are copyrighted and may not be reproduced without the express written consent of SSEK. The contents of this publication may change subject to the issuance various implementing regulations for the Omnibus Law.