A COMPANY
B. THE GOVERNANCE STRUCTURE OF A LIMITED LIABILITY COMPANY
1. The General Meeting of Shareholders 2. The Board of Commissioners
3. The Board of Directors 4. Board Committees 5. External Auditor 6. The Internal Auditor 7. The Corporate Secretary
65 65 66
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71 72 72 74 75 75 76 76
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The General Governance Structure of a Company The Chairman’s Checklist
What is a Limited Liability Company (Perseroan Terbatas - PT)?
Why do we need PT?
What are the key advantages of Limited Liability Company PT over other legal forms? What is the dividing line between public and private PT?
What is the significant governance difference between public and private companies?
In addition to the GMS, Board of Commissioners, Board of Directors, has the company established Audit Committee, Human Resources Committee, Development Policy
Committee, Remuneration Committee and an Internal Audit Function?
Have these bodies been given the appropriate structures and proper resources to be effective?
Does the company need to have a Corporate Secretary?
The Chairman’s Checklist
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The General Governance Structure of a Company The Chairman’s Checklist
The Indonesian Company Law No. 40 of 2007 defines a Limited Liability Company (Perseroan Terbatas - PT) as a company’s status and provides for the structure of its governing bodies. The CG Code further includes recommendations to establish additional governing bodies for listed companies, for example the Board Committees and Corporate Secretary. This chapter discusses the concept and governance structure of Limited Liability Company (Perseroan Terbatas - PT) as they are defined by the Limited Liability Act and as recommended by the CG Code. The authorities, functions and structures of the governing bodies are described in more detail in other chapters of this Manual.
The Chairman’s Checklist
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The General Governance Structure of a Company What Is a Limited Liability Company?
Under the ICL, a Limited Liability Company (Perseroan Terbatas - PT), hereinafter called a “Company”, is defined as a legal entity which constitutes an alliance of capital established pursuant to a contract in order to carry on business activities with an authorized capital all of which is divided into shares and which fulfils the requirements stipulated in the ICL and its implementing regulations.
Under the ICL, a Company is a legal entity which has the following characteristics:
• limited liability of shareholders
• independent legal status and can enter into contracts in its own name
• adopt two-tiered system
• may sue and be sued
• its capital structure is divided into authorized capital and issued and paid-up capital. Minimum of authorized capital is IDR 50 million (Rp 10 billion for FICs), and the paid-up and issued capital must be 25% from its authorized capital
• the Company Organs consist of the Board of Directors, Board of Commissioners, and General Meeting of Shareholders
• may issue shares and bonds.
A PT is the only legal entity that can issue shares. Shares in a PT may include (i) ordinary shares, (ii) shares with or without voting shares, (iii) shares with special right to nominate members of the Board of Directors and/or members of the Board of Commissioners (iv) shares which after a certain period of time will be withdrawn or exchanged with other shares’ classification, (v) shares which provide priority rights to their owner to receive dividends over the other shareholders from different shares’
classification for the distribution of dividend cumulatively or non-cumulatively, (vi) shares which provide priority rights to their owner to receive allocation of the remainder of the Company’s assets in liquidation over the other shareholders with different shares’ classification, and (vii) other preference shares as determined in the AoA of the company.1
A. What is a Limited Liability Company?
1. The Definition of a Limited Liability Company
1 ICL, Article 53 paragraph (4)
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The General Governance Structure of a Company What Is a Limited Liability Company?
Shareholders of a PT are not personally liable for any agreement made on behalf of the PT, and are not liable for the PT’s losses in excess of their respective shareholding.2 The ICL, however, contains certain specific exceptions to the limited liability principle, including:
a. Under the ICL, founding shareholders are together obliged to subscribe at least 25% of the authorized capital.
b. An ordinary shareholder would be personally responsible if it commits any of the following acts in the name of the company:3
(i) directly or indirectly exploits the company in bad faith in his/her personal interest.
(ii) involve in illegal acts committed by the company.
(iii) directly or indirectly illegally uses the company’s assets with the result that the company’s assets become insufficient to pay off the company’s debt.
2 ICL, Article 3
3 ICL, Article 3 paragraph (2)
4 Law on Capital Market 1995, Article 1 point 22
Indonesian law distinguishes clearly between listed and non listed companies. In general, listed company is defined as a public company or a company undertaking an initial public offering. Listed companies require higher paid-up capital, and are subject to stricter and more complex rules regarding their governance and disclosure.
Law on Capital Market4 defines a public company as a company which has reached 300 shareholders and its paid-up capital has reached IDR 300 billion. It is possible for a private company to voluntarily transform itself into a public company and vice-versa by following legal requirements, in accordance with the Law on Capital Market. Procedurally, this has to be done by amending the company’s AoA and business registration certificate and is not considered to be a conversion of the business organization’s legal form. If a company is intended to conduct a public offering, the said public company must first be registered in OJK. Listed companies are generally better suited for larger and growing companies that might wish to raise money in the equities markets.
2. Listed and Non Listed Companies
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The General Governance Structure of a Company What Is a Limited Liability Company?
Figure 1. Comparison of Listed and Non Listed Companies
Listed Companies Non Listed Companies Characteristics
Minimum Capital Measurement Issuance of Shares
Transferability of Shares
Corporate Secretary Disclosure
• Public offerin
• Listing shares
• 300 shareholders or more and paid-up capital of IDR 3 billion or more5
Paid-up capital at least in the amount of IDR 3 billion.
Open subscription. A closed subscription is subject to the approval of the OJK.7
No restrictions allowed (except for voting preference shares and shares held by founding shareholders). Neither the consent of other shareholders nor the company is required.
Mandatory for listed companies10 The company must disclose a wide range of information regarding its financial position, operations and governance.11
• No
• 2 or more persons and authorized capital of IDR 50 million or more6
Authorized capital at least in the amount of IDR 50 million or more.
Closed subscription (only among founders or other pre-determined groups of people). Cannot issue shares through an open subscription.
Potentially restricted.
Transferability of shares is unrestricted, except for voting preference shares and shares held by founding shareholders and some kind of restriction which may be included in the AoA of the company.
Unregulated
No legal requirements to publicly disclose information.
5 Article 1 paragraph 22 of Law of Capital Market 1995 6 Article 32 of the ICL
7 Article 5 of the Capital Market Law 8 Article 58 of the ICL
9 Article 58 of the ICL
10 Head of OJK Decree KEP-63/PM/1996 11 Article 86 of the Capital Market Law
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The General Governance Structure of a Company What Is a Limited Liability Company?
a. Legal Forms of Commercial Entities
Indonesian law allows for the establishment of the following types of commercial entities:
• Civil Partnership (Maatschap)12
• Firma (Vennootshap onder firma)13
• CV (Commanditair Vennootschap)14
• PT
• Cooperatives
• Foundation