Client Alert: Regulatory Changes of Law No.40 on Limited Liability Company in Indonesia

Written by: Lewiandy, S.H. , M.A., LL.M., CSA. (Partner), Kevin Neil McVey, S.H. (Partner), Marvell Limiardo (Trainee Associate).

Indonesia has closely watched how the Government Regulation in lieu of Law No. 2 of 2022 on Job Creation recently became law through Law No. 6 of 2023 (“Job Creation Law”). The stated aim of the Job Creation 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 Job Creation 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.

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 32 of the Job Creation Law removes this minimum authorized capital requirement for Companies. Instead, the Job Creation Law stipulates that the authorized capital of a Company 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 Job Creation Law also provides that the capitalization of a Company shall be further implemented by a Government Regulation. So it remains to be seen whether a Company 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 Company can only be established by two or more people, with people in this case including legal entities. The Job Creation Law amends that requirement for some Companies. While it is understood that one shareholder is sucient for state-owned entities, all of whose shares are owned by the state-, regional- or village-owned entities, Article 153A of the Job Creation 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 Company that manages the stock exchange, clearing and guarantee institutions, securities depositories, settlement institutions and other institutions under the Capital Market Law.

Special Provisions for Micro and Small Businesses

The Job Creation Law contains a special section in Article 153A-153J of the Job Creation Law that outlines general provisions for limited liability companies categorized as micro or small businesses ("MSBs"), which are as follows:

1. 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")

2. Any amendments to the statement of establishment must be approved by a General Meeting of Shareholders ("GMS") and be informed to the MOLHR electronically.

3. 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 Job Creation Law and/or the statement of establishment. The BOD must also prepare a financial report for the MSB.

4. 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:

5. The MSB does not fulfill the requirements to be a legal entity;

6. The shareholder in question utilizes, directly or indirectly, the MSB for their own interests;

7. The shareholder in question is involved in an unlawful act conducted by the MSB; or

8. 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. 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.

7. 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.