Business activities in Indonesian may be carried-out in the form of a sole proprietorship, a general or limited partnership or one of a various number of corporations. However foriegn capital investment (so called "PMA Company") in Indonesia may only conducted in form of a limited liability company, being established and existed under the Indonesian laws and havin its legal domicile within the Indonesian territory.
The limited liability company (Perseroan Terbatas, so called "PT") is the most ideal vehicle for direct foreign investment because of its nature as an association of capital with objection to make profits and the laws on establishment of other type of legal entity does not accomodate foreign investors.
An application to the Investment Coordination Board ("BKPM") is necessary in order to have a foreign capital investment. A letter of approval (Investment license) will be issued by the Head of the Investment Coordinatong Board to the applicant after all of the requirements have been completed and fulfilled.
Form of Foreign Capital Investments
Foreign Capital Investment may be conducted in the form (1) Joint ventures between foreign capital and capital owned by Indonesian citizens and/or Indonesian statutory bodies. Under the current applicable regulation, the foreign party may have 95 % of the share in the Company, and at least 5 % of the share shall be owned by Indonesian citizen or legal entity; (2) Direct Investments, which the entities capital being owned by foreign legal entities, whether it is a foreign citizens or foreign statutory bodies.
A foreign entity may invest their capital through several ways, e.g. purchasing an existing company, wholly or partly as well as setting-up a whole new company.
Incorporation of a Limited Liability Company
In order to incorporatea limited liability company, the company shall at least require two legal entities (persons or business entities) or more ("Founder") using a notarial document written in Indonesian language. The founder may be represented by its attorney or proxies. Each founder of the company shall get their part of the company shares at the time the company is incorporated.
Deed of Incorporation
The notarial document which in this matter is the Deed of Incorporation shall contain the company articles of associations and other relevant information, at least information regarding personal or company profile of the founder, member of the board of directors ("BoD") and Board of Commissioners ("BoC") of the company for the first time appointed and name of shareholders and the shares that they hold, objectives and purposes of the company.
Approval from the Minister of Justice
In order to be able to commence its business legitimately, a company must apply for an approval of its incorporation from the Ministery of Justice ("MOJ"). It is then considered as a corporate body/legal entity. Normally, the MoJ shall grant the approval no later than 60 days after the receipt of the complete application. Once it is approved, the BoD of the company must register the company to the Company Registry Office in oder to be registered within the List of Company. After it has been registered, it will be announced within the Supplement to the Gazette of the Republic of Indonesia. As long as the registration has not yet been made, the BoD shall collectively be held responsible for all legal acts conducted by the company.
Certain industries are entirely closed to foreign capital investment, the most notable being industries vital to the national defense, e.g. industries producing arms, ammunition, and military equipment. Large sectors of trading and distribution business, particularly domestice retail trades, exports and import are largely closed to foreign capital investment. The government gradually issue and publish a list of business sectors absolutely restricted as well as business sectors that are open but with certain conditions for foreign and domestic capital investment.
In regards to sales activities (merchandise selling), trading and its supporting services are restricted to foreign investment except for large retailers (superstore, shopping mall, etc), large scale trading (distributorship/wholesaler), restaurants, quality certification services, market research services and after sales services are opened for foreign investment. However these sectors are opened with certain conditions set-up by other relevant regulations.
I am Asep Wijaya, Managing Director of Wijaya & Co. Thank you for visiting my blogs and reading my posts.
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