Establishing a business partnership in Indonesia involves drafting a comprehensive partnership agreement, a legally binding document that outlines the operational framework for a small for-profit business run by two or more individuals. This agreement delineates each partner’s responsibilities within the firm, their respective ownership stakes, and their share of profits and losses.
Additionally, it establishes guidelines for business operations and addresses potential scenarios that could impact the partnership, such as a partner’s demise or departure from the company. The primary aim of a partnership agreement is to preemptively address common business inquiries, mitigating the risk of conflicts between partners down the line.
In Indonesia, a business partnership agreement is imperative for ensuring clear communication and mutual understanding among all stakeholders. Unlike verbal agreements, a written contract provides explicit terms and conditions, offering legal protection for the firm and safeguarding the rights of each party involved. It is recommended to formalize a partnership agreement at the outset of any partnership, whether with an individual or another business entity.
Also read: Can a Foreigner Own 100% of a Business in Indonesia?
Why is a Partnership Agreement Important?
A partnership agreement serves several crucial purposes:
- Resolving disputes: It provides a mechanism for settling disagreements and addressing conflicts of interest.
- Tax compliance: It helps prevent tax-related issues by clearly defining each partner’s financial obligations.
- Managing transitions: It outlines procedures for managing significant life changes affecting partners.
- Defining roles and responsibilities: It clarifies the duties and obligations of each partner within the partnership.
- Avoiding legal complications: It mitigates the risk of legal disputes and liability concerns.
Also read: PT vs PMA vs KPPA Indonesia, What’s the Differences?
Main Forms of Business Entities in Indonesia
In Indonesia, businesses typically operate as legal entities or commercial entities. Legal entities, such as cooperatives and limited liability companies (PT company), maintain separate assets from their founders, whereas commercial entities do not. Establishing a legal entity involves obtaining approvals from various government agencies, whereas registering a commercial entity requires simple registration with governmental bodies.
Also read: The Types of Companies and Business Entities in Indonesia
Options for Business Partnership with Foreigner
Foreign companies seeking to establish a presence in Indonesia have two primary options:
- Setting up a new PT PMA (Limited Liability Company with Foreign Ownership): This involves drafting a deed of establishment, which includes the company’s articles of association, and obtaining approval from the Ministry of Law and Human Rights (MOLHR) via the Online Single Submission (OSS) system.
- Purchasing an already-established PT PMA: This option requires conducting due diligence to assess the company’s financial and legal standing before acquiring it and registering with the OSS system.
Also read: PMA (Foreign Company) Taxation in Indonesia: Complete Guide
What to Know Before Entering a Partnership
Before entering into a partnership, it is essential to consider the following:
- Long-term commitment: Ensure readiness for a long-term commitment, as dissolving a partnership in Indonesia can be costly and resource-intensive.
- Comprehensive planning: Develop a framework covering funding, financial responsibilities, and profit sharing to mitigate potential issues.
- Open communication: Foster transparent communication to align on objectives and address concerns effectively.
- Due diligence: Conduct thorough research to assess the credibility and reliability of potential partners.
- Partnership agreement: Formalize the partnership with a comprehensive agreement outlining all terms, obligations, rights, and procedures to avoid future disputes.
Also read: How to Check Company Details in Indonesia: A Complete Guide
Creating a Partnership Agreement in Indonesia
To create a partnership agreement in Indonesia, partners should:
- Draft precise instructions and terms with professional assistance.
- Agree on terms and guidelines, including the partnership’s name, partners’ names, conflict resolution procedures, partnership duration, ownership transfer details, duties and obligations, and profit distribution.
- Formalize the agreement in writing to establish a solid foundation for a successful and enduring partnership.
A business partnership agreement is a legally binding contract outlining the operational framework for a small for-profit business managed by two or more individuals. It sets forth guidelines for conducting business operations and addresses potential scenarios that may impact the partnership. This agreement is essential in Indonesia to promote clear communication and mutual understanding among all involved parties. Before initiating a partnership, founders must prepare a deed of establishment to formalize the arrangement.
That’s how foreigners can set up a business partnership in Indonesia. However, the process of establishing a business in Indonesia involves several steps, including business registration, obtaining necessary licenses and permits, and complying with local regulations. To simplify the process and ensure compliance, it is advisable to seek professional assistance.
InvestinAsia is among the companies that specialize in aiding you to open company in Indonesia. We boast a team of seasoned experts who can guide you throughout the process.
- Foreign company / PMA registration in Indonesia
- Set Up PT PMDN in Indonesia
- Indonesia representative office registration
- Virtual office setup in Indonesia
- Business registration number in Indonesia
- Indonesian Business Licenses
- Indonesia Trademark Registration
- Indonesia Tax Services
If you are interested in starting a business in Indonesia, you can start by contacting us for FREE consultation.
