

Contents of Company’s Articles of Association
Source: Law No. 40/2007
Pursuant to Article 15 (2) Law No. 40/2007, the AoA may also contain other provisions which are not contradictory to Law No. 40/2007.
The Name and Domicile of Limited Liability Company
Pursuant to Article 16 (1) Law No. 40/2007, companies shall not use names that:
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have been used legally by another company or is basically the same as the name of another company;
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are contrary to public order and/or morality;
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are the same or similar to the names of state institutions, government agencies, or international institutions, except with the permission of those concerned;
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are not in accordance with the aims and objectives, as well as business activities, or only show the aims and objectives of the company without a personal name;
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consist of numbers or series of numbers, letters or a series of letters that do not form a word; or
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have the meaning of a company, legal entity, or civil partnership.
The name of the Company must be preceded by the phrase “Limited Liability Company”/ “Perseroan Terbatas” or abbreviated as “PT”. In terms of public companies, subject to Article 16 (2) Law No. 40/2007, the name of the Company shall include the abbreviation “Tbk”. If a Company name does not include the abbreviation “Tbk”, the status of the Company is a closed company. Further provisions regarding the procedure for using the name of the Company are regulated by a GR.
A company shall have a domicile in a city or regency within the territory of the Republic of Indonesia as stipulated in the AoA. However, it is possible for the company to have a domicile in a village or sub-district as long as the AoA includes the name of the relevant city or regency of the village or sub-district. The said domicile is also the head office of the company.
The Duration of Limited Liability Company
A company is incorporated for a limited or unlimited period as stipulated in the AoA. If the company is incorporated for a limited period of time, the length of period shall be clearly stated, for instance, for a period of 10 (ten) years, 20 (twenty) years, or 35 (thirty-five) years. Likewise, if the company is incorporated for an indefinite period, this shall also be stated explicitly in the AoA.
However, in the event that the promoters of company intend to amend the duration of association, application for approval of amendments to the AoA regarding the extension of duration of the association shall be submitted to the MoLHR no later than 60 (sixty) days before the duration of association ends. After submitting the application, MoLHR will grant approval to the application for the extension no later than the last date of duration of association.
The Purposes and Objectives of Limited Liability Company
The company must state the purposes and objectives of the company as well as its business activities in the AoA. Business activities, namely activities carried out by the company in order to achieve its purposes and objectives, must be clearly detailed in the AoA, and these details must not conflict with the AoA.
The Amounts of Authorized, Issued, and Paid-Up Capitals of Limited Liability Company
There are 3 (three) types of capital which shall be elucidated in a company’s AoA, namely authorized capital, issued capital, and paid-up capital. Authorized capital is the total amount of shares that a company can issue to the shareholders. According to Article 32 (2) Law No. 40/2007, the amount of authorized capital is determined by the company’s promoters. However, for companies that conduct certain business activities, the minimum amount of authorized capital shall be in line with the provisions of the laws and regulations.
Pursuant to Article 33 (1) Law No. 40/2007, at least 25% (twenty five percent) of the authorized capital shall be subscribed and fully paid-up. The subscription and payment for capital shall be attested with legitimate proof of payment. In addition, any further issuance of shares which is made to increase the issued capital shall also be fully paid-up.
The Types of Shares and its Rights
Shares can give rights to the owner, which in this case are the company’s shareholders. According to Law No. 40/2007, rights that can be granted to shareholders are as follows:
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the right to attend and cast a vote in the GMS;
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the right to obtain dividend payments and the remaining company’s assets from the liquidation process; and
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other rights as stipulated in Law No. 40/2007.
The provision mentioned above shall apply after the shares have been registered in the company’s shareholders list on behalf of the relevant shareholders. It should be noted that although the shares can grant rights to its shareholder, there are certain types of shares as stipulated in Law No. 40/2007 that only grant rights to obtain dividend payments and the remaining company’s assets from the liquidation process.
A company’s AoA shall determine 1 (one) or more shares classifications. In the event that there are more than 1 (one) shares classifications, the AoA shall determine one of which as the common shares.
Law No. 40/2007 specifies the shares classifications, as follows:
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shares with or without voting rights;
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shares with special rights to nominate members of BoD and/or BoC;
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shares which after a certain period, will be withdrawn or exchanged for other shares classifications;
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shares that give the shareholders priority to receive dividends before the shareholders of other shares classifications on either cumulative or non-cumulative dividends distribution; or
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shares that give the shareholders priority to receive the distribution of remaining company’s assets after the company’s liquidation before the shareholders of other shares classifications.
According to Article 54 (1) Law No. 40/2007, AoA can also determine the fraction of share’s nominal value. The holders of fractions of share’s nominal value are not granted with individual voting rights, save the relevant shareholder(s), either individually or with other holder(s) of fractions of share’s nominal value whose shares classifications are the same, have a total nominal value amounting to 1 (one) nominal share of such classification.
The Provisions on Place and Procedures to Hold the General Meeting of Shareholders
Convening the General Meeting of Shareholders
Before conducting the GMS, the BoD must summon the shareholders. However, in certain circumstances, such as where the BoD does not conduct the GMS, the BoD cannot conduct the GMS, or there is conflict of interests between the BoD and the company, the summons for GMS can be undertaken by the BoC or the shareholders by virtue of a stipulation by the chairman of district court.
The GMS shall be held at the company’s domicile or at the place where the company conducts its main business activities as provided in the AoA. Nevertheless, if the relevant company constitutes a publicly listed company, the GMS shall be held at the domicile of the stock exchange in which the shares of the company are registered. GMS can also be held through teleconference, video conference, or other electronic media facilities that allow all GMS participants to directly see and hear one another and participate in the meeting.
The summons for GMS shall be carried out within 14 (fourteen) days at the latest prior to the date on which the GMS is held, excluding the date of the summons and the date of the GMS. The information contained in the summons for GMS shall include the date, time, venue, and agenda of the GMS, as well as notifications that the materials which will be discussed during the GMS are available at the company’s office from the date of summons until the date of GMS.
In relation to the conveyance of summons, Article 82 (2) Law No. 40/2007 specifies that the summons for GMS shall be conducted by registered mail and/or advertisements in the newspapers. For public companies, prior to summoning for the GMS, there should be an announcement specifying that there will be summons for GMS. The said announcement shall be conducted within 14 (fourteen) days before the summons for GMS.
There is another GMS, namely the extraordinary GMS, which is regulated in Article 78 (1) jo. Elucidation of Article 78 (1) Law No. 40/2007. Extraordinary GMS may be held at any time as deemed necessary for the interest of the company. In line with the annual GMS, the extraordinary GMS shall also be preceded by summons.
Both annual GMS and extraordinary GMS can be conducted by the request of the following parties:
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one or more shareholders who jointly represent 1/10 (one-tenth) or more of the total amount of shares with voting rights, unless the AoA provides for a lower amount; or
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the BoC.
The request to conduct GMS shall be submitted to the BoD by registered mail in conjunction with its reasons. The BoD must convene the GMS no later than 15 (fifteen) days from the date of receiving the request to conduct the GMS. If the BoD does not convene the said GMS:
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a request for holding a GMS by shareholder(s) shall be resubmitted to the BoC; or
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the BoC shall summon the GMS.
In the event that neither the BoD or the BoC convenes the GMS within the specified time period, the relevant shareholder(s) who requested the GMS may file an application to the chairman of district court whose jurisdiction covers the domicile of the company and has powers to give permission to the applicant to conduct the summons for GMS him/herself.
The Quorum to Conduct the General Meeting of Shareholders
A GMS can be held if more than 1/2 (half) of the total shares with voting rights are present or represented in the GMS, except in circumstances where the laws and/or AoA specify larger quorum requirements. In the event that the said quorum has not been reached, the summons for second GMS may be conducted.
The summons for second GMS shall mention that the first GMS has been held, but the quorum was not met. The second GMS may adopt resolutions if more than 1/3 (one-third) of the total shares with voting rights are present or represented in the GMS, except in circumstances where the AoA determines larger quorum requirements.
If the quorum of the second GMS was also not satisfied, the company is entitled to propose an application to the chairman of the district court whose jurisdiction covers the domicile of the company to determine the quorum of the third GMS. The summons for third GMS shall mention that as the second GMS has been held but the quorum was not satisfied, the third GMS shall be conducted with a quorum stipulated by the chairman of district court.
The Procedures for Utilization of Profit and Distribution of Dividends
Companies must set aside a certain amount of net profits every fiscal year as reserves. This obligation shall be applicable if the company has a positive profit balance.
The abovementioned allowance for profit shall be carried out until the reserves reach 20% (twenty percent) of total issued and paid-up capital. Reserves which have not reached 20% (twenty percent) of total issued and paid-up capital can only be used to cover losses which cannot be covered by other reserves.
The use of net income, including the determination of the amount of allowance for reserves, shall be decided by GMS. All net profits, after deductions for reserves, shall be distributed to shareholders as dividends, unless otherwise stipulated in the GMS. The aforementioned dividends may only be distributed if the company has a positive profit balance.
A company may distribute interim dividends before the end of fiscal year of the company, provided that this is set out under the AoA of the company. The distribution of interim dividends can be carried out if the amount of net assets of the company does not fall below the sum of the total of issued and paid-up capital and the statutory reserve. Additionally, the distribution of interim dividends shall not disrupt or cause the company’s failure to fulfil obligations to creditors or disrupt the activities of the company.
Furthermore, the distribution of interim dividends shall be determined based on the resolutions of BoD after obtaining approval from the BoC with due regard to the provisions of Article 72 (2) and (3) Law No. 40/2007. If it is discovered that the company suffered a loss at the end of the fiscal year, the shareholders must return the distributed interim dividends to the company.
Dividends that have not been collected after 5 (five) years as of the date determined for the past dividends payments shall be included in a special reserve. Dividends that have been deposited into the special reserve and have not been collected within 10 (ten) years shall become the right of the company.
The Amendments to Articles of Association
The amendments to the AoA are determined by the GMS. The amendments to the AoA shall be comprised or stated in a notarial deed made in Indonesian.
There are certain amendments to the AoA which shall be approved by the MoLHR, namely:
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the name of the company and/or the domicile of the company;
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the purposes and objectives of the company as well as the company's business activities;
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the duration of association;
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the amount of authorized capital;
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the reduction of issued and paid-up capital; and/or
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the status of a non-publicly listed company seeking to become a public company or vice versa.
Amendments not mentioned above only need to be notified to the MoLHR as well as mentioned or stated in a notarial deed made in Indonesian.
Moreover, to obtain the approval of amendments to the AoA, Article 21 (7) Law No. 40/2007 stipulates that the application for the approval on amendments to the AoA shall be submitted to the MoLHR no later than 30 (thirty) days as of the date of notarial deed which comprises the AoA amendments. According to Article 21 (8) Law No. 40/2007, the said provision shall also be applicable (mutatis mutandis) to the implementation of notification of AoA amendments to the MoLHR.
Amendments to the AoA that are required to be approved by MoLHR shall be effective from the issuance date of the ministerial decree concerning the approval of amendments to the AoA. On the other hand, the AoA amendments that only need to be notified to the MoLHR shall be effective from the issuance date of the acceptance letter on notification of amendments to the AoA by the MoLHR.
Furthermore, the amendments to the AoA regarding the change of status of a non-publicly listed company to a public company shall be effective since the date when:
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the effective registration statement is submitted to the capital market supervisory agency for public companies; or
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a public offering is carried out, for companies that submit the registration statement to the capital market supervisory agency to conduct a public offering of shares under the provisions of laws and regulations in the capital market sector.
If the company's registration statement does not become effective, or the company which has submitted the registration statement does not carry out a public offering of shares, the relevant company must re-amend its AoA within 6 (six) months from the date of approval from the MoLHR.
AoA amendments made for a merger or acquisition shall come into force on:
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the date of approval of MoLHR;
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the date stipulated in the approval of MoLHR; or
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the date when notification of amendments to the AoA is received by the MoLHR, or a later date stipulated in the deed of merger or deed of acquisition.
An application for approval of amendments to the AoA shall be rejected if:
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it contradicts the provisions concerning procedures for amendments to the AoA;
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the content of the amendments is contrary to the provisions of statutory regulations, public order, and/or morality; or
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there are objections from creditors on the GMS decision regarding the reduction in capital.
The Organs of Limited Liability Company
A limited liability company has 3 (three) main organs, namely GMS, BoD, and BoC. This section will elaborate on their respective roles, obligations, and authorities as set out in Law No. 40/2007.
The General Meeting of Shareholders.
The GMS is a company organ that has authority not given to the BoD or the BoC, within limitations specified in Law No. 40/2007 and/or AoA. GMS is given authority to make shareholders’ resolutions that bind the company and its organs, namely:
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stipulate amendments to the AoA;
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increase or decrease company’s capital;
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approval of annual report and validation of financial report and BoC report;
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stipulate the use of company’s net profit for reserve and dividend allotment;
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approval of merger, consolidation, acquisition or separation;
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appointment and termination of BoD;
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appointment and termination of BoC;
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approval of certain actions of BoD (transferring company’s assets or providing company’s assets as collateral, up to more than 50% (fifty percent) of the company’s net assets in 1 (one) or more transaction(s), regardless of whether the transactions are related or not); and/or
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stipulate company’s liquidation or request to file for insolvency.
The shareholders, either by themselves or being represented by power of attorney, have the right to attend the GMS and use their voting rights according to the number of shares they own. However, during the voting process, the directors, commissioners, and employees of the company are prohibited to act as proxies for the shareholders.
Subsequently, the GMS’ resolutions are adopted based on amicable consensus. In circumstances where amicable consensus is not achieved, the resolutions shall be valid if they are approved by more than 1/2 (half) of the casted votes unless the laws and/or AoA require a higher number of approved votes.
Furthermore, Law No. 40/2007 regulates specific numbers of votes that shall be casted in GMS to conduct certain legal actions:
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GMS to amend AoA:
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unless the AoA requires a higher quorum of attendance and regulates the higher number of votes to adopt resolutions, GMS to amend AoA can be conducted if at least 2/3 (two-thirds) of all shares with voting rights attend or are represented in the meeting, and the resolutions of shareholders shall be valid if they are approved by at least 2/3 (two-thirds) of the casted votes;
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if the abovementioned attendance quorum is not satisfied, the second GMS can be held. The second GMS is legitimate and is entitled to adopt resolutions if in the meeting, at least 3/5 (three-fifths) of all shares with voting rights attend or are represented, and the resolutions of GMS shall be valid if they are approved by at least 2/3 (two-thirds) of the casted votes (unless the AoA requires a higher quorum of attendance and/or voting); or
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if the attendance quorum for the second GMS is also not satisfied, the third GMS can be held. To conduct the third GMS and adopt resolutions, the relevant company shall propose an application stipulating the quorum of attendance and the number of votes to adopt resolutions to the chairman of district court whose jurisdiction covers the domicile of the company.
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GMS to approve the merger, consolidation, acquisition, or spin-off, the submission of request for company’s insolvency, the extension of duration of the company, or the liquidation of company:
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unless the AoA requires a higher quorum of attendance and regulates the higher number of votes to adopt resolutions, GMS can be conducted if at least 3/4 (three-quarters) of all shares with voting rights attend or are represented in the meeting, and the resolutions of shareholders shall be valid if they are approved by at least 3/4 (three-quarters) of the casted votes;
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if the abovementioned attendance quorum is not satisfied, the second GMS can be held. The second GMS is legitimate and is entitled to adopt resolutions if in the meeting, at least 2/3 (two-thirds) of all shares with voting rights attend or are represented, and the resolutions of GMS shall be valid if they are agreed by at least 3/4 (three-quarters) of the casted votes (unless the AoA requires a higher quorum of attendance and/or voting); or
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if the attendance quorum for the second GMS is also not satisfied, the third GMS can be held. To conduct the third GMS and adopt resolutions, the relevant company shall propose an application stipulating the quorum of attendance and the number of votes to adopt resolutions to the chairman of district court whose jurisdiction covers the domicile of the company.
In addition to the GMS, the shareholders of a company can also adopt binding resolutions outside of the GMS, namely circular resolutions. Such decisions can be undertaken without conducting a physical GMS. However, all shareholders with voting rights shall agree in writing by executing the suggestion of circular resolutions.
The Board of Directors
The BoD is a company organ that has full authority and responsibility over the management of the company for the company’s interest and in accordance with the purposes and objectives of the company, both inside and outside of court in accordance with the provisions of AoA. The BoD of a company consists of 1 (one) or more members. The members of BoD are appointed by the GMS for a specified period and can be reappointed. In the event that the BoD consists of 2 (two) or more members, the division of tasks and authority among the directors shall be specified by the GMS resolutions. However, if the GMS does not stipulate the division of tasks and authority between the members of BoD, such tasks and authority shall be stipulated in the BoD resolutions.
Persons who can be nominated as directors are individuals who are capable of conducting legal actions and have not in 5 (five) years prior to their nominations:
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been declared bankrupt;
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been the directors or commissioners who were declared guilty or incurred bankruptcy to a company; or
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been penalized due to their conduct of criminal actions which harmed state finances and/or related to financial sectors.
Article 100 (1) Law No. 40/2007 governs that the obligations of BoD, which comprise the following matters:
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making the register of shareholders, special list, minutes of GMS, and minutes of BoD meetings;
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making annual report and financial documents of the company; and
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maintaining all registers, minutes, and financial documents of the company and other company’s documents.
In order to facilitate the BoD in carrying out its duties, Article 103 Law No. 40/2007 regulates that the BoD can grant written power of attorney to 1 (one) or more company employees or to other persons for and on behalf of the company to conduct certain legal actions as elucidated in such power of attorney. The said power of attorney shall be in the form of special power of attorney (surat kuasa khusus).
In limiting the authority of the directors to represent the company, Article 99 (1) Law No. 40/2007 regulates that the members of BoD are not authorized to represent company if:
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there is a legal case at the court between the company and the relevant director; or
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the relevant director has a conflict of interests with the company.
In the event that the abovementioned conditions transpire, the parties who are entitled to represent the company are as follows:
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the other director(s) who do not have any conflict of interests with the company;
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the BoC in the event that all of the directors have conflict of interests with the company; or
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other parties appointed in the GMS in the event that all of the directors or commissioners have conflict of interests with the company.
Moreover, Article 102 (1) Law No. 40/2007 stipulates that the BoD is obliged to obtain the approval of the GMS to (i) transfer; or (ii) make as the guarantee of payment for debts, the assets of the company whose value amounts to more than 50% (fifty percent) of the total net assets of the company in 1 (one) or more transactions, either related to one another or not. Particularly, the said transactions shall be the transfers of net assets of the company occurring in 1 (one) financial year or longer as specified under the AoA of the company.
Furthermore, every member of BoD shall be fully and personally liable for the loss endured by company in the event that the relevant member of BoD is found guilty or negligent in conducting his duties. Nevertheless, such liability does not prevail in the event that the following matters can be attested:
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the loss is not caused by the fault or negligence of the relevant director;
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the relevant director has conducted the management with good faith and prudently for the interests and in accordance with the purposes and objectives of the company;
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the relevant director does not have any conflict of interests either directly or indirectly in conducting the management which caused the loss; and
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the relevant director has taken actions to prevent the occurrence or the continuance of the loss.
The Board of Commissioners
The BoC is a company organ assigned to supervise the company in general and/or specifically in accordance with the AoA and to provide advice to the BoD. The BoC consists of 1 (one) or more members. The BoC consisting of more than 1 (one) members constitutes a council. Every member cannot act individually and shall act through BoC resolutions.
Moreover, the company’s AoA can regulate 1 (one) or more independent commissioners and 1 (one) representative commissioner. Independent commissioners are nominated based on GMS resolutions from a party that is not affiliated to the main shareholders, the members of BoD and/or other members of BoC. The representative commissioner is a member of BoC nominated by virtue of the resolutions of the BoC.
Persons that can be nominated as the commissioners are individuals who are capable of conducting legal actions, except in circumstances where in the 5 (five) years prior to their nominations, they have:
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been declared bankrupt;
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been the directors or commissioners who were declared guilty or incurred bankruptcy to a company; or
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been penalized due to their conduct of criminal actions which harmed state finances and/or related to financial sectors.
The party who has the authority to nominate the members of BoC is the GMS. The said nomination can be for certain periods, and if the periods have been concluded, the relevant commissioners can be reappointed.
In general, the BoC is responsible for the supervision of company. Every member of BoC is personally responsible for loss endured by the company in the event that the relevant member of BoC is found guilty or negligent in conducting his duties. However, the members of BoC shall not be liable for loss endured by the company if the following matters can be attested.
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the relevant commissioners have conducted the supervision with good faith and prudently for the interests of the company and in accordance with the purposes and objectives of the company;
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the relevant commissioners do not have personal interests both directly and indirectly to the management actions of the BoD which caused the loss; and
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the relevant commissioners have provided advice to the BoD to prevent the occurrence or continuation of the loss.
Article 116 Law No. 40/2007 stipulates that the members of BoC are obliged to:
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make minutes of BoC meeting and to save its copies;
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report to the company on the shares that they and/or their families have in the company and other companies; and
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provide report on the supervisory tasks that have been conducted during the recent financial year to the GMS.
The Authorization of Limited Liability Company
In order to obtain the MoLHR’s decree on the authorization of a company’s legal entity status, the promoters shall jointly submit an application to the MoLHR through the information technology services of the administration of legal entities by filling in format which comprises the following matters:
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the name and domicile of the company;
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the duration of association;
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the purposes and objectives as well as the business activities of the company;
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the amounts of authorized, subscribed, and paid-up capitals;
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the complete address of the company.
Subsequently, the application to obtain the MoLHR’s decree shall be submitted to the MoLHR no later than 60 (sixty) days after the execution of the deed of incorporation. Such application shall be supplemented with supporting documents, namely:
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the electronic statement from the applicant regarding the completeness of the company’s establishment documents;
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the copy of the deed of establishment of the company which is uploaded to the Legal Entity Administration System/Sistem Administrasi Badan Hukum (SABH);
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the minutes of deed of incorporation or the minutes of amended deed of company incorporation;
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the minutes of deed of consolidation in the event that the incorporation of company was undertaken for consolidation matters;
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the proof of payment for company’s capital;
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the statement letter of promoters’ abilities to obtain decrees, approvals, or recommendations from technical agencies for companies engaged in certain business sectors or the photocopies of decrees, approvals, and recommendations from related technical agencies for companies engaged in certain business sectors;
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the statement letter of promoters’ abilities to obtain NPWP and the receipt of report of annual tax notification letter; and
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the photocopy of statement letter regarding company’s complete address from the building manager or authorized agency, or the original of statement letter regarding the company’s complete address signed by all members of BoD in conjunction with all of the company’s promoters, and all members of BoC.
Afterwards, in order to obtain the authorization of company’s legal entity status, the applicant is obliged to pay certain amount of money as the PNBP with the following conditions:

Legalization Application and Its Rate
Source: MoLHR Reg. No. 4/2014 jo. Appendix GR No. 28/2019.
Financing a Company
Obtaining a mode of financing is critical throughout the life of a company, whether to start a business, to expand it, or to maintain it. Generally, there are 2 (two) types of financing: (i) equity financing; and (ii) debt financing.
Equity Financing
Equity financing is the process of raising capital through the sale of shares. Equity financing involves the sale of common stock and the sale of other equity or quasi-equity instruments such as preferred stock, convertible preferred stock, and equity units that include common shares and warrants.
Venture Capital
VC company is one of the financing institutions partaking in the equity participation and/or financing the development of the investee company for a certain period of time. Every business actor that conducts their business in the form of VC company shall obtain the business license from OJK. Aside from the conventional one, OJK also recognizes the Syariah VC that runs the VC activities based on Syariah principles and Islamic law. The VC company itself could secure several types of funding from:
Private Equity Fund
Private equity is an alternative investment class and consists of capital that is not listed on a public exchange. Private equity composed of funds and investors that directly invest in private companies, or that engage in buyouts of public companies, resulting in the delisting of public equity. Private equity in practice obtains funding from: loans, asset securitization, issuing medium-term notes, issuing bonds, subordinated loans, issuing shares, donations, and/or grants. For the purpose of this section, we will explain about loans and issuing bonds.
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venture funds;
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loan;
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asset securitization in accordance with Indonesian capital market regulation;
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medium term notes issuance;
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bond issuance;
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subordinated loan or financing;
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shares issuance;
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donation; and/or
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grant
The abovementioned sources of funding could be given by the government, state-owned company, financing company, bank, or other business entity from Indonesia and foreigners. Furthermore, the investee company could enter into an agreement and benefit from the VC’s activities, including but are not limited to:
Equity Participation
The VC could step in direct equity participation for the investee incorporated as limited liability company. Thus, the VC could purchase the shares and will possessed an ownership in the early stage of investee company. As for the Indonesian VC companies, they are only allowed to engage in equity participation for no longer than 10 (ten) years, which can be extended 2 (two) times with a total extension period of 10 (ten) years.
Quasi-equity Participation
Beside the equity participation, the VC could make an investment through the purchase of convertible bonds issued by the investee incorporated as limited liability company. This type of purchase by Indonesian VC companies must be set out in a notarial deed beforehand.
Purchase of Start-up Bonds
The VC could also carry financing activity through the purchase of bonds issued by the start-up investee in its early and/or development stage.
Productive Business Financing
This type of financing by VC aims to increase the production of goods and/or services by investees for their own revenue growth.
However, it should be noted that VC activities are not intended to provide long-term funding. In a bigger picture, the idea of VC is to invest in the investee’s balance sheet and infrastructure until it reaches the sufficient size and credibility to be sold to a corporation or so that institutional public-equity markets could step in.
Initial Public Offering
As businesses grow and aim for sustainability, obtaining more financing sources become increasingly important. IPO opens the possibility of financing from public investors through the stock market. In IPO, the privately-owned company lists its shares on a stock exchange, making them available to be purchased by the general public. By going public, capital obtained from the capital market can be used to increase working capital in order to finance company growth, to pay debts, to make investments, or to make acquisitions.
In Indonesia, IPOs are now carried out fully digital through E-IPO procedure. E-IPO is expected to increase public participation in public offerings by utilizing the development of information technology to improve efficiency, effectiveness, transparency, and accountability of public offerings. The distinguishing feature between ordinary IPO and E-IPO is the incorporation of a digital system which handles the entire IPO process. There are several processes and requirements to take into account, which will be demonstrated in the graph below:
Incorporation of Limited Liability Company in Indonesia
The Requirements for the Incorporation of Limited Liability Company
There are several types of business entities utilized to conduct business activities in Indonesia. For business purposes, an entity in the form of a limited liability company is preferable as its owners are not personally liable for the company’s losses.
The Incorporation of Limited Liability Company
According to Article 7 (1) Law No. 40/2007, a company shall be incorporated by 2 (two) or more persons by virtue of a notarial deed written in Indonesian. The aforementioned “persons” comprises of individuals, either Indonesian or foreign citizen, as well as local or foreign legal entities. Moreover, such promoters are obliged to subscribe to the company’s shares, except in circumstances where the relevant companies are incorporated by consolidation.
However, after the enactment of GRLL No. 2/2022, the provision requiring a company to be incorporated by 2 (two) or more persons no longer apply to:
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companies whose shares are owned by the government;
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BUMD;
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BUM Desa;
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companies which manage stock exchange, clearing and securities institutions, depository and settlement institutions, or any other companies as stipulated under capital market laws; or
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companies which satisfy the criteria of micro and small enterprises.
If a company has fewer than 2 (two) shareholders after it has obtained its legal entity status, no later than 6 (six) months since the said situation, the relevant shareholder shall:
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transfer a portion of his or her shares to another party; or
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the company should issue new shares to other parties.
If the abovementioned 6 (six) month timeframe has lapsed and there are still fewer than 2 (two) shareholders in the company:
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the relevant shareholder shall be personally liable for all of the engagements and losses endured by the company; and
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the relevant district court may dissolve the company upon the request of interested parties.
Particularly, the term interested parties mentioned above include public prosecutors, shareholder, the BoD, the BoC, employees of the company, creditors, and/or other stakeholders.
The Deed of Incorporation and the Incorporation Statement Letter
A company is incorporated by virtue of a notarial deed written in Indonesian. The said deed is also called the deed of incorporation which shall accommodate the company’s AoA and other information related to the incorporation of the company.
Specifically, such other information shall at least comprise the following matters:
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full name, place and date of birth, occupation, address, and nationality of the individual promoter, or name, address as well as the number and date of MoLHR decree regarding the company’s legal entity;
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full name, place and date of birth, occupation, address, and nationality of the first appointed members of BoD and BoC; and
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names of shareholders, details of the number of shares, and nominal value of the shares that have been issued and paid up.
In terms of micro and small enterprises, GR No. 8/2021 stipulates that companies which satisfy the criteria of micro and small enterprises consist of (i) company incorporated by 2 (two) persons or more; and (ii) individual company incorporated by 1 (one) person. Individual company (perseroan perorangan) shall be incorporated by Indonesian citizens by filling out the statement of incorporation in Indonesian. The said Indonesian citizens shall meet the following requirements:
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being at least 17 (seventeen) years old; and
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having legal capacity.
In addition, to obtain legal entity status for individual company, the statement of incorporation of the relevant individual company shall be registered electronically to MoLHR by filling out a form which include the following information:
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name and domicile of individual company;
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the duration of individual company;
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the aims and objectives as well as the business activities of individual company;
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the amount of authorized capital, issued capital, and paid-up capital;
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nominal value and number of shares;
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the address of the individual company; and
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full name, place and date of birth, occupation, residence, resident registration number, and NPWP of the promoter, BoD, and shareholders of the individual company.
Articles of Association of a Limited Liability Company
In addition to the prevailing laws and regulations, AoA is a legal document that provides information of the company and the rules which shall be satisfied when managing the company.
The Contents of Limited Liability Company’s Articles of Association
According to Article 15 (1) of Law No. 40/2007, AoA must contain at least:
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the name and domicile of the company;
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the objectives and purposes as well as the line of business of the company;
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the duration of association;
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the amount of authorized capital, issued capital, and paid-up capital;
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the number of shares, classes of shares, together with the number of shares for each class (if any), the rights attached to each share, and the nominal value of each share;
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the title and the number of members of BoD and BoC;
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the setting of place and procedures for holding a GMS;
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the procedures for appointment, replacement, and dismissal of members of BoD and BoC; and
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the procedures for the use of profits and the distribution of dividends.
However, Law No. 40/2007 stipulates that the AoA shall not contain the following provisions:
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provisions on the receipt of fixed interest on a share; and
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provisions on the grant of a personal benefit to a founder or other party.
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IPO Process
Source: Bapepam Reg No. IX.A.2 and OJK Reg. No. 41/2020
In order to become a public company, a company should submit their shares-listing application to the IDX. The company needs to submit an application for listing of shares, accompanied by the required documents, including company profiles, financial reports, legal opinions, and financial projections to IDX. The company should also submit the application to collective depository of KSEI. In this phase, the IDX could further inquire the company to present their company profile, IPO plan, and make a visit to the company. The IDX will approve the application within 10 (ten) days after the completion of documents.
Along with the share-listing application process, the company should also submit the IPO registration statement to OJK. The company is required to submit the registration statement and its supporting documents to the OJK in accordance with applicable regulations and the registration statement has been effective. In accordance with Art. 3 OJK Reg. No. 7/2017, the registration statement must be submitted along with supporting documents of at least:
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cover letter of the registration statement;
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prospectus;
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prospectus summary;
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early prospectus (if any); and
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any other documents as part of the registration statement.
During the review, OJK may request additional information of the company to ensure that all the material facts regarding public offering, financial condition, and business operation of the company disclosed to the public in the prospectus. The company should also obtain OJK’s permission to publish their prospectus summary and conduct book building or early offering.
After the registration statement is made effective by the OJK, the company may disclose its summary prospectus in the newspaper, provide prospectus for the public, and conduct the IPO. An effective statement from OJK can be issued at any time after:
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the adequacy and objectivity of the information disclosed in the registration statement has been reviewed by the OJK, and the OJK does not require additional information and has no further response; and
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the company has confirmed the presence or absence of any change in information or has submitted information regarding the amount and price of the securities offering, underwriting, and/or the interest rate on bonds or sukuk yields.
The company shall conduct the IPO no later than 2 (two) working days after the effectiveness of the registration statement, where the shortest IPO period is 3 (three) working days and the longest is 5 (five) working days, and the newly listed company will be available on the IDX board.
Debt Financing
When a company borrows money to be paid back at a future date with interest it is known as debt financing.[1] Debt financing itself could be in the form of a secured as well as an unsecured loan.
Loans
Loan is a form of debt incurred by an individual or other entity. The lender, usually a corporation, financial institution, or government, advances a sum of money to the borrower. In return, the borrower agrees to a certain set of terms including any finance charges, interest, repayment date, and other conditions. In loan arrangements, the lender is usually a corporation, financial institution, or government, which lends a sum of money to the borrower. A loan agreement is classified into 2 (two) types, namely (i) a loan agreement with a single lender or a bilateral loan; and (i) a group of lenders or a syndicated loan.
Bilateral Loan
Bilateral loan is a form of loan business in which one lender provides loans for one borrower for working capital, capital expenditure or general corporate purpose. The major advantage of bilateral loan is that lender offers relatively independent, flexible and customized scheme for borrower.
Syndicated Loan
In contrast with bilateral loan, syndicated loans involve two or more lenders who jointly to provide a loan to a borrower. Every syndicate member has a separate claim on the borrower despite there being a single loan agreement contract. There are several parties involved in syndicated loan, such as:
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The Lenders
In a syndicated loan, 2 (two) or more lenders provide funds to a borrower or group of borrowers under the terms of a loan agreement.
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Arranger
With a syndicated loan, the borrower usually grants a mandate to an arranging bank setting out the financial terms of the proposed loan and authorizing this bank to find other suitable lenders in the market and arrange the syndication.
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Facility Agent
The facility agent is the representative of the syndicated lenders under the loan agreement and can be seen as the primary point of contact between the borrower and the lenders. It carries out an administrative role in relation to the facility. Furthermore, if a loan is to be secured, the agent will also usually act as security agent. The security agent will hold the security on behalf of all of the lenders and should enforcement become necessary, will be responsible for negotiating with the borrower and taking any enforcement action on behalf of the lenders.
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Borrower
The types of borrowers that might wish to borrow money include companies, limited liability partnerships, general partnerships, limited partnerships, individuals, unincorporated associations, and local authorities.
The process of arranging a syndicated loan has two principal phases which are pre-mandate phase and post-mandate phase. The pre-mandate phase is the phase during which the borrower discusses with potential arrangers about the proposed facility and then appoints one or more banks to act as arranger. Meanwhile, the post-mandate is the phase where the syndication of the loan takes place and loan agreements are negotiated.
In Indonesia, syndicated loan subjects to best practice in banking and finance sector, and also regulated in BIR No. 18/19/2016. Based on Article 16 BIR No. 18/19/2016, it can be understood that syndicated loans require the participation of a lead manager who acts as a coordinator for syndicated members.
Bond Issuance
Bonds, which are otherwise known as debt securities, are financing instruments issued to a financier or lender for funds. Since bonds are essentially debts, the issuing entity has to pay the principal debt at a certain maturity date, while the interest of the debt can be spread in intervals or fully at the maturity date. Moreover, the amount of debt to be repaid by the issuing company is also predetermined when issuing the bonds.
From the financiers’ perspective, taking into account that bonds will be repaid by the issuing entity with predetermined repayment schedule and interest, investing in bonds is considerably safer and warrants a fixed income. Therefore, bonds are also referred to as fixed-income securities.
Under the Indonesian capital market regulation, bonds can be issued either through a public offering in the primary market, or directly to financiers without public offering. In a public offering setting, bonds are issued as securities through an ordinary public offering mechanism. In contrast, the issuance of bonds without public offering is only allowed for certain types of bonds and is undertaken by issuing bonds only and directly to professional financiers.
With regards to bonds issued without public offering, the entities which are able to issue such bonds are: (i) issuers or public companies; (ii) business or legal entities which are neither Issuers nor Public Companies; (iii) supranational institutions; and (iv) collective investment funds which are allowed to issue bonds according to the prevailing regulations.
Peer-to-Peer Lending
Another form of debt financing is peer-to-peer lending, which under the Indonesian financial regulation is referred to as information technology-based co-funding services. For the purpose of this section, we will use the term “peer-to-peer lending” when referring to the information technology-based co-funding services.
According to Article 1 (1) OJK Reg. No. 10/2022, peer-to-peer lending is defined as the provision of financial services to bring together funders and fund recipients in conducting conventional funding or based on sharia principles directly through an electronic system by using the internet. In a peer-to-peer lending arrangement, the relevant parties are:
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The Organizer, which is a limited liability company that provides, manages, and operates the peer-to-peer lending system.
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The Funders, which can be an individual, legal entity, or business entity, whether Indonesian or foreign.
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The Fund Recipient, which can be an individual, legal entity, or business entity, domiciled in Indonesia.
Furthermore, there will be 2 (two) agreements signed in a peer-to-peer lending arrangement: (i) between the Organizers and the Funder; and (ii) between the Funder and the Fund Recipient. Such agreement shall be signed digitally with an electronic signature.
As to the limits of the lending amount, the Organizer has to set it according to the following provisions:
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the limit for the lending received by the Fund Recipient is set at Rp2.000.000.000,- (two million rupiah);
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the limit for the lending to be provided by the Funders are:
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for Funders not overseen by the OJK, at most 25% (twenty-five percent) from the position of the Funding at the end of the month;
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for Funders overseen by the OJK, at most 75% (seventy-five percent) from the position of the Funding at the end of the month.
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