The legal and regulatory framework in Indonesia has some unique characteristics resulting from the history and development of Indonesia’s economy. The earliest regulation of limited liability companies derives from Chapter 3 of the Indonesia Commercial Code of 1848 (Kitab Undang-Undang Hukum Dagang or KUHD). Indonesia did not formally regulate foreign investment until 1967, with the first iteration of the Foreign Investment Law.
1.3.2
46 An Introduction To Corporate Governance
The introduction of the Foreign Investment Law brought the first concepts of corporatization to the Indonesian economy. Throughout the 1970s and up until now, foreign investment companies have been growing fast in both number and size. Most foreign investment companies have some corporate governance structures in place.
The first comprehensive piece of legislation for domestic companies was approved in 1968 (Law No. 6 of 1968 on Domestic Investment). In 1995, the House of Representatives enacted the first iteration of a comprehensive company law (Law No. 1 of 1995 on Limited Liability Companies, which is also known as the “Indonesian Company Law” or ICL). In 2007, the House of Representatives updated both the ICL and the Investment Law, which supersedes the previous Law No. 1 of 1967 on Foreign Investment.
In Indonesia, companies must comply with the ICL and other laws and regulations which govern the specific industry relevant to their business activities. For instance, a company in the insurance business is subject to the ICL and the Law on Insurance Business. Similarly, a bank is subject to the ICL and the Banking Law. In addition to these two laws, a listed bank will also be subject to the Capital Markets Law, and so on. This is one of many examples as to how companies occupying different sectors of the Indonesian economy may be subject to different legal requirements.
The ICL expressly provides that “in special cases where the establishment, organization, management, and operation of an enterprise are regulated by a specialized law, the provisions of such law shall prevail.” However, in practice, there are numerous cases where these distinctions are not clear-cut, and where overlapping laws and regulations create confusion, ambiguity, and uncertainty for companies trying to follow the laws and implement good corporate governance practices. These also create the danger of inconsistency in the interpretation and enforcement of these laws by different ministries, the courts, and other law enforcement bodies.
For this reason, while companies may use this Manual as a reference, they should also review other laws and regulations which may be applicable to their lines of business (e.g., accounting, anti-corruption, auditing, bankruptcy, commerce, competition, construction, labor, tender process, and taxation laws).
If a company encounters an inconsistency or ambiguity between different pieces of legislation, it should consult appropriate legal advice in order to achieve full compliance with the law and best corporate governance practices. Appropriate sources of such advice may be the company’s in-house legal or compliance
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Applicability Scope
Law/Regulation Law No. 40 of 2007 on Limited Liability Companies ("Indonesian Company Law" or ICL)
Law No. 8 of 1995 on Capital Markets (“Capital Markets Law”)
Law No. 13 of 2003 on Manpower (“Manpower Law”)
Law No. 25 of 2007 on Investment (“Investment Law”)
Limited liability companies
Listed companies
Manpower in companies
All investment activities (domestic and foreign)
Establishment of a limited liability company; AoA; capital and shares; company organs (GMS, BoC, BoD);
merger, acquisition, and dissolution; work program and annual report; use of profit, liquidation, and expiry of company.
Establishment of the capital market supervisory board (OJK); stock exchange; clearing and guarantee corporation;
central securities depository; investment fund; securities company;
securities company representatives and investment advisors;
capital market supporting institutions and
professionals; issuers and public companies; public documents and reporting to OJK.
Manpower management;
rights and obligations of employees; rights and obligations of the company; and all related manpower plans for business activities.
Formation of a business entity for investment;
treatment of investors;
manpower; investment business sectors; rights, obligations, and liabilities of investors; and investment facilities.
department, the company’s external legal counsel, or clarification from regulatory agencies.
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Principal Laws and Regulations on Corporate Governance in Indonesia48 An Introduction To Corporate Governance
Presidential Regulation No. 44 of 2016 on List of Business Sectors Closed to Foreign Investments and Sectors That Are Conditionally Open for Foreign Investments (“Negative List”)
Head of BKPM Regulation No. 14 of 2015 on
Procedures and Guidelines of Investment Application as amended by Head of BKPM Regulation No. 6 of 2016 (“BKPM Reg. 6/2016”)
Ministry of Manpower and Transmigration Decree No. 40 of 2012 on Certain Positions Prohibited for Foreign Workers (“MMT Reg. 40/2012”) and Minister of Manpower Regulation No. 16 of 2015 as amended by Minister of Manpower Regulation No.
35 of 2015 on Guidelines for Employment of Foreign Workers (“MMT Reg.
35/2015”)
Indonesia’s Code of Good Corporate Governance of 2006 (“CG Code”)
OJK Regulation No. 32/
POJK.04/2014 on GMS of Public Companies as amended by OJK Regulation No. 10/
POJK.04/2017 dated March 14, 2017
OJK Regulation No.
33/POJK.04/2014 on Directors and Board of Commissioners of Issuing Companies or Public Companies
Business sectors for foreign investment activities
Foreign investment activities
Companies with foreign workers
All companies
Public companies
Issuing companies, public companies
List of business sectors that are open, partially open, and closed for foreign investment.
One stop service for permit applications; procedures and mechanisms to conduct foreign investment in Indonesia; transfer of foreign shares; fiscal and non-fiscal facilities;
regional incentives; foreign workers manpower plan;
tax facilities and customs.
Guidelines on positions which may and may not be filled by foreign employees.
Code of conduct and business ethics that sets out recommendations for companies with respect to company organs;
shareholders; stakeholders;
and the implementation of good corporate governance.
Guidelines and
requirements concerning notification to shareholders and procedures during the GMS.
Provisions on the
obligations of directors and commissioners in issuing and public companies.
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OJK Regulation No.
34/POJK.04/2014 on Nomination and Remuneration Committee of Issuing Companies or Public Companies
OJK Regulation No.
35/POJK.04/2014 on Corporate Secretary of Issuing Companies or Public Companies OJK Regulation No. 8/
POJK.04/2015 on Website of Issuing Companies or Public Companies OJK Regulation No.
21/POJK.04/2015 and Circular Letter of OJK No. 32/SEOJK.04/2015 on Implementation of Corporate Governance Guidelines for Public Companies ("OJK CG Guidelines")
OJK Regulation No.31/
POJK.04/2015 on Disclosure of Information or Material Facts by Issuing Companies or Public Companies OJK Regulation No. 32/
POJK.04/2015 on Increase of Capital with Pre- Emptive Rights for Public Companies
OJK Regulation No.
55/POJK.04/2015 on Establishment and Guidelines for Implementation of the Audit Committee OJK Regulation No.
56/POJK.04/2015 on Establishment and Guidelines for Preparation of the Internal Audit Charter
Issuing companies, public companies
Issuing companies, public companies
Issuing companies, public companies
Public companies
Issuing companies, public companies
Public companies
Issuing companies, public companies
Issuing companies, public companies
Provisions on the establishment of a remuneration and nomination committee and guidelines for the committee’s responsibilities.
Provisions on the obligations of the corporate secretary of an issuing or public company.
Provisions governing the website of an issuing or public company.
The first “comply or explain” corporate governance guidelines issued by OJK that require compliance from all Indonesian public companies.
Disclosure requirements on information or material facts.
Provisions on increase of capital with pre-emptive rights.
Provisions on the establishment of an audit committee and guidelines for the committee’s responsibilities.
Guidelines and procedures for internal audit.
Applicability Scope
Law/Regulation
50 An Introduction To Corporate Governance
OJK Regulation No.
29/POJK.04/2016 and Circular Letter of OJK No.
30/SEOJK.04/2016 on Annual Report of Issuing Companies or Public Companies
Decision of the Chairman of the Capital Market and Financial Institutions Supervisory Agency No.
KEP-346/BL/2011 on Periodical Submission of Financial Statement by Issuing Companies and Public Companies ("Regulation X.K.2") OJK Regulation No.
7/POJK.04/2017 on Registration Statement in the Context of Public Offering of Equity Securities, Debt Securities, and/or Sukuk
OJK Regulation No. 8/
POJK.04/2017 on Form and Content of Prospectus and Short Prospectus for General Offering of Equity Securities
OJK Regulation No.
11/POJK.04/2017 on Shareholding Report or Any Change of Shareholding in Public Companies
OJK Regulation No.
51/POJK.03/2017 on Implementation of Sustainable Finance for Financial Institutions, Issuing Companies, and Public Companies
OJK Regulation No. 11/
POJK.03/2016 on Minimum Capital Provision of Commercial Banks as amended by POJK No. 34/
POJK.03/2016
Issuing companies, public companies
Issuing companies, public companies
Issuing companies, public companies, securities underwriters, and public accountants
Issuing companies, public companies, public accountants, legal consultants, and notaries
Public companies
Financial institutions, issuing companies, and public companies
Commercial banks
Guidelines on annual reports.
Requirement to submit a financial statement by issuing companies and public companies.
Public offering of equity securities, debt securities, and sukuk (Shariah stock).
Form and content of prospectus and short prospectus for initial public offering.
Reporting requirements concerning share ownership in public companies.
Provisions for financial institutions and public companies to apply sustainable finance principles by developing an annual sustainable finance business plan and a sustainability report.
Capital requirements for commercial banks.
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Circular Letter of OJK No.
39/SEOJK.03.2016 on Fit and Proper Test for Future Controlling Shareholders, Future Members of the Board of Directors, and Future Members of the Board of Commissioners of Commercial Banks OJK Regulation No.55/
POJK.03/2016 and Circular Letter of OJK No. 13/SEOJK.03/2017 on Implementation of Corporate Governance in Commercial Banks OJK Regulation No. 56/
POJK.03/2016 on Share Ownership in Commercial Banks
Commercial banks
Commercial banks
Commercial banks
Fit and proper test for principal parties (controlling shareholders, BoC and BoD members) in commercial banks.
Corporate governance guidelines for commercial banks.
Guidelines concerning share ownership in commercial banks.