Indonesia

Limited liability company

The phrase limited liability company refers to a company limited by shares. The company is established by agreement. Consequently, a company must have at least two promoters.

The establishment of a company begins when promoters sign an agreement. If another person is representing the promoters, a written power of attorney is required. The agreement must follow a prescribed form, that is, a notarial instrument or deed (akta). The deed must be in Indonesian and be signed before a notary. The deed contains the company's articles of association. The notary will lodge the deed with the Minister of Justice and Human Rights to obtain a certificate of sanction. The company will obtain the status of a legal entity separate from its promoters when the certificate is issued.

The company is required to have at least two shareholders throughout its lifetime. If at any time the company has only one shareholder, after six months the sole shareholder becomes personally liable for the contracts made and losses incurred by the company. If this happens, a District Court may wind up the company, upon petition by an interested party.

Company bodies

A company, being an artificial person, cannot act on its own. The law equips a company with three internal bodies: the general meeting of shareholders (GMS); the board of commissioners (BoC); and the board of directors (direksi).

General meeting of shareholders

The GMS is the highest decision-making body within a company and has all the powers not granted or delegated to the BoC or direksi. The GMS may not be directly involved in the day-to-day management of the company because the law has prescribed this function to the direksi.

The GMS's authority includes making decisions regarding: (i) amendments to the company's articles of association; (ii) repurchase of the company's shares; (iii) the declaration of dividend; (iv) appointment of members of the direksi and BoC; (v) sale or encumbrace of all or most of the company's assets by the direksi; and (vi) the merger, consolidation, takeover, bankruptcy and liquidation or dissolution of the company.

The articles of association may also require that the direksi obtains shareholder approval before undertaking certain actions, for example, entering into contracts of a certain value or duration or finalization of a business plan. It is the direksi, although with shareholder approval, and not the shareholders, that makes these decisions.

Board of commissioners

The BoC has the duty to supervise the direksi's policies in the operation of the company and to provide advice to the direksi. To fulfil this role the BoC may have access to the premises and the records of the company and obtain information from the direksi.

The BoC must perform its duties in good faith, with full responsibility, and act in the interest of the company. The BoC has no executive function with respect to the management of the company. Its powers are essentially supervisory. As such, the BoC has no authority to instruct the direksi to undertake most actions.

The BoC can suspend a member of the direksi, that is, a director. A meeting of the shareholders must then be convened to determine whether the director will be dismissed or rehabilitated. If all members of the direksi have been dismissed or if there are no members of the direksi for any other reason, the BoC may manage the company on a temporary basis. If the BoC manages the company, the BoC will have the rights, authorities and obligations of the direksi.

Direksi

The direksi manages the company. The duty to manage a company, and to represent that company with regards to third parties, is vested with the direksi. The direksi must act in good faith and in the best interest of the company, not in the best interests of the company's shareholders. Although the shareholders always have the right to replace the direksi, they are not entitled to instruct the direksi how to manage the company.

The Indonesian Company Law and the company's articles of association might require that the direksi must seek shareholder and or BoC approval before it can undertake a specific action. However even if approval is given, the responsibility with regard to the action is vested with the direksi, not the shareholders or the BoC.

Pre-incorporation liabilities

Liability of promoters

A company obtains the status of a legal entity when a certificate is issued by the Ministry of Justice and Human Rights in respect of the company's deed of establishment. In the period between signing the deed and issuance of the certificate, the company is considered to be a company in the process of formation. A company in the process of formation does not have the benefit of limited liability and is considered to be an unincorporated partnership between the promoters. So any act undertaken for the benefit of the company in the process of formation must be undertaken by the promoters.

In practice there can often be a gap between signing the deed of establishment and issuing the certificate. Accordingly, it is often necessary for a company in the process of formation to enter into contracts relating to the establishment of its business. Acts committed by the promoters for the benefit of the company in formation will bind the company when it becomes a legal entity if the company confirms in writing its acceptance and assumption of the promoters' acts.

Generally the company ratifies the acts at its first GMS. Until the company adopts the acts undertaken while the company was in formation, the promoters will continue to be personally liable for their acts.

Liability of directors

The direksi is required to register the deed of establishment with the company register at the Ministry of Industry and Trade, and publish it in the official gazette. For as long as the deed of establishment is not registered and published, each member of the direksi is jointly and severally liable for any act committed by the company.

The liability of the direksi would presumably include liability arising from actions taken by the promoters while the company was in the process of formation that are subsequently ratified by the company (even though the direksi had no part in these actions).

Individuals nominated to the direksi are not entitled to act on behalf of the company until the company obtains the status of a legal entity. Consequently, the direksi members could also be liable for any acts they purportedly entered into on behalf of the company in the process of formation because they would in effect be taking these actions in a personal capacity.

Anyone considering accepting an appointment to the direksi of a company in formation should obtain an indemnity from the promoters, particularly because a direksi member could be held liable for pre-incorporation actions on which they had no say.

Directors' liabilities

Fiduciary duties

Unlike the GMS, which is the body that represents the interests of the shareholders, the direksi is a body that represents the interests of the company. The duty of the direksi to represent and manage the company originates from the company's dependence on natural persons. This dependence creates a fiduciary relationship between each member of the direksi and the company.

Internal and external liabilities

Members of the direksi can be liable: (i) internally, that is, towards the company; and (ii) externally, that is, towards third parties. The shareholders in the company can discharge the direksi's liability towards the company by their annual general meeting. But such a discharge does not release them from liabilities toward third parties. Furthermore, the discharge by shareholders' resolution would be limited to matters that were disclosed to the shareholders' meeting in the annual report.

If the annual report is incorrect or misleading, the members of the direksi will become jointly or severally liable towards any party who suffers losses caused by it.

There is an emphasis on civil liability of the direksi if the company goes into bankruptcy caused the direksi. The law allows not only the shareholders but also other parties, such as creditors, the receiver and employees, to claim against members of the direksi. Obviously, those claiming against the direksi must prove that the bankruptcy occurred because of the fault or negligence of the direksi. If the claim is successful, members of the direksi will be jointly and severally liable for the losses that cannot be settled from the proceeds of the liquidation of the company's assets. An exception to this is when a member of the direksi can prove that they did not cause the bankruptcy.

Commissioners' liabilities

Each member of the BoC is required by law to perform their supervisory and advisory duties in the best interest of the company. There is no provision in the Company Law in respect of BoC members that corresponds to the personal liability of the direksi if they are at fault or are negligent in causing the company to suffer losses. However, a member of the BoC who is at fault or is negligent in performing their supervisory and advisory duties can be personally liable under the general law of wrongful actions as provided in Article 1365 of the Indonesian Civil Code.

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