Draft Bill on Business Entities to Set Maximum Capital Limits for CVs and Partnerships

The Ministry of Law (“Kemenkum”) is preparing provisions setting maximum capital and turnover limits for limited partnerships or Commanditaire Vennootschap (“CVs”) and general partnerships through the Draft Bill on Business Entities (“Business Entities Draft Bill”). These restrictions are intended to clarify the classification of business entities while encouraging business actors operating on a larger scale to transition to the form of a limited liability company (“PT”).

Director General of General Legal Administration at the Kemenkum, Widodo, stated that such restrictions are necessary to ensure that the form of business entity used by business actors is commensurate with the scale of their operations and business capacity. “If a CV already has capital amounting to billions of rupiah, why should it remain a CV? It should have transitioned into a PT,” Widodo told Hukumonline.

The Kemenkum is currently formulating an appropriate regulatory framework for the governance of CVs and general partnerships. The Government is also consulting with business actors and relevant associations to ensure that the provisions being drafted accommodate the needs of the business community.

Widodo explained that the proposed restrictions refer to the regulatory framework for sole proprietorship, which are subject to a specific turnover threshold. “For example, sole proprietorship have a certain classification, with a maximum turnover of Rp4.8 billion. If their turnover exceeds that amount, why should they remain sole proprietorship? There are concerns that this could create loopholes for tax avoidance,” Widodo stated. 

According to him, the restrictions are intended not only to improve governance and clarify the legal status of business entities, but also to prevent the potential misuse of business entity structures to evade tax obligations.