The Indonesian government intends to create more employment opportunities and at the same time trim down the bureaucracy and procedures involved with (foreign) investment in Indonesia, expecting that it will increase the nation’s economic growth. With these in mind, the government formulated a draft law now known as Omnibus Law (bill).

One of the subjects of Omnibus Law draft is the changes made to Law No.40 of 2007 on Limited Liability Company (“Company Law”). We fully understand that the Omnibus Law draft is still subject to discussion and may change (substantially) before it is passed into law. However, assuming the current proposed changes are passed into law, we believe the following will be frequently asked: 

1. What is the main focus of the proposed changes to the Company Law in the Omnibus Law Draft? 
   
   The main focus of the proposed changes to the Company Law in the Omnibus Law Draft (“Omnibus Law Draft”) is to simplify Micro and Small Enterprises (“MS Enterprises”) company establishment procedure, by providing specific and more flexible provisions applicable to MS Enterprises, in the form of limited liability companies (“MSE Companies”). One of the intended goals is to create more employment opportunities which increases economic growth.  
    
2. What are the main differences between ordinary limited liability companies (“Ordinary Companies”) and MSE Companies in the proposed changes to the Company Law in the Omnibus Law Draft?
   
   Below are the main differences between ordinary limited liability companies and MSE Companies in the Omnibus Law Draft:

As a note, while the Omnibus Law Draft does not propose different capital requirement between Ordinary Companies and MSE Companies, the Omnibus Law Draft proposes for the minimum authorized capital requirement for companies to be removed and the amount to be determined by the founders (the company is still required to have an authorized capital), in which case we need to refer to Law No. 20 of 2008 on Micro, Small, and Medium Enterprises (“the “MSME Law”) on the financial criteria of MS Enterprises classification, which are the following:

a. Micro Enterprises classification criteria:

• Has net assets up to Rp 50.000.000,00 (fifty million Rupiah) excluding land and building; or
• Has annual sales up to Rp 300.000.000,00 (three hundred million Rupiah);

b. Small Enterprises classification criteria:

• Has net assets more than Rp 50.000.000,00 (fifty million Rupiah) up to Rp 500.000.000,00 (five hundred million Rupiah) excluding land and building; or
• Has annual sales more than Rp 300.000.000,00 (three hundred million Rupiah) up to Rp 2.500.000.000,00 (two billion five hundred million Rupiah).

3. What is/are the impact(s) on the proposed removal of authorized capital requirement in relation to the different classifications between ordinary companies and MSE Companies?
   
   Firstly, it is worth noting that the financial criteria for MS Enterprises classification set out in the MSME Law do not involve capital injection amount to the company, but as described above, rather on the net assets of and annual sales made by the businesses. In other words, these requirements are not likely to be assessed on the establishment stage. In the absence of clear stipulation in the Omnibus Law Draft, it is reasonable to assume that these requirements in the Omnibus Law Draft are intended for the existing MS Enterprises which are planning to change their business model from business entity (i.e. not a legal entity and therefore no separation of assets between the founder(s)’s and the business entity’s) to a legal entity (i.e. a limited liability company).
   
   With the removal of authorized capital requirement in the Omnibus Law Draft, this would indeed remove the entry barrier for MS Enterprises changing their business model into MSE Companies. However, a question arises when parties intending to establish an ordinary company from the get-go (not having MS enterprises background) but due to business reasons (e.g. sales not performing well, factors adversely impacting the going-concern of the company, etc.), the company falls under MS Enterprises classification in the MSME Law, i.e. would they be automatically by law be subjected to MSE Companies classification, with all the flexibility but more importantly, the restriction(s), that come with it under the Omnibus Law Draft?
   
   Unless a specific fixed (not dynamic such as the assets and sales of a company) requirement (for example a capital injection/authorized capital amount requirement) is proposed which would clearly differentiate the setup between Ordinary Companies and MSE Companies (for example a requirement that Ordinary Companies must have at least a mandatory authorized capital amount while for MSE Companies, the amount of the authorized capital may be determined by the founder(s)), we believe the above may pose a concern.
    
4. What is/are the sanction(s) if MSE Companies fail to change its status to Ordinary Companies when the MSE Companies’ financial situation exceeds MSE Companies classification financial criteria?
   
   Sanction(s) related to the question is not yet proposed in Omnibus Law Draft. However, according to Article 40 of the MSME Law, any person who benefits themselves or other people by, among other things, claiming themselves as MSE Companies, shall be subject to up to 5 (five) years imprisonment and criminal fines of up to Rp 10.000.000.000,00 (ten billion Rupiah).
    
5. What do MSE Companies need to consider when they are planning to change its status to Ordinary Companies?
   
   Aside from no longer having the benefits, incentives, and flexibilities afforded to MSE Companies by MSME Law and the proposed changes to the Company Law relating to MSE Companies in the Omnibus Law draft, from the Company Law perspective, MSE Companies with 1 (one) founder is required find another party willing to participate in the MSE Companies as another shareholder because Ordinary Companies needs to have at least 2 (two) shareholders. This may involve changing business strategies, structuring legal relationship between the parties (e.g. by drawing up a shareholders agreement), and most importantly, profit sharing arrangement (i.e. dividend distribution).
    
6. Are there any new responsibilities worth noting by Board of Directors and/or Board of Commissioners of a company from the proposed changes to Company Law in the Omnibus Law Draft?
   
   In the Company Law, it is the responsibility of Minister of Law and Human Rights (“MOLHR”) to announce the following in the Supplement to State Gazette:
   a. Deed of establishment of the company and the MOLHR decree on the company’s ratification as a legal entity
   b. Deed of amendment of the company’s articles of associations and the MOLHR decree on the approval to the amendment (for amendment(s) requiring MOLHR approval); and/or
   c. Deed of amendment of the company’s articles of association, notification of which has been received by the MOLHR (for amendments requiring only notification to the MOLHR).
   
   However, in Omnibus Law Draft, the above responsibilities are assigned to the Board of Directors of the company.

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The above is a summary prepared by Solis Advisors – Attorneys and Consultants (“Solis”), an Indonesian based Law Firm. It is only intended to inform generally on the topics covered and should not in any way be treated as legal advice or relied upon when making investment or business decisions. If you have any questions/comments on the matter set out above, or other subject(s) you wish to inquire, please contact your usual Solis contact or email us at consult@solis.consulting.