Shareholders’ rights and duties in Indonesia.

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Shareholders’ rights and duties in Indonesia

This is an ultimate guide on the shareholders’ rights and duties in Indonesia.

Being a shareholder of a company, you are entitled to crucial rights and duties within the company that makes the company function correctly, and by breaching the duties, shareholders are often faced with legal penalties.

Let’s dive right into more about shareholders in Indonesia.

What is a shareholder?

A shareholder is an individual or company that owns shares of the company. Once they own shares, they will become owners of the company. Every company must have at least two shareholders for the company to be able to be incorporated.

Shareholders’ rights

Company shareholders are entitled to the following rights:

  • Attend the general meeting of shareholders (GMS) and cast votes in accordance with the number of shares held
  • Receive dividend payments and asset distribution after liquidation
  • File a lawsuit against the company if the shareholder suffers any losses as a result of the actions of the company that are considered unfair and unreasonable as a result of a resolution of the GMS, the board of directors or board of commissioners
  • Request the company to repurchase the shareholder’s shares at a reasonable price in the event of certain specified corporate transactions
  • Pre-emptive rights to subscribe to newly issued shares in proportion to the shareholder’s shareholding for the equivalent class of shares.

Shareholders’ duties

Duties that shareholders are entitled to include:

  • Appoint and dismiss company directors
  • Check financial reports
  • Design and determine a business plan

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Register of shareholders

Register of shareholders must contain:

  • Shareholder’s names
  • Shareholder’s addresses
  • The number, serial number and date of acquisition of shares held by the shareholders and their classification when more than one classification of shares has been issued
  • The amount paid-up on every share
  • The name and address of an individual or legal entity who has a pledge over the shares or is the recipient of fiduciary security over shares and the date of acquisition of the pledge of registration of the fiduciary security

Information disclosure to shareholders

Under the Company Law, the board of directors must allow the shareholders to:

  • Examine the register of shareholders, the special register of shareholders, minutes of the general meeting of shareholders and annual reports
  • Obtain copies of the minutes of the GMS and annual reports of the company

Shareholders’ agreement

Provisions included in the shareholders’ agreements include but are not limited to:

  • Capitalisation
  • Corporate governance
  • Distribution of dividends
  • Governing law and the settlement of disputes
  • Pre-emptive rights
  • Protective covenants
  • Rights and obligations of shareholders
  • Reserved matters that must be unanimously approved by the board of directors or the board of commissioners or shareholders
  • Representations and warranties
  • Restriction on the encumbrance of shares
  • The appointment of the board of commissioners and board of directors
  • The requirements and procedures for the transfer of shares
  • Termination
  • Voting rights

Annual shareholder’s meeting

The annual general meeting of shareholders must be held no longer than six months after the end of each financial year to discuss and adopt resolutions including:

  • Approval of the company’s annual report
  • Appropriation of profits
  • Appointment of auditors
  • Ratification of the company’s audited financial statements

The annual report should contain:

  • A financial report consisting of at least the last balance sheet for the current financial year compared to the previous financial year, a profit and loss statement for the financial year, a cash flow report and a report on changes in equity and notes on the financial report
  • A report on the company’s activities
  • A report on the implementation of environmental and social responsibility
  • Details of any problems that arose during the financial year that affected the business activities
  • A report on the supervisory duties performed by the board of commissioners during the financial year that just ended
  • Names of the members of the board of directors and members of the board of commissioners
  • Salaries and allowances for members of the board of directors and board of commissioners

Minority shareholders

Minority shareholders are shareholders who hold less than 50% of the company shares and does not have majority control over the country. There are several legal protections given to minority shareholders to balance their position with majority shareholders.

The legal protection includes:

  • Filing lawsuits against the company, members of the board of directors and board of commissioners
  • Purchasing shares at a reasonable price – Shareholders have the right to request the company to purchase the shares at a reasonable price of the shareholder does not approve of the company’s action.
  • Requesting a GMS – Annual GMS can be held with the request of one or more shareholders who represent 1/10 of the total number of shares with voting rights.
  • Examining the company – Company examination can be carried out when there is suspicion that the company has committed an illegal act that harms the shareholders or third parties, or when the member of the board of directors or board of commissioners commit an act that damages the company, shareholders or third parties.
  • Propose dissolution of the company – One or more shareholders representing 1/10 of the number of shares with voting rights may propose the dissolution of the company.

Resident shareholders

A resident shareholder is a person or company that acts as the registered owner of a company’s shares on behalf of the real owners. When resident shareholders are appointed, your personal details are protected and will not be displayed publicly. Your shares will be held under a Trust which is backed by the Declaration of Trust signed by the resident shareholder.

There are two main reasons why foreign companies choose to use resident shareholders:

  1. Doing business in an industry that is closed or restricted to foreign companies according to the Indonesia Negative Investment List
  2. Starting a company with less than the minimum paid-up capital (IDR 2.5 billion) required for foreign companies

Conclusion

Shareholders must act according to the duties as listed above and should know what rights they have in the company. To ensure you understand the role of a shareholder, feel free to seek advice from Acclime.

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