Understanding the corporate and company structure in Indonesia is crucial for businesses looking to operate in this dynamic market. The Indonesian legal framework requires companies to adhere to a two-tier management structure, which includes a Board of Directors and a Board of Commissioners. This guide provides an overview of the essential aspects of corporate governance in Indonesia, with a particular focus on the roles, responsibilities, and requirements of these key entities.
Also read: The Types of Companies and Business Entities in Indonesia
The Two-Tier Management Structure
In Indonesia, all companies are mandated to have a two-tier management structure consisting of the Board of Directors and the Board of Commissioners:
Board of Directors (Direksi):
- The Board of Directors is responsible for the executive functions of the company. They manage the company’s operations and are tasked with ensuring that the company is run in the best interests of the company, in accordance with its purpose and objectives.
- According to the Indonesian Company Law (Law No. 40 of 2007, as amended by Law No. 6 of 2023), the Board of Directors must act in the company’s best interests, even if those interests conflict with their own or those of the shareholders.
Board of Commissioners:
- The Board of Commissioners provides oversight and guidance to the Board of Directors. While they do not have executive authority, they play a crucial role in overseeing the company’s management.
- The Board of Commissioners is also required to act in the best interests of the company, and they must ensure that the Board of Directors is adhering to the company’s goals and objectives.
Also read: Major Industries in Indonesia (Based on Contribution to GDP)
Corporate Structure for Foreign-Owned Companies (PT PMA)
For foreign companies looking to establish a presence in Indonesia, the structure is slightly different. A PT PMA (Penanaman Modal Asing) is a limited liability company in Indonesia with foreign ownership. The minimum requirements for setting up a PT PMA include:
- Shareholders: At least two shareholders, who can be either foreign individuals or corporations. The level of foreign ownership depends on the industry and the restrictions set by the Indonesia’s Positive Investment List.
- Directors: A minimum of one director, who can be either local or foreign, responsible for the day-to-day operations of the company. So, it is safe to conclude that a foreigner can be a director in Indonesia.
- Commissioner: At least one commissioner, who can also be either local or foreign.
The PT PMA structure allows foreign companies to own and operate businesses in Indonesia, provided they comply with the regulations set by the government.
Also read: Can a Foreigner Own 100% of a Business in Indonesia?
Corporate Governance in Listed Companies
Listed companies in Indonesia are subject to additional regulatory requirements imposed by the Financial Services Authority (OJK). These include the presence of independent commissioners, an audit committee, a corporate secretary, an internal audit unit, and the implementation of a nomination and remuneration function.
Independent Commissioners
Listed companies must have independent commissioners who fulfill specific criteria:
- At least 30% of the Board of Commissioners must be independent.
- Independent commissioners must not have had any managerial role in the company for at least six months prior to their appointment, and they should not hold any shares or have any business relationships with the company.
Audit Committee
The audit committee in a listed company must consist of at least three members, one of whom must be an independent commissioner. The committee is responsible for overseeing the company’s financial reporting process, ensuring compliance with regulatory requirements, and maintaining the integrity of financial statements.
Corporate Secretary
The corporate secretary in Indonesia acts as a liaison between the company, regulatory authorities, and the public. They are responsible for ensuring the company’s compliance with capital market regulations and maintaining open lines of communication with stakeholders.
Internal Audit Unit
The internal audit unit plays a critical role in promoting compliance and conducting internal audits within the company. They are tasked with evaluating the company’s internal controls, risk management systems, and overall operational efficiency.
Nomination and Remuneration Function
The nomination and remuneration function, typically overseen by the Board of Commissioners, ensures that the company’s leadership is well-composed and fairly compensated. This function includes evaluating the performance of the Board of Directors and Board of Commissioners and making recommendations on remuneration policies.
Also read: How to Check Company Details in Indonesia: A Complete Guide
Navigating the corporate and company structure in Indonesia requires a thorough understanding of the legal requirements and governance practices. The two-tier management system, with its distinct roles for the Board of Directors and the Board of Commissioners, ensures that companies are managed effectively and in the best interests of all stakeholders. For foreign businesses, setting up a PT PMA offers a viable route to entering the Indonesian market, albeit with specific regulatory considerations.
By adhering to these regulations and understanding the intricacies of Indonesian corporate governance, companies can position themselves for long-term success in this burgeoning economy.
To ensure your business and company runs smoothly, consider seeking professional guidance. InvestinAsia is among the companies that specialize in aiding you with company registration Indonesia. We boast a team of seasoned experts who can guide you throughout the process of:
- PMA registration in Indonesia (Foreign Company)
- Representative office registration in Indonesia
- Indonesia Local PT PMDN Set Up
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- Business registration number in Indonesia
- Business Licenses in Indonesia
- Trademark Registration in Indonesia
- Franchise License in Indonesia
If you are interested in starting a business in Indonesia, you can start by contacting us for FREE consultation.
