At a glance: M&A structures and regulation in Indonesia

Structure and process, legal regulation and consents

How are acquisitions and disposals of privately owned companies, businesses or assets structured in your jurisdiction? What might a typical transaction process involve and how long does it usually take?

In Indonesia, acquisitions are typically structured through the transfer of the target company’s shares or, in the case of an asset acquisition, through the transfer of the target company’s assets from the seller to the purchaser. These transfers are usually conducted through a sale and purchase agreement that is executed by the parties who wish to acquire or dispose of the relevant company or assets.

Law No. 40 of 2007 on Limited Liability Companies (the Company Law), as partially amended by Government Regulation in Lieu of Law Number 2 of 2022 on Job Creation, governs the acquisition of shares in a limited liability company, which is defined as a legal action taken by a legal entity or individual person to acquire shares in a company resulting in the passing of control of that company.

In general, the process of an asset acquisition depends on the asset being transferred, as each type of asset is subject to different legal requirements. The process includes, among other things:

• for tangible assets, signing the sale and purchase agreement or the transfer agreement, and physically handing over the assets;
• for intangible assets, signing the sale and purchase agreement, deed of assignment, or both; and
• for land and buildings, signing the deed of transfer before a land deed officer and registering the deed in the Land Registry.

The length of an acquisition or disposal process depends on the complexity of the transaction and the number of parties involved. The length of certain processes within the acquisition itself also varies depending on the complexity of relevant documents and the information that should be reviewed.

Some of the steps that are typically taken prior to the completion of an acquisition or disposal include:

• due diligence on the relevant company or asset to be acquired or disposed of;

• drafting of the transaction documents – in most transactions, parties would start off with a conditional sale and purchase agreement (an agreement made before completion), followed by the final sale and purchase agreement on the completion date;
• negotiation of the transaction documents, which can also be concurrent with the due diligence process;
• in the case of an acquisition of shares of a company, announcing the proposed acquisition in a national newspaper and to the employees of the company to be acquired by written notice (30 days prior to the date of shareholders’ written resolution or, if the acquisition has to be approved by holding a general meeting of shareholders (GMS), 30 days prior to the date of the GMS notification (the GMS notification in general is 14 days prior to the date of the GMS)); and
• fulfilment of the conditions precedent, if any, including obtaining approval from the shareholders or GMS of the target company and any other conditions required by applicable laws and constitutional documents of parties involved.

Aside from the processes above, the larger the company, or the more assets that would be acquired or disposed of, the longer it would take to complete the whole transaction process. In general, subject to the completion of the transaction or the due diligence process and its results, it may take approximately two to three months to complete the whole transaction, as typically corporate approvals, such as GMS approval, are needed, which would have their own timelines and processes.

Which laws regulate private acquisitions and disposals in your jurisdiction? Must the acquisition of shares in a company, a business or assets be governed by local law?

In general, the transfer of shares or assets (including private acquisitions and disposals) is governed under local legal requirements, including the Company Law (for transfer of shares), land regulations (for land and buildings) and the Civil Code (for receivables and other intangible goods). There are also various other regulations, including but not limited to those regarding foreign investment restrictions, title of property, competition and use of currency, which may be relevant in the acquisition and disposal process.

It is possible, under the ‘freedom of contract’ principle specified in the Civil Code, for the parties to set out the terms and conditions of the acquisition or disposal in an agreement that is governed by the law of another jurisdiction, provided that that agreement does not contravene public policy; however, if the object of the transaction is specifically regulated by or falls within the scope of the Indonesian jurisdiction, the local law should prevail in governing various formal processes for the closing of the transaction. Examples include the transfer of legal title and effecting the change of ownership of the object.

What legal title to shares in a company, a business or assets does a buyer acquire? Is this legal title prescribed by law or can the level of assurance be negotiated by a buyer? Does legal title to shares in a company, a business or assets transfer automatically by operation of law? Is there a difference between legal and beneficial title?

Generally, in an acquisition of shares, the buyer acquires the title to the shares that is prescribed by law, and the level of assurance is not negotiable by the buyer. This legal title to the shares is transferred once the documents evidencing the transfer of shares (ie, the notarial deed of sale and purchase of shares or other closing documents if the buyer is a public company, and the updated shareholders’ register of the acquired company reflecting the new shareholding composition post-acquisition) have been validly obtained or executed by the purchaser and seller, and the acquisition has been approved by or notified to and acknowledged by the Ministry of Law and Human Rights.

In an acquisition of assets, specifically assets in the form of land, the type of legal title may vary, such as in the form of a right of ownership, right to use, right to build, right to manage, right to cultivate or right of strata title ownership of units in a multistorey building.

In the case of land transfer, the legal title is effectively transferred from the seller to the buyer once certain requirements have been complied with, including the relevant taxes and charges having been paid in full by the parties, the deed of sale and purchase having been validly executed before a land deed official, and the registered name of the seller having been changed to the name of the buyer in the relevant land title certificate by the land deed official. There is no difference between the legal and beneficial title in Indonesia; the legal owner is considered as the beneficial owner.

Specifically in relation to the acquisition or disposal of shares in a company, where there are multiple sellers, must everyone agree to sell for the buyer to acquire all shares? If not, how can minority sellers that refuse to sell be squeezed out or dragged along by a buyer?

There is no provision or regulation in Indonesia that obliges all sellers to agree to sell all the shares for the buyer to acquire. The parties, however, may regulate such a requirement through a contractual agreement (eg, shareholders’ agreement or option agreement) entered into by the parties. The company’s articles of association may prescribe a requirement to seek first refusal of the existing shareholders prior to selling to a third party (right of first refusal).

Indonesian law does not recognise squeeze-out requirements. If multiple sellers are acting jointly, it is typical for all sellers to execute the transaction documents together and agree to be bound by the same terms.

With regard to minority sellers, the Company Law does not provide for tag-along or drag-along rights. However, in practice, tag-along and drag-along rights may be used in a transfer of shares. These tag-along and drag-along rights are usually agreed between the shareholders in the shareholders’ agreement; hence, minority sellers can be dragged along by the majority shareholders or tag along their shares in the sale of shares belonging to the majority shareholder, as long as there is a shareholders’ agreement in place that sets out the provision for them to do so.

Specifically in relation to the acquisition or disposal of a business, are there any assets or liabilities that cannot be excluded from the transaction by agreement between the parties? Are there any consents commonly required to be obtained or notifications to be made in order to effect the transfer of assets or liabilities in a business transfer?

A buyer may generally choose which assets or liabilities it wishes to acquire in a transaction that is structured as a company, business or asset sale. Under the Company Law, any transfer of assets with a value amounting to more than 50 per cent of the company’s assets requires approval from three-quarters of the shareholders.

In addition, certain consents, notifications or approvals may need to be obtained with regard to the transfer of business, assets or liabilities of a company, such as shareholders’ consent; the bank’s consent in the event that the company is a party in a loan agreement that obliges the company to acquire the bank’s consent, approval or notification when transferring an asset; or the counterparty’s consent in the event of assignment or novation of a contract.

Further, under the Company Law, a company must notify the proposed acquisition to be carried out by the relevant buyer through an announcement in a national newspaper and to its employees in writing.

Are there any legal, regulatory or governmental restrictions on the transfer of shares in a company, a business or assets in your jurisdiction? Do transactions in particular industries require consent from specific regulators or a governmental body? Are transactions commonly subject to any public or national interest considerations?

The Company Law provides for the following restrictions that may apply to a transfer of shares, which could be included in a company’s articles of association to bind third parties:

• obligation for the selling shareholder to first offer the shares to be sold to other shareholders within the same class or other shareholders;
• obligation of the company to obtain prior approval from certain organs of the company (eg, the GMS, the board of commissioners or the board of directors); and
• obligation of the company to obtain prior approval from the authorised government agency, in accordance with the provisions of the applicable laws and regulations, particularly in regulated sectors such as mining and financial services.

Each company may have different restrictions in connection with its share transfer. A review of the target company’s articles of association or other relevant agreements (ie, shareholders agreement) is necessary to identify whether the company has any share transfer restrictions.

If a proposed acquisition results in the issuance of shares for the increase of capital, the selling shareholder should first offer the shares to each shareholder in proportion to their share ownership for the same classification of shares. This mandatory process is known as the exercise of pre-emptive rights pursuant to article 43 of the Company Law.

Other agreements that are entered into by the company and its shareholders may also impose restrictions on the transfer of its shares or assets.

There are also restrictions on foreign investment in Indonesia: there are business industries that are closed or limited to foreign ownership or open with certain requirements. This limitation is governed under the lists of business fields that are closed and open, with certain requirements in the fields of investment, which was recently re-established by Presidential Regulation No. 10 of 2021 on Capital Investment Business Lines , as amended by Presidential Regulation No. 49 of 2021.

The transfer of land is also subject to the agrarian regulations (ie, Government Regulation No. 18 of 2021 and Law No. 5 of 1960), which limit foreign ownership of land only to specific land titles (ie, the right to use or the right of strata title).

Are any other third-party consents commonly required?

Consent from third parties is commonly required in an acquisition transaction and may include:

• as required under the Company Law, shareholders’ approval for the acquisition – creditors of the target company may also object to the proposed acquisition by submitting their objections to the company within the period prescribed under the Company Law;
• spousal consent for a married shareholder intending to sell their shares or asset, unless there is a prenuptial agreement between the couple that provides otherwise;
• the relevant consent (eg, loan agreement or lease agreement) in the event that the target company is a party to agreements that restrict the sale or transfer of shares or assets without prior consent, approval or notification to the counterparty;
• creditors’ consent in respect of the proposed acquisition and a waiver of the creditors’ rights for claims to be settled prior to the effectiveness of the acquisition;
• the approval of third parties, including but not limited to the approval of third parties required by prevailing law, as well as pursuant to agreements or contracts entered into by the companies involved; and
• in some cases, consent from the relevant government authority.

Must regulatory filings be made or registration (or other official) fees paid to acquire shares in a company, a business or assets in your jurisdiction?

In an acquisition, the documents evidencing the transfer of shares should be approved by, notified to or reported to (as the case may be) the Ministry of Law and Human Rights, which imposes a fee that would be payable to the appointed notary who has access to the online system of the Ministry of Law and Human Rights.

An acquisition of assets in the form of land should be conducted with the land deed officer in the relevant land office to formally register the transfer and the name of the buyer as the registered owner of the land into the land title certificate and Land Registry (both documents are recorded and kept in the land office). Moreover, fees would be imposed to complete such process, and both the seller and purchaser would also be required to pay the relevant taxes and charges under applicable laws.

Other regulatory filings relevant to an acquisition include notifications made to the Commission for the Supervision of Business Competition (Komisi Pengawas Persaingan Usaha or KPPU). Under the relevant KPPU regulations, KPPU elaborated that the term ‘acquisition’ has several classifications, including the acquisition of shares, transfer of assets and acquisition of participating interests. These notifications shall be carried out by the relevant acquirer to the KPPU in writing in the event that the relevant acquisition fulfils certain thresholds and requirements, such as:

• the assets and sales threshold: the total asset value of the relevant entities (as detailed below) as a result of the transaction exceeds 2.5 trillion rupiahs, or the total sales value of the relevant entities (as detailed below) as a result of the transaction exceeds 5 trillion rupiahs;
• results in a change of control;
• the acquisition not classified as an affiliated party transaction; and
• the acquisition a transaction between parties that have assets or sales in Indonesia.

The aforementioned relevant entities refers to the following parties:

• the acquiring company;
• the acquired company;
• all business entities that are directly or indirectly in control or controlled by the acquired company; and
• all business entities that are directly or indirectly in control or controlled by the acquiring company.