Companies in Indonesia maintain the right to issue various classes of preferred shares. All shares in the same class must confer the same rights to the shareholders. In the case of listed companies that have various classes of preferred shares, the GMS must approve the rights and obligations attached to each class, which the company must also freely disclose to all shareholders.
It is good practice, although not a legal requirement in Indonesia, for the AoA to set out the company’s procedures for determining the value of dividends and amounts to be paid upon winding up for each share class. The ICL distinguishes preferred shares according to the specific rights they confer. The following are common types of preferred shares:34
• Shares with or without voting rights
• Shares with special rights to nominate members of the BoC or BoD
• Shares that after a certain period can be transferred or exchanged for another share class
• Shares that confer priority rights to dividends, or priority rights to company assets in liquidation/winding up
Table 6 provides comparisons between common and preferred shares under the ICL.
4.1.2
34 ICL, Article 53(4).
Is this share class mandatory?
Can companies issue different classes of these shares?
Can this type of share be converted into other securities?
Do shareholders have the right to vote, to attend
Yes, must always be issued
No, only one class of common shares may be issued
Yes, common shares may be converted into other securities
Yes, with certain statutory exceptions
No, preferred shares are optional
Yes, different classes of preferred shares may be issued
Yes, preferred shares may be converted into other securities
Yes, except for non-voting preferred shares
Table 6 Main Differences between Common and Preferred Shares Common Shares Preferred Shares
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the GMS, or to nominate candidates to the BoC and BoD
Do shareholders have the right to freely transfer their shares?
Can the AoA grant additional rights to shareholders?
Yes, subject to AoA requirements
Yes
Yes, subject to AoA requirements
Yes
Best Practice
Companies should provide investors with adequate information on the rights attached to all series and classes of shares, which is material to their investment decisions. Further, companies must not make changes to the rights attached to classes of shares without the approval of those shareholders that will be negatively affected. Proposals to change the voting rights of different series and classes of shares should be submitted for approval at the GMS by a specified (normally higher) majority of voting shares in the affected categories.35
35 G20/OECD Principles of Corporate Governance, 26.
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4.2 General Shareholder Rights
The ICL distinguishes between the rights of individual shareholders and the rights that groups of shareholders hold collectively. Shareholder rights may also be distinguished according to whether they confer decision-making power (such as the right to vote on GMS resolutions) or simply the right to share in the company’s profits through dividends and assets in liquidation. Figure 7 illustrates these distinctions.
Figure7 Types of Shareholder Rights
Collective General Optional
Non-Transferable
Indonesia’s CG Code recommends that companies adhere to the following principles with regard to shareholder rights:36
1. Companies must protect shareholder rights in accordance with Indonesian law and OJK regulations, as well as relevant provisions of the AoA. Shareholder rights must at least include:
• The right to attend, express an opinion, and vote in the GMS according to the principle of one share, one vote.
• The right to obtain information in a reasonable time frame, except with respect to confidential matters.
• The right to share in the company’s profits (such as through dividends or other profit sharing arrangements) in proportion to the number of shares held.
• The right to receive GMS notices and other details on GMS procedures in order to participate effectively in company decisions.
36 Indonesia’s Code of Good Corporate Governance, 21-22.
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• Where a company has more than one share class, each shareholder should be entitled to cast a vote and receive fair treatment in accordance with his/her share classification and the number of shares owned.
2. Shareholders (including minority shareholders) should also abide by laws, regulations, and the AoA, as follows:
• The controlling shareholder should (1) consider the interests of minority shareholders and other stakeholders in accordance with laws and regulations; and (2) disclose relevant information to law enforcement agencies if there is a suspected breach of laws and regulations or when otherwise requested by the relevant authorities.
• Each shareholder should (1) segregate the company’s assets from his/her personal assets; and (2) where a shareholder is also a member of the BoC or BoD, he/she must segregate his/
her functions in each capacity.
• Where a shareholder is the controlling shareholder in more than one company, accountability and inter-company relations should be carried out clearly.
In addition, each shareholder is entitled to file suit against the company in a district court if he/she/it has suffered harm as a result of GMS, BoC or BoD decisions.
In the banking industry, controlling shareholders must pass a fit and proper test issued by OJK in order to realize company rights. Shareholders who do not pass OJK’s integrity standards under the fit and proper test will not be counted toward the GMS quorum, and therefore may not vote or receive dividends.37 Shareholders who fail to meet OJK’s financial standards under the fit and proper test will only be able to exercise those rights which they enjoyed through their shareholdings prior to becoming a controlling shareholder.38
37 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, Article IX(10).
38 Circular Letter of OJK No. 39/SEOJK.03/2016, Article IX(11).
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