Directors’ Duties in Indonesia

>> Board Requirements in Indonesia

Appointment of directors

Under Indonesian statutory law, a limited liability company requires at least one director, unless the articles of association of the company specify a higher number of directors. There is no maximum number of directors of a PT company.

The Board of Directors (“BOD”) is appointed by and accountable to the General Meeting of Shareholders (“GMS”).

The directors of an Indonesia limited liability company however may have other rights and obligations or duties regulated under specific laws or regulations according to the relevant business activity and should be able to enter Indonesia in order to comply with their duties and obligations.

Any natural person with full legal capacity (i.e. at least 21 years of age and not regarded as mentally ill) can be appointed as Director unless certain restrictions apply.

You cannot be appointed as a director if you fall into any of the following categories, in the 5 years prior to the appointment as a director; you have been declared bankrupt

  • any person has been members of a BOD or Board of Commissioners (“BOC”) found at fault in causing a company to be declared bankrupt
  • any person convicted of certain crimes causing losses to the state finances and/or related to the financial sector

Further, the director of a PT company has to be a natural person. It is not possible to appoint a legal entity as a director of a PT company.

Board Meetings & Composition Requirements

An Indonesian PT company is managed by a BOD. The Indonesian company law does not regulate in detail the conduct of BOD meetings, and much of the detail is specifically regulated in the articles of association (“Articles”) of the company.  Although there are variations, the Articles are typically formulaic and tend to follow a certain model.  Notaries may refuse to register changes which depart too much from accepted practice.

Signatory Rights / Powers of Directors

You must act within the powers imposed by the company’s Articles of Association. The Articles govern how the company will be run; including the powers and responsibilities of directors.

According to company law, the BOD may, in writing, grant a power of attorney to one or more of the company’s employees or to any other person for and on behalf of the Company to perform a certain legal action as described in the relevant Power of Attorney.  The provision is stated under Indonesian company law and usually stated in the Articles of Association of the company.  However, there are typically restrictions in the Articles on who can be appointed to represent a director in BOD meetings.

According to Indonesian company law, the BOD of a company shall consist of 1 (one) or more members. In the event that the BOD consists of 2 (two) or more members, the assignment of management tasks and authorities among the members may be set out in the Articles, stipulated based on the GMS Resolution or, failing that, in a BOD resolution. One of the BOD may also be appointed as a president director which entitled to represent the BOD, and therefore the Company, in or outside the courts in any matters. Subject to the provision of the Articles, in the absence of the president director, any other Director is authorized to represent the BOD.

However, under Indonesian company law, there are certain actions that need GMS approval before the director undertakes the actions (i.e. transfer company assets or encumber company assets as security for a loan which constitute more than 50% (fifty percent) of the company’s total assets in 1 (one) or more related or standalone transaction). The Articles can include broader and additional limitations.

Conflicts

Pursuant to Indonesian law, the directors are restricted to represent the company in the following events:

  • there is a court case between the company and the relevant member of the BOD
  • the relevant member of the BOD has a conflict of interest with the company

In the event of circumstances as referred above, the other director who has no conflict of interest is entitled to represent the company. However, if all of the directors have a conflict of interest with the company, the BOC or another party appointed by the GMS is entitled to represent the company. The directors are also restricted from selfdealing, unless the articles of association or his appointment resolution specify otherwise. Please note, should the director be the only director/ authorised signatory (which often happens in group structures), the only possibility to overcome this situation would be to appoint an additional director.


Latest version updated 23rd March 2018

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