New Provision on Authorized Capital for Limited-Liability Companies

In order to improve the ease with which people can establish new companies in Indonesia, as well as to accelerate economic development across the country, the Government has issued Government Regulation No. 7 of 2016 on the Amendment to Authorized Capital for Limited-Liability Companies(“2016 Regulation”). In essence, the 2016 Regulation changes the provision relating to the authorized capital which must be held in order to establish a new limited-liability company.The 2016 Regulation is of relevance to parties which are intending to establish new limited-liability companies(“Company”).Authorized CapitalIn general, the 2016 Regulation makes no changes to the amounts of authorized capital needed in order to establish a limited-liability company, as set out under Law No. 40 of 2007 on Limited-Liability Companies (“Company Law”) and which remains set at IDR 50 million. [1] However, the 2016 Regulation also sets out an additional provision, which states that if one or more of a company’s founders turns a net profit at least equal to the criteria for the establishment of micro-, small- and medium-scale businesses, as stated in Law No. 20 of 2008 on Micro-, Small-, and Medium-Scale Businesses (“2008 Law”), then the amount of authorized capital is to be determined based on an agreement made between the founders. [2] In other words, the founders of the company are exempt from having to comply with the IDR 50 million minimum requirement.As a side note, the criteria for net profits for micro-, small-, and medium-scale businesses are as follows: [3]