Provision on Authorized Capital for Limited-Liability Companies Reregulated

In order to ease the startup process for entrepreneurs who are looking to establish new companies in Indonesia, as well as to boost the growth of micro-, small-, medium-scale enterprises, the Government has just issued the Government Regulation No. 29 of 2016 on the Amendment to Authorized Capital for Limited-Liability Companies (“2016 Regulation”).In short, the 2016 Regulation alters the provision relating to the authorized capital which must be held in order to establish a new limited-liability company. [1] Prior to the 2016 Regulation, this matter was addressed by Government Regulation No. 7 of 2016 (“7/2016 Regulation”) [2] .Authorized CapitalAs general rule, newly established companies are required to allocate authorized capital pursuant to Law No. 40 of 2007 on Limited-Liability Companies (“Company Law”). In this context, the 2016 Regulation makes a significant change to the amount of authorized capital needed in order to establish a limited-liability company, which is currently set at IDR 50 million under the Company Law. [3] According to the 2016 Regulation, the amount of authorized capital required is now to be determined based on an agreement arrived at by the founders of a given company. This change has been incorporated as a response by the government to calls to respect the freedom-of-contract principle as regards the drafting of company deeds of establishment. [4] On the other hand, the new provision outlined above does not apply to companies which are required to satisfy certain minimum authorized capital levels under prevailing laws and regulations, [5] for example: venture-capital companies [6] or banks. [7] Previously, the 7/2016 Regulation made no changes to the required amount of authorized capital needed to establish a company, as set out under the Company Law, which remains set at IDR 50 million. [8] However, the 7/2016 Regulation offered exemptions to the minimum authorized capital requirement if one or more of a new company’s founders turned a net profit at least equal to the criteria for the establishment of micro-, small-, and medium-scale business, as stated in Law No. 20 of 2008 on Micro-, Small-, and Medium-Scale Businesses (“2008 Law”). [9] As a side note, the criteria for net profits for micro-, small-, and medium-scale businesses are as follows: [10]