(a) What are the main form of business organisation for medium and large scale enterprises in this Indonesia?

Business organizations in Indonesia are generally divided into two categories, which are:

1. Legal Entities:

a. Limited Liability Companies, governed by Law No. 1 of 1995 regarding Limited Liability Companies (March 7, 1995) (the "Indonesian Company Law");

b. Cooperatives, regulated in Law No. 25 of 1992 Regarding Cooperatives (October 21, 1992).

2. Non-Legal Entities:

a. Civil Associations (Persekutuan Perdata), regulated by Articles 1618-1652 of the Indonesian Civil Code (the "ICC");

b. Firms (Persekutuan Firma), regulated by Articles 1618-1652 of the ICC and Articles 16-35 of the Commercial Code ("CC"); and

c. Dormant Partnership Associations (Persekutuan Komanditer), regulated by Articles 1618-1652 of the ICC and Articles 19-21 of the CC.v

The main form of business organization for medium and large-scale private enterprises in Indonesia is the limited liability company, namely, the "Perseroan Terbatas" or "PT". If the limited liability company is public, it is known as a "Perseroan Terbuka" or "Tbk".

Public enterprises may take the form of various types of companies. Presidential Instruction No. 17 of 1967 Regarding the Direction and Simplification of State Companies (December 28, 1967) divides state owned business enterprises into three types:

(i) Departmental Agencies (Perusahaan Jawatan);

(ii) Public Corporations (Perusahaan (Negara) Umum, known as "Perum"); and

(iii) Public and State Companies (Perusahaan (Negara) Perseroan, known as "Persero"), regulated by Government Regulation Number 12 of 1998 Regarding Limited Liability Companies (PERSERO) (January 17, 1998).

 

(b) Is there a system of registration for these business organizations? If so, briefly describe.

Every company is obliged to register its deed of establishment and amendments thereto in the Company Register maintained by the office of the Department of Industry and Trade ("DOIT") located within the company's domicile, as required by Law Number 3 of 1982 Regarding the Compulsory Registration of a Company (February 1, 1982) ("the Compulsory Registration Law"). This registration system is known as the Compulsory Registration of a Company (Wajib Daftar Perusahaan). The Company Register is intended to record general corporate information on a company that the Compulsory Registration Law requires to be reported, and constitutes a source of official information for all interested parties on companies registered in the Company Register.

We note that pursuant to Minister of Industry and Trade Decree No. 525/MDP/Kep/XI/1998 (November 13, 1998) certain companies (including those with fifty billion rupiah in assets or property) must register their audited annual financial reports with the central office of the Company Register of the DOIT no later than six months after the end of their financial years, beginning with the 1998 financial year.

Departmental Agencies and small-scale companies operating individual businesses or employing only family members, which do not require business licenses and which do not constitute legal or corporate bodies or an association, are not required to register.

If an entity is required to register in the Company Register and fails to do so, its management is subject to sanctions of three months' criminal imprisonment and/or a maximum fine of three million rupiah.

 

(c) Are there any minimal capitalisation requirements for these enterprises?

As set forth in the Indonesian Company Law, private limited liability companies must have authorized capital of at least twenty million rupiah. At the time of establishment (i.e., when the articles of association are signed), at least 25 percent of the authorized capital must be issued and at least 50 percent of the nominal value of each issued share must be paid up. All issued shares must be paid up in full at the time of the company's legalization (i.e., approval from the Department of Justice).

For public companies, a Decision Letter of the Board of Directors of PT Bursa Efek Jakarta No. Kep.01/BEJ/1992 (February 17, 1992) requires that a public company must have total assets of at least seven billion five hundred million rupiah, (approximately US$100,000, at present exchange rates), and paid up capital of at least two billion rupiah (approximately US$260,000, at present exchange rates).

The Capital Investment Coordinating Board ("Badan Koordinasi Penanaman Modal" or "BKPM") applies a policy that limited liability companies that are formed in the framework of foreign or domestic capital investment must have a minimum total investment equal to the rupiah equivalent of US$250,000. This can be comprised of both loans and equity. The minimum equity level in such a case would not be approximately US$66,000, assuming usual debt equity ratios favored by BKPM.

 

(d) Briefly describe the main features of each type of these business organisations, by reference to public/private/state ownership and management; accounting and auditing responsibilities (particularly the standards which apply to accounting and auditing practices); director and management responsibility (including, if relevant, possible liability for debts); and the role of regulatory authorities regarding these enterprises.

 

The main features of limited liability companies and state companies are, inter alia, as follows:

1. Limited Liability Companies:

a. The company must be established by two or more persons by a notarial deed made in the Indonesian language. The two shareholder requirement is not applicable to state-owned companies.

b. A company obtains the status of a legal entity after the notarial deed is legalized by the Minister of Justice of the Republic of Indonesia. c. The capital requirements mentioned in A.1.

c above must be fulfilled.

d. The Board of Directors must compile an annual report which must be made using Indonesian Financial Accounting Standards, the accounting principles acknowledged and approved by the accounting society of Indonesia, in this case, the Indonesian Accounting Association (AIA) and the government agencies in charge of such matters, which are the Department of Finance (the "DOF") and the Capital Market Supervisory Agency ("Bapepam").

If the company's business is related to the mobilization of public funds, if the company issues debt instruments or if the company is a public limited liability company, the Board of Directors is required to submit the company's annual report to a public accountant to be examined.

e. A limited liability company must register the company in the Company Register pursuant to the Compulsory Registration Law.

f. Pursuant to Article 82 of the Indonesian Company Law, the primary duty of the Board of Directors is the management of the company. In performing their management duties, Directors are jointly and severally empowered to represent the company in its external relations, unless specifically restricted by the company's articles of association or in the event of a conflict of interest.

Articles 85 and 98 of the Indonesian Company Law provide that Directors and Commissioners are responsible for the good conduct of the business of the company. They are not personally liable to third parties for acts performed by them on behalf of the company, provided that such acts are within the limits of their competence as prescribed in the articles of association. Conversely, Directors and Commissioners may be liable to the company's shareholders and creditors for ultra vires acts, acts of negligence and acts of bad faith in the discharge of their responsibilities. Each member of the Board of Directors may be jointly liable if the Board of Directors' negligence causes the bankruptcy of the company (Article 90 paragraph 2 of the Indonesian Company Law).

The provision in Article 85 of the Indonesian Company Law allows shareholders and creditors to sue Directors and Commissioners for losses suffered by such creditors or shareholders. Third parties have statutory rights under the Indonesian Company Law to bring an action against the Directors and Commissioners in certain specified instances. Shareholders may bring an action: (i) against Directors or Commissioners, when the Shareholders have suffered a loss as a result of a Director's or Commissioner's negligence or error, provided that the Shareholder owns at least ten percent of the company's issued share capital, and (ii) against Directors, when the Shareholders have suffered losses from the company's failure to follow proper procedures in the repurchase of shares from existing shareholders.

A third party under the Indonesian Company Law has a statutory right of action: (i) against Directors or Commissioners if the third party has suffered losses resulting from an annual report signed by the Directors and Commissioners that contains false or misleading information, (ii) if the third party is a creditor of the company, against a Director whose negligence or mistake caused the bankruptcy of the company and if the company's assets are inadequate to provide relief to such creditor, and (iii) against Directors for any company commitments made during the interim period between the Minister of Justice's approval of the company's articles of association and the date the company's deed of establishment containing such articles is announced in the State Gazette of the Republic of Indonesia.

g. For public companies, Bapepam is the authorized supervisory body appointed by the Government of Indonesia ("GOI").

2. State Companies

a. The main features of a Departmental Agency are as follows:

(i) it conducts a public service;

(ii) its public service is provided by a department, a directorate general, or a directorate, or by a regional government;

(iii) its capital is part of the State budget of the related department;

(iv) it is part of the department or regional government's composition, and it has a legal relationship with the public;

(v) it is not managed by a board of directors but is led by a head of a department, a directorate general, a directorate or a regional government.

b. The main features of a Public Corporation are:

(i) its purpose is to serve the public interest as well as to earn a profit;

(ii) it has the status of a legal entity;

(iii) it has its own name, property and freedom to act as a private company, such as to enter into contracts, etc.;

(iv) it can sue and be sued;

(v) it is completely owned by the State without Indonesian or foreign private capital ownership;

(vi) it is managed by a Board of Directors appointed and terminated by the GOI;

(vii) it has a Board of Directors that manages policy, provided approval for financial policy is first obtained from the related minister;

(viii) it submits a financial report to the GOI.

c. The main features of a Public or State Company are that:

(i) it has the status of a legal entity;

(ii) it is profit-oriented;

(iii) its capital is wholly or partly owned by the State;

(iv) it is managed by a Board of Directors which has technical knowledge in accordance with the business field of the Public or State company;

(v) the GOI is the shareholder in the company.

(a) Are there any relevant observations to make concerning political, social (powerful family), financier (bank equity or involvement) or cultural controls or influences in respect of these types of business organisation?

 

Yes. In Public and State companies, political control and influence by the GOI impacts the operation of these companies. The management is appointed by the GOI and managers are GOI employees. For Public and State companies, political influence has been a relevant control factor in the past.