Indonesian Omnibus Law: Amendments to Company Law and Approval of Micro and Small Business – Company Law/Commercial Law

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Job Creation Act No. 11 of 2020 of November 2, 2020
(“Law 11/2020”)or also known as the Omnibus Act, amended many laws in various sectors, including the Limited Liability Company Act No. 40 of 2007 (“Law 40/2007“).

Some essential changes under the Omnibus law include, among others, the removal of the minimum authorized share capital and the introduction of the simplification for the constitution of micro and small enterprises (“MSE”).

Legal frameworks: The executive summary below refers to the following applicable laws and regulations:

  1. Law 40/2007 as amended by Law 11/2020 (“Amended Law 40/2007”); and

  2. Government Regulations No. 8 of 2021 on Authorized Capital of Limited Liability Companies and Registration of Its Establishment, Amendment and Dissolution of Micro and Small Enterprises
    (“GR 8/2021”); and

  3. Regulation No. 21 of 2021 of the Minister of Law and Human Rights on Requirements and Procedures for the Establishment, Adjustment and Dissolution of a Limited Liability Company (“MoLHR Regulation 21/2021”).

Main amendments introduced by the amended Law 40/2007: Below are some of the main changes to the provisions of Law 40/2007.

Legal status of the company: According to Law 40/2007, the legal entity status of the company must be obtained after (i) the registration of the company with the Ministry of Justice and Human Rights (“MoLHR”) and (ii) issuance of proof of registration issued by the MoLHR (s. 7 (4) of the amended Law 40/2007).

Under the previous regime, the Company would obtain its status as a legal person on the date of publication of the ministerial order legalizing the Company’s legal person (establishment approval). This change in procedure simplifies and accelerates the process of incorporation of the Company.

Minimum authorized capital requirement of the company: The omnibus omitted the company’s minimum authorized capital requirement. In this case, the amount of authorized capital must be agreed only by the founders of the company (art. 32 (2) of the amended law 40/2007). However, there is still no certainty as to whether the omission of such a minimum authorized capital requirement will be implemented. Please also note that this provision is only applicable for the local investment company.

In addition to the above, foreign companies/Perusahaan Modal Asing (PMA) there are also changes in the provision regarding the minimum capital requirement, however, this is not regulated by the amended law 40/2007 but is being processed by the Indonesian Investment Coordinating Board/Badan Koordinasi Penanaman Modal
(BKPM) regulation.

Relaxation of MSE establishment requirement: Law 11/2020/Omnibus Law stipulates that the MSE can be incorporated by a single shareholder
(“Individual MSE Company”) by means of a declaration of establishment letter/Surah Pernyataan Pendirianinstead of a notarial deed (art. 153A (1) of the amended law 40/2007).

In addition to the above, the creation of MSE must fulfill the following general conditions: (i) the shareholders of MSE must be natural persons; (ii) the founders of the MSE company can only create one (1) MSE per year (art. 153E of the amended law 40/2007).

Procedures for establishing an individual MSE company: Any business actor who intends to set up an individual MSE business must: (i) register with the Legal Entity Administration System/Badan Hukum Administrative System, a platform managed by the MoLHR; and (ii) complete the establishment form provided which is considered as an establishment declaration letter (art. 13 of MoLHR 21/2021)

Thereafter, the MoLHR will issue a Certificate of Establishment which will be retained by the Business Actor, together with the Declaration of Establishment Letter, as evidence of the establishment of the individual MSE company. (Art. 14 (1) and (2) of MoLHR Regulation 21/2021).

Individual MSE Business Changes: An individual MSE company must transform into
‘general’ limited liability company if it: (i) no longer has a sole shareholder; (ii) fails to meet the general MSE requirements as provided for in Section 153A of Amended Law 40/2007 (Section 153H(1) of Amended Law 40/2007 jo. Art. 17(1) MoLHR Regulation 21 /2021).

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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