Amendment of Minimum Authorized Capital for Limited Liability Company

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Amendment of Minimum Authorized Capital for Limited Liability Company

Author: Sarah Sylvania Sondang Ni Bulan S.H.

In order to enhance the ability of starting business, also to hasten the national development and to consider the growth of start-up business, the Government of the Republic of Indonesia has promulgated the Government Regulations No. 29 of 2016 concerning Amendments to Authorized Capital of Limited Liability Company ("GR 29/2016"). This government regulation is started effective since July, 14th, 2016. The new regulation constitutes the implementing regulation as referred in Article 32 paragraph (3) of Law No. 40 of 2007 concerning Limited Liability Company ("Law 40/2007"), which stipulates that the amount of authorized capital of limited liability companies as intended in Article 32 paragraph (1) of Law 40/2007 may be amended based on a government regulation for the purpose of adjustment with changes in economic conditions.

Before the proclamation of GR 29/2016, Government of Indonesia had promulgated Government Regulation No. 7 of 2016 about Amendment of Authorized Capital of Limited Liability Company ("GR 7/2016"). Nonetheless, there are several differences between the two regulations. It can be highlighted that basicly, the two regulation is a subordinate legislation that regulate the amount of authorized capital which mentioned in Article 32 paragraph (3) Law 40/2007.
Hereinafter, we will elaborate the regulation that set about minimum authorized capital for the incorporation of Limited Liability Company.

Minimum Authorized Capital

There are at least three regulations which govern the value of Authorized Capital of Limited Liability Companies; Law 40/2007, GR 7/2016, and GR 29/2016. These three regulations stipulate contrastingly about the identical matter.

Article 32 paragraph (1) Law 40/2007 stated :
"The authorized capital of a Company shall be no less than Rp 50.000.000,00 (fifty million rupiah)."

A conclusion should be drawn from this regulation that based on Law 40/2007: a limited liability company should have an authorized capital at least fifty million rupiah.  
Article 1 paragraph (1) and paragraph (2) GR 7/2016 stated : 

Article 1 paragraph 1 :
"The authorized capital of a Company shall be no less than Rp 50.000.000,00 (fifty million rupiah)."

Article 1 paragraph 2 :
"that in the event of the value of net worth (Kekayaan Bersih) of any or all of the founders of the to be-established limited liability company meets the criteria of the net worth of an micro, small, and medium enterprises (“MSME”) regulated under the prevailing laws and regulations, the authorized capital of such company may be determined based on the agreement among its founders which then shall be stated in the deed of establishment of the company."

Ending the line from two paragraphs above, GR 7/2016 governs the value of authorized capital of a limited liability company is fifty million rupiah at minimum range.

Article 1 paragraph (2) and paragraph (3) GR 29/2016 stated :
Article 1 paragraph 2 :
"Authorized capital of Company must be stated in article of association in the deed of establishment of the company."

Article 1 paragraph 3 :
"Value of authorized capital of Limited Liability Companies as intended on paragraph 1 is determined based on agreement of founders of Limited Liability Companies."

If the two paragraphs above inferred, it should be acknowledged that GR 29/2016  conducts a flexibility  about the amount of authorized capital of limited liability company. Also, in total support for the flexibility amount, paragraph 3 mentions that the value of authorized capital of limited liability company must be decided by mutual consent of its founders.

From the recitation of the regulations above, it can be concluded that there is no longer minimum Authorized Capital of IDR 50 million. The latest regulation (GR 29/2016) gives freedom for the founders of limited liability company to determine the Authorized Capital value. Decision-making on value of Authorized Capital of Limited Liability Company is solely based on agreement between the founders, unlike the prior GR 7/2016 and Law 40/2007. This condition is constructed by Government who is aiming to create a conducive business environment, to stimulate rapid economy growth, and taking concern of start-up business.

Provision on minimum issued and paid up capital is still the same with the provision under the Law 40/2007, e.g. at least 25% of the authorized capital which shall be documented with proof of valid payment. GR 29/2016 requires such proof of valid payment to be submitted electronically to the Minister of Law and Human Rights by no later than 60 days as of the date on which the deed of establishment is signed.

Assessing on the submission of valid payment to be submitted, these three regulations are governing the same issue. The valid payment must be submitted to the Minister of Law and Human Rights by no later than 60 days as the date on which the deed of establishment was signed.
The differences in these three regulations can be resolved by the table below.

Matters Law 40/2007 GR 7/2016 GR 29/2016
Value of Authorized Capital Limited Liability Companies Min 50 million rupiah Min 50 million or In condition of value net worth Solely based on agreement between founders.
Submission of valid payment - No later than 60 days No later than 60 days

Although, it is necessary to be concerned that Article 4 GR 29/2016 had stated that since the government regulation has promulgated, GR 7/2016 is revoked.

On practice area, specifically in foreign investment, there is a Decree Head of Capital Investment Coordinating Board  No. 14 of 2015 ("DHoCICB 14/2015")which govern about the amount of authorized capital of limited liability company for limited liability company with foreign investment. Article 3 paragraph (3)  DHoCICB 14/2015 stated that:

"Requirement for investment value and capital in Foreign Investment as intended in paragraph (1), except set out differently from Regulations, must fulfill these following conditions:
a. total investment larger than 10.000.000,00 rupiah (sepuluh miliar rupiah), apart from land and building as intended in Article 1 number 4 Law No. 20 of 2008 concerning Micro, Small, and Medium Business Enterprise.
"

From recitation above, it can be inferred that authorized capital of foreign investment company comply to  DHoCICB 14/2015. In that way, specifically for Foreign Investment Company, would not comply with the rule of authorized capital which decided by mutual consent of the founders of limited liability company as intended in GR 29/2016. It needs to bear in mind that in law, we acknowledge regulations principle. There are three principles which may used while conflicting regulations happen :

  1. lex superior derogat legi inferior principle;
  2. lex specialis derogat legi generali principle;
  3. lex posterior derogat legi priori principle.

If GR 29/2016 and  DHoCICB 14/2015 is being compared based on hirarchy order of regulations, then Government Regulation is higher than Decree Head of Capital Investment Coordinating Board. Using lex superior derogat legi generali principle, then the higher regulation in hirarchy is the one to be applied because it is rule out regulation whose position is lower in hierarchy of regulation

But, if this being examined further, in practical area, foreign investment company must comply to Decree Head of Capital Investment Coordinating Board . In other way around, foreign investment company must comply to DHoCICB 14/2015. It is reasonable, since company which tobe-establish in Indonesia must get principle license which is a legal product issued based on approval of Capital Investment Coordinating Board. So, the foreign investment company certainly must obbey the Capital Investment Coordinating Board rules.

If the two regulations is being compared based on time of issuing, then GR 29/2016 is sure to be the later one which being issued than  DHoCICB 14/2015. By the issuance of new regulation about amendments of authorized capital of company, it is not consistently followed by issuance of new Decree of Head of CICB. CICB should swiftly respond to the renewal of regulation by consistently issuing the new regulation based on the newest one.
Moreover, Indonesia has hierarchy of regulations that effective in Indonesia jurisdiction. Hierarchy of Regulations in Indonesia is governed in Law 12/2011. Article 7 paragraph (1) Law 12/2011 stated:

  1. Types and hierarchy of Rules consists of:
    • Constitution of the Republic of Indonesia of 1945;
    • Constitution of the Republic of Indonesia of 1945;
    • Law/Government Regulation In Lieu of Law;
    • Government Regulation;
    • Presidential Regulation;
    • Province Regulation; and
    • Regency/Municipality Regulation.

Article 8 paragraph (1) Law No. 12 of 2011 concerning Type, Hierarchy, and  Contents of Rule (“Law 12/2011”):

"Other kind of Rules than as intended in Article 7 paragraph (1) covers the regulations stipulated by the People’s Consultative Agency, House of Representatives, Regional Representatives Council, the Supreme Court, the Constitutional Court, the State Audit Board, the Judicial Commission, Bank of Indonesia, the Minister, agency, institution, or same level commission established by Law or Government on the instruction of Law, Provincial Regional House of Representatives, Governor, Regency/Municipality Regional House of Representatives, Regent/Municipal Government, the Village Head or the equivalent."

This recitation can be inferred that legal product that released by agency as Capital Investment Coordinating Board is deemed a kind and hierarchy of Regulations. Because Article 8 paragraph (1) Law 12/2011 mentions regulation that assigned by agency included in hierarchy of regulations. So, Decree of Head Capital Investment Coordinating Board can be deemed as one regulation in hierarchy of regulations. However, there is no elucidation that mentions in what position is Decree of Head Capital Investment Coordinating Board.

In respect of subject which has been elaborated above, if there shall be a confliction between regulation whose position is equal in hierarchy of regulations, then the one effectively valid is lex posteriori derogat legi priori principle. It means the latest issued regulation rule out the prior issued regulation. Therefore, in this matter GR 29/2016 should be effectively binding as regulation that rule authorized capital of company incorporation, not  DHoCICB No. 14/2015. But, talking about authorized capital of foreign investment company incorporation, then the regulation that set forth is still  DHoCICB No. 14/2015 because  DHoCICB is a lex specialis form of the general regulating rule of authorized capital incorporated company in Indonesia. Nonetheless, it is better if BKPM issued   the new decree head of capital investment coordinating board that governs consistently and showing that it is an implementing regulation or a derivative from government regulation : GR 29/2016.

Conclusion

As described above, the entire elaboration can be summarized that a going to be establish – limited liability company in Indonesia should provide authorized capital based on mutual consent between its founders.

However, it needs to bear in mind that eventhough GR 29/2016 has changed, Decree of Head Capital Investment Coordinating Board has not been changed. Therefore for capital investment company would still comply to DHoCICB 14/2015, because in practical area to acquire license of foreign capital investment in Indonesia, a company should comply with  DHoCICB 14/2015. Nonetheless, based on our insight, BKPM may renew regulation consistently based on Implementing Regulation which is placed above it.
 

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