Structuring A Foreign-Owned Business in Indonesia
29 November 2022
Like in any part of the world, when you set up a company in Indonesia, you must establish the company structure. Businesses of all sizes rely on it to keep their operations running smoothly and on track. A successful company structure clearly defines everyone’s job and role in the system.
As a foreign investor taking on a business venture in Indonesia, however, the rules might differ from those in your country. As we offer professional business consulting services, we know how to do it. Let us walk you through the Indonesian company structure in this article.
Registering A PT PMA As Your Business Entity
There are several business entity types in Indonesia. Two are especially relevant to foreign investors: the Foreign-Owned Limited Liability Company (PT PMA) and Representative Office company. As the Representative Office is only used to establish a foreign presence in Indonesia and cannot conduct business nor generate profit in Indonesia, many foreign investors usually choose the Foreign-Owned Limited Liability company as their business model.
According to Indonesian law, the corporate structuring for PT PMA requires a minimum of one director, one commissioner, and two shareholders.
Forming Your Shareholders
Individuals, groups, companies, partnerships, legal entities, foundations, and even foreign countries can be shareholders. Shareholders are not personally liable for a debt, but this does not apply if a shareholder participates in the company’s improper actions or law violations. The shareholders have the authority to authorize the corporation to participate in certain activities. They appoint or remove commissioners or directors, share transfers, change the company’s capital levels, and update business activities.
You Don’t Have to Appoint Indonesian Director Nominee
Many foreign investors misunderstood that it is mandatory to have an Indonesian nominee acting as the director in papers for legalities. Finding an excellent and reliable local nominee can be pretty tricky. Choose the wrong nominee with a hidden agenda, and you might find them disrupting the finance of your company. Furthermore, removing them from the company is nearly impossible if the director does not want to cooperate.
Your KITAS and PT PMA are the keys. No need to appoint an Indonesian nominee as the director if you have Working KITAS and live in the country. The working KITAS is issued to directors and commissioners of a company. Meanwhile, setting up your PT PMA allows you, as a foreign investor, to have complete control of your company. With KITAS and PT PMA in hand, you can register your foreign-owned company and legally appoint yourself as the director.
Appoint A Resident Director
According to Indonesian law, each foreign-owned liability company (PT PMA) must have at least one resident director aside from the main director. A resident director can be an Indonesian or a foreigner who has obtained work and stay permit (KITAS). Resident directors serve as company directors but are not involved in the company’s management. The resident director is also not permitted to act as a signatory on the company’s bank account.
If your company does not have a resident director, it does not have a legal representative in Indonesia. As a result, there will be issues when running the business. Your business cannot open bank accounts, file tax returns, enter into contracts, or do other legal papers.
Find a professional resident director who is suitable for your foreign-owned company, regardless of their nationality. Avoid working with nominees with no professional background. The Indonesians are rich with professionals and experienced managers who can work side by side with you and bring progress to your company. You can appoint a foreign resident director if they have KITAS and live in Indonesia to operate the business.
Forming the Board of Commissioners
Commissioners serve as supervisors to your company. They are in charge of counseling and interfacing with the Board of Directors; their responsibility is to focus on the company’s official, stated goals and ensure that their decisions match those goals. The Board of Commissioners does have the authority to remove a director from their post. In addition, the board of commissioners is also in charge of the approval of financial statements and the development and auditing of the budget for the coming year.
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