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Regulating venture capital in Indonesia

Freddy KaryadiOene Marseille

The Indonesian Ministry of Finance recently revised its regulation on venture capital companies (VCC) through its regulation No. 18 of 2012, under which a VCC is defined as a business entity that conducts financing activities/capital participation in company that receives such financial support for a certain time period, in the form of equity participation, convertible bonds, and/or profit/revenue sharing.

In the event the investee company becomes a publicly-listed company, the VCC must sell its shares in that company within 36 months after the issuance of the permit from the Capital Market and Financial Institution Supervisory Board (known as Bapepam-LK) to offer the investee company's shares on a stock exchange.

A VCC may take the legal form of a limited liability company or a cooperative. Moreover, the shares of a VCC formed as a limited liability company can be held by Indonesians, Indonesian business entities, foreign business entities, the Indonesian government, or local government. A foreign investor may own up to 85% of a VCC's paid-in capital. The minimum capital requirement for a VCC formed as a cooperative is Rp5 billion ($545,000), and Rp10 billion for a limited liability company. The VCC must obtain a permit from the Minister of Finance before it can conduct business

The financing business activity of a VCC may include equity participation, convertible bonds, and profit/revenue sharing. Equity participation has to be conducted by way of direct capital participation in the investee company (which is a limited liability company), for a specific period of time.

VCCs are prohibited from withdrawing funds directly from the public in the form of giros or savings. Since VCC are allowed to receive loans, however, they can issue promissory notes, if the board of commissioners and the general shareholders meeting approves the issuance. In addition, the promissory notes must be a notarial deed. The VCC must submit a monthly report, a semester report, and an annual report to the Minister of Finance.

Oene Marseille and Freddy Karyadi

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