To improve the ease of doing business and for the purpose of acceleration of the national development and also taking into account the growth of start-up business, the Government of the Republic of Indonesia has promulgated the Government Regulation No. 7 of 2016 regarding Changes to Authorized Capital of Limited Liability Companies (“GR 7/2016”), which regulation is effective as of 21 March 2016. This new regulation constitutes the implementing regulation as referred to in Article 32 (3) of Law No. 40 of 2007 regarding Limited Liability Companies (“Company Law”), which stipulates that the amount of authorized capital of limited liability companies as intended in Article 32 (1) of Company Law may be amended based on a government regulation in order to adjust with changes in economic conditions.
Minimum Authorized Capital
Note that GR 7/2016 does not stipulate that there is no longer of minimum Authorized Capital of IDR 50 million, but the regulation provides that in the event that the value of net worth (Kekayaan Bersih) of any or all of the founders of the to be established limited liability company meets the criteria of the net worth of an micro, small, and medium enterprises (“MSME”) regulated under the prevailing laws and regulations, the authorized capital of such company may be determined based on the agreement among its founderswhich then shall be stated in the deed of establishment of the company.
GR 7/2016, however, does not define the term “net worth”. Grammatically construed, such term shall refer to “net worth” as defined in Law No. 20 of 2008 regarding Micro, Small, and Medium Enterprises (“Law on MSMEs”). Based on elucidation of Article 6 (1) of the Law on MSMEs, the net worth is the result of the total assets reduced by the total liabilities, excluding the land and business premises. Pursuant to the Law on MSMEs, the following are the thresholds for the net worth of each type of MSMEs:
- Micro enterprises: those having the maximum net worth of IDR 50 million;
- Small enterprises: those having the net worth of more than IDR 50 million up to IDR 500 million; and
- Medium enterprises: those having the net worth of more than IDR 500 million up to IDR 10 billion.
Thus, the provision on minimum issued and paid up capital is still the same with the provision under the Company Law, i.e. at least 25% of the authorized capital which shall be documented with proof of valid payment. GR 7/2016 also requires such proof of valid payment to be submitted electronically to the Minister of Law and Human Rights by no later than 60 days as of the date on which the deed of establishment is signed
GR 7/2016 further stipulates that other laws on certain business fields can determine a higher minimum capitalization of a limited liability company.
Further, limited liability companies established prior to the issuance of GR 7/2016 may continue their businesses without needing to adjust their authorized capital to be in-line with the provision under GR 7/2016, whilst ratification applications of limited liability companies in process will still be processed in accordance with the Company Law.
As described in the elucidation of GR 7/2016, the main purpose of the regulation is to increase the development of MSME, so that they can easily start a business. This new GR 7/2016, in our view, will not affect the establishment of certain business (such as insurance companies, banks etc.) or foreign investment companies as they will need to comply with more specific minimum capitalization provisions for each sector or investment amount policies, for foreign direct investment.