Corporate Governance in Indonesia

Corporate Governance in Indonesia

Indonesia is a civil law jurisdiction, and as such does not have a doctrine of precedents similar to a common law system, which means Indonesian courts are not bound by previous court decisions.

Law No. 40 of 2007 on Limited Liability Companies (Company Law) governs limited liability companies in Indonesia. The Company Law provides the general roles of shareholders, boards of directors, boards of commissioners and stakeholders of a company such as employees, business partners and the public. Further, a company's articles of association are the general governance document of the company, for example, limitation on the authority of the board of directors and the mechanism on how decisions are made at board of directors meetings, board of commissioners meetings and general meetings of shareholders. In addition, in practice, normally companies also prepare their own good corporate governance manual as a reference for the companies' ethics and business practices.

The general principle under the Company Law is that the management and its supervisors (the board of directors and board of commissioners, respectively) represent the company and not the shareholders. Under the Company Law, the board of directors is defined as the company organ with the authority and full responsibility for managing the company in the interests of the company, in accordance with the purposes and objectives of the company, and is the organ that represents the company inside and outside the courts in accordance with the provisions of its articles of association. The board of commissioners is defined as the company organ with the duty to conduct general and special supervision of, and provide advice to, the board of directors.

Further, for public companies (companies with at least 300 shareholders or listed on the Indonesia Stock Exchange (IDX)), the members of the board of directors and the board of commissioners are also subject to capital market regulations, including Law No. 8 of 1995 on Capital Markets. Public companies are also supervised by the Financial Services Authority (OJK) and the IDX. Therefore, the conduct of public companies must also comply with the regulations issued by the OJK and the IDX, which are more detailed and provide more clarity on how good corporate governance should be implemented: for example, the requirement to establish certain committees, such as an audit committee and a remuneration committee, and to have a non-affiliated director and independent commissioners.

Meanwhile, private foreign investment companies and private local companies (that obtain domestic investment company (PMDN) status from the Capital Investment Coordinating Board (BKPM)) are subject to the regulations regarding the field of capital investment. Other specific sectors may also have laws and regulations governing how entities engaged in the relevant sectors conduct their corporate governance, for example banks and non-bank financial institutions, and have guidance on compliance with good corporate governance.

In relation to licensing, the government is currently moving all licensing systems into one large national investment licensing platform, the Online Single Submission (OSS) system, as regulated in Government Regulation No. 24 of 2018 on Electronic Integrated Business Licensing Services. The OSS system is now operated by BKPM (initially, the Coordinating Minister of Economic Affairs took the lead in operating the OSS system when it was launched in July 2018). Companies no longer need to obtain licences from several authorities: they can now get all the licences they require through the OSS system.

Every business entity (including companies) needs to register with the OSS system. Upon registration, a business identity number (NIB), a business licence and a commercial licence (as relevant) will be issued. The NIB serves as an identity card for companies, and remains valid as long as the company operates. Sectoral ministries or government authorities (e.g., the Ministry of Trade, the Ministry of Communication and Informatics, the Ministry of Agrarian Affairs and Spatial Planning, the National Land Office) determine the business licences or commercial licences required for lines of business under their authority, and the commitments or conditions required to be fulfilled to make the business licences or commercial licences become effective. These sectoral ministries or government authorities could also determine that no commitments or conditions are required. If commitments or conditions exist, they will be mentioned in the business or commercial licences, or both, issued by the OSS system. Business licences and commercial licences will only become effective after a licence owner completes the required commitments or conditions.

 

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Resources:

More detailed information regarding corporate governance rules applicable to listed companies in Indonesia is available at https://thelawreviews.co.uk/edition/the-corporate-governance-review-edit...

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