Structure and process, legal regulation and consentsStructure
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 (i) the transfer of the target company’s shares; or (ii) in the case of 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 will be executed by the parties who wish to acquire or dispose the relevant company or assets.
Law No. 40 of 2007 on Limited Liability Company (the Company Law) 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 (acquisition). The process of an asset acquisition will depend on the asset being transferred, as each is subject to different legal requirements. For tangible assets, this means signing the transfer agreement and physically handing over the assets; for intangible assets, signing the deed of assignment; and for land and buildings, signing the deed of transfer and registering the deed in the Land Registry.
The length of an acquisition or disposal process is subject to the complexity of the transaction and the number of parties involved. Some of the steps that are typically taken prior to the completion of such acquisition or disposal include:
- due diligence on the relevant company or asset to be acquired or disposed (approximately four weeks);
- 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 completion date;
- negotiation of the transaction documents (approximately four weeks);
- in the case an acquisition of shares of a company, announcing such acquisition in a newspaper and to the employees of the company to be acquired (two weeks); and
- fulfilment of the conditions precedent and/or conditions precedent (if any).
Aside from the processes above, the larger the company, or the more assets that will be acquired or disposed, the longer it would take to complete the whole transaction process. In general, it may take more than two months to complete the whole transaction.Legal regulation
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?
The transfer of shares or assets (including private acquisitions and disposals) is governed under the local legal requirements - be it the Company Law (for transfer of shares), land regulations (for land and buildings), or the Indonesian Civil Code (for receivables and other intangible goods).
Further, there are also a range of other regulations, including but not limited to those regarding foreign investment restrictions, transfer of employees, title of property, competition, and use of currency, which may be relevant in the acquisition and disposal process. These local laws govern the formalities for transferring the legal title and effecting the change of ownership. However, it is possible, under the ‘freedom of contract’ principle specified in the Indonesian 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, even though the transfer of legal title is determined by Indonesian law, provided that that agreement does not contravene public policy.Legal title
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?
In an acquisition of shares, the buyer will acquire such 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 will be transferred once the documents evidencing the transfer of shares (ie, shareholders’ approval and the share sale and purchase agreement) has been notified and acknowledged by the Ministry of Law and Human Rights.
Whereas 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 to use, right to build, right to manage, right to exploit, or right of strata title ownership of units in a multi-storey building. In the case of land transfer, the legal title will be effectively transferred from the seller to the buyer once the registered name of the seller has been changed to the name of the buyer in the relevant land title certificate, which is processed by the land deed official. There is no difference between the legal and beneficial title in Indonesia; the legal owner will be considered as the beneficial owner.Multiple sellers
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 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 also 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.
Regarding minority sellers, the Company Law does not stipulate tag-along and 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 shareholder agreement. Hence, minority sellers that refuse to sell can be dragged along as long as there is a shareholder agreement in place that sets out the provision for them to do so.Exclusion of assets or liabilities
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 or asset sale. However, certain consents, notifications or approvals may be required to be obtained with regard to the transfer of assets or liabilities of a company. For example, shareholders’ consent, bank’s consent in the event that the company is a party in a loan agreement that obliges such company to acquire the bank’s consent, approval or notification when transferring an asset, or counterparty’s consent in the event of assignment or novation of a contract. Further, under the Company Law, a company is obliged to notify that it is being acquired through announcement in the newspaper and to its employees.Consents
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 will also be set out in a company’s articles of association:
- 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 (general meeting of shareholders, board of commissioners or board of directors); and
- obligation of the company to obtain prior approval from the authorised governmental agency in accordance with the provisions of the applicable laws and regulations.
However, the above-mentioned requirements on share transfer are not mandatory, hence each company may have different restrictions in connection with its share transfer and a review of the target company’s articles of association is necessary to identify whether such company has any share transfer restrictions. Further, agreements that are entered into by the company may also impose restrictions on the transfer of its shares or assets.
There are also restrictions on foreign ownership in Indonesia, in which there are business industries that are closed to foreign ownership or open with certain requirements. This limitation is governed under the lists of business fields closed and open with certain requirements in the fields of investment, which was amended in 2016.
The transfer of land is also subject to the agrarian regulations, which limit foreign ownership of land only to specific land titles (ie, the right to use or the right to build).
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;
- 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;
- 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, the relevant consent must be obtained (ie, loan agreement, lease agreement); and
- in some cases, consent from the relevant governmental 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 transfer of shares must be registered with the Ministry of Law and Human Rights and recorded in the State Gazette, which imposes no official fee. An acquisition of assets in the form of land on the other hand does not require the evidence of asset transfer to be registered with the Ministry of Law and Human Rights; however, filings with regard to the transfer of land ownership (change of name in the land title certificate) must be registered with the relevant land office through the land deed official, and fees will be imposed for such process.