While most foreign entrepreneurs may feel like they have a good grasp on the requirements when starting a company in Indonesia, it is important to understand the required organizational structures, leadership approach, responsibilities and good corporate governance.
Some essential questions to ask are as follows:
- What are the roles of the director and commissioner?
- Who is the person or what roles can access a company’s bank account?
- When and how to terminate a director or a commissioner?
REQUIRED CORPORATE STRUCTURES IN INDONESIA
The corporate structure hierarchy in Indonesia is
- Board of Commissioners
- Board of Directors
The shareholders are at the highest point of the hierarchy as they are the owners of the company. They provide financial support for potential dividends over the company’s lifetime.
A shareholder does not handle the day-to-day operation and business activities of the company. Decisions in relation to the company’s performance and goals will require shareholders’ approval, and they are often done via the general meeting of shareholder (GMS).
Board of Commissioners (BOC)
Board of Commissioners is at the second position in the hierarchy. Its function is to supervise the management of the company concerning its policies collectively.
Besides, they provide advice to the Board of Directors (BOD) and continue monitoring the effectiveness of the company’s policies. There is a President Commissioner in the BOC as well to coordinate activities for the BOC.
Board of Directors (BOD)
Board of Directors are the shareholders of the company. With the advice from BOC, the BOD follow the Company Law in Indonesia and is in charge of the company’s smooth operations and overall management. In order to ensure that the company complies with its statutory obligations, BOD also makes strategic and operational decisions.
BOD is appointed by the shareholders of the company to manage its day-to-day affairs. The directors should also act collectively as a board, but the board may delegate certain authority or power to members of BOD.
DIFFERENCES BETWEEN COMMISSIONERS AND DIRECTORS
The following summarises the differences between PT PMA’s commissioners and directors in Indonesia and their main responsibilities.
Board of Commissioners
- Supervise directors and operations
- Review and approve financial statements
- Audit budget for the following fiscal year
Board of Directors
- One of the directors must be local (Indonesian national)
- Manage and represent the company
- Maintain partnerships and deal with third-party
- Report to BOC
- Prepare financial documents and annual reports
- Maintain all minutes and registers of meetings (both GMS and BOD)
- Maintain shareholders’ register
- Make decisions for the company (excluding offering loans)
Terminating a Director or a Commissioner
The company can terminate any director or commissioner through the shareholders’ general meeting. The process is as follows:
- The company prepares a letter of termination and provide reasons for that.
- A hearing will be held, and the commissioner or director will be able to defend themselves in regards to the termination.
- A statement letter needs to be signed to show that a chance of defense has been given to the member who is terminated.
- The director or commissioner is terminated.
HOW TO BE A SHAREHOLDER IN AN INDONESIAN COMPANY
Arrangements regarding shareholders, commissioners, and directors of a company in Indonesia are regulated by the Company Law in Indonesia that states that every company must have at least two shareholders, one commissioner, and one director.
The shareholders can be individuals, a group of people, a partnership, legal entities, foreign countries or any organization or corporate body in Indonesia.
As mentioned earlier, as the beneficial owners of the company, they are not in charge of the day-to-day management or financial affairs. Instead, directors are responsible for these duties. However, shareholders are allowed to appoint themselves as directors.
One thing foreign companies should pay extra attention to is that for foreign-owned companies (PT PMA), the arrangement of the shareholders must strictly comply with Negative Investment List (Daftar Negatif Investasi or DNI) set out by the Indonesian government.
According to the list, some sectors are open to foreign investors, some are fully closed or partially open to foreign investors. Therefore, foreign investors must do their own research of the sector of which they want to set up a company and also be one of the shareholders.
For partially open and fully closed sectors for foreign investors, using nominee shareholders can be a wise option. However, please do it via reliable agent — Cekindo will be able to assist you.
GENERAL MEETING OF SHAREHOLDERS
Only the company with the minimum two shareholders can form a body called the General Meeting of Shareholders, abbreviated as GMS. GMS is considered the highest body of the company. This body has the authority to work out if the company should conduct any plan, and if the company’s director should execute the decision.
Some rights of GMS are not able to be transferred to the BOC or BOD. Thus any changes of a company will require shareholders’ permission through shareholder’s general meeting. These changes include, but not limited to:
- Appoint and remove commissioners and directors
- Increase or decrease the company’s paid-up capital
- Revise business activities
- Transfer shares to another person or group
- List company for public investments
- Increase or decrease authorized capital
Cekindo works with leading international and local companies in Indonesia, on all angles of their business. We are highly experienced in the establishment of legal entities in Indonesia, their organizational structure and providing clients with shelf companies.
Check our services to understand how we boost your business in Indonesia.