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Business structures in Indonesia

Indonesia is the largest archipelago in the world and is located between the mainland South-East Asia and Australia. The country consists of over 17,000 islands from which only 6,000 are inhabited. Because of its complex and unique geographical position, Indonesia is extremely diverse in its ecosystem and fascinating with its heritage and history.

Business environment in Indonesia

The Indonesian government has worked hard on regulatory and legal reforms to make the country more attractive for foreign investments which play an important role in the Indonesian economy. Indonesia is the producer and exporter of oil and gas, various mining products, such as nickel, coal and tin, as well as agricultural products and fishery. Local and international banks and other non-banking financial institutions are major source of funds in Indonesia.

In Indonesia, as in many other countries around the world, prevailing cultural norms are reflected also in the business environment. Due to this aspect, businesses in Indonesia tend to be highly hierarchical with all the decision-making controlled by a small group of senior management. Similarly, the same sense of hierarchy transfers to the whole organisation where employees prefer the manager making the decisions and allocating tasks. Meanwhile, initiative and proactive thinking are viewed as criticism of the management rather than a positive and desired action from an employee. The hierarchical nature of most organisations and especially state institutions give rise to a vast bureaucracy.

Business structures in Indonesia

There are several possible types of business structures in India and each investor should carefully consider the most appropriate structure of his or her business taking into account the industry, the number of employees, the capital structure and various other aspects.

Limited liability company (PT)

Limited liability company, or Perseroan Terbatas (PT) in Indonesia is the most popular type of business structure among local entrepreneurs. A PT requires one director, one commissioner (can be a non-resident) and at least two local shareholders. Key responsibilities of the commissioner are the supervision of the company, examination of the annual reports and approval of the budget plan prepared by the Board of Directors.

According to the company law, Limited liability companies are further divided into following categories:

  1. Micro Company – if net capital does not exceed 50 million rupiahs (3,745 USD) (excluding buildings and land) or annual sales turnover does not exceed 300 million rupiahs (22,171 USD).
  2. Small Company - if net capital is between 50 and 500 million rupiahs (3,745 USD to 37,435 USD) or annual sales turnover is between 300 million and 2.5 billion rupiahs (22,171 USD to 184,763 USD.
  3. Medium Company - if net capital is between 500 million and 10 billion rupiahs (37,435 USD to 739,053 USD) or annual sales turnover is between 2.5 and 50 billion rupiahs (184,763 USD to 3,695,267 USD).
  4. Large Company – if net capital is over 10 billion rupiahs (739,053 USD) or its annual sales turnover is more than 50 billion rupiahs (3,695,267 USD).

If foreigners are employed in the company, it has to be at least medium-sized. As the incorporation of a PMA generally takes a significant amount of time, it is possible to use the Indonesian nominees for the initial setup of an LLC in order to reduce the incorporation procedure by approximately 2 months.

Foreign owned LLC (PMA)

If a limited liability company is partly or wholly owned by foreign investors it is called Penanaman Modal Asing (PMA). PMA is required to receive an approval from the Capital Investment Coordinating Board before any business activity can take place in Indonesia. Furthermore, under this business structure, the owners are required to present a business plan for a minimum of 1.2 million USD and deposit at least 300,000 USD as share capital.

PMA requires at least one resident director, two shareholders and one commissioner. In case the company is fully owned by foreigners, the owners are obliged to sell at least 5% of the company to an Indonesian citizen or a domestic business within the first 15 years of its incorporation. There are particular industries, in which foreign businesses need to obtain operating licenses in order to operate. Some business sectors are fully restricted to foreign companies or only allow businesses with partial foreign ownership. For example, in the mining sector at least 20% of the company needs to be owned by a local shareholder within 5 years since its incorporation.

Public companies

According to the Indonesian Company Law, public companies are required to have a minimum of 300 shareholders and at least 3 billion rupiahs as paid-up capital. While public companies are subject to more strict regulatory provision if compared to PT or PMA, it is not compulsory for public companies to be listed on PT Bursa Efek Indonesia (national stock exchange).

Partnerships

Partnership in Indonesia is a common type of business structure, but only Indonesian nationals are allowed to form partnerships.

  1. Persekutuan Perdata (PP) – partnership between two or sometimes more people with an aim to make a profit.
  2. Firma (Fa) – open partnership incorporated to hold a business name used by trading and service enterprises.
  3. Persekutuan Komanditer (CV) – a limited partnership with one partner allowed investing money in the business and not managing the company.