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Legal Updates | Joint Ventures in Indonesia

There are various laws and regulations that govern the terms that can be included in joint venture ("JV") agreements in Indonesia, including Law No. 40 of 2007 regarding Limited Liability Company (the “Company Law”) and the Indonesian Civil Code.

There are additional regulations for JVs operating in certain industries. For example, Law No. 2 of 2017 regarding Construction Service (the “Construction Law”) regulates certain JVs in the construction industry. The Construction Law allows the formation of a joint operation, which is a legal arrangement that resembles a JV. A joint operation is an agreement between a foreign construction representative office and a local construction company for the completion of a specific construction project.

There are two types of joint ventures in Indonesia: corporate JVs and contractual JVs.

Corporate JVs

Corporate JVs are divided into incorporated JVs and partnerships.

An incorporated JV is a legal entity that has limited liability status, commonly referred to as a limited liability company (perseroan terbatas or “PT”). PTs are organised under the Company Law.

A partnership is a business entity that does not have limited liability status. Common forms of partnerships in Indonesia include:

  • A firm (firma or venootschap onder firma);
  • A komanditer partnership/association (commanditaire vennotschap or “CV”).

The main difference between a firm and a CV lies in the contribution of the partners. In a CV, there are two types of partners, namely active partners, who manage the business of the CV, and passive partners, who merely make capital contributions to the CV. The liability of a CV's passive partners is limited to the amount of their capital contribution. In contrast, there are no distinct categories of partners in a firm.

Contractual JVs

A contractual JV is formed by agreement between the JV partners and does not require the establishment of a legal or business entity.

The typical JV founding documents for a corporate JV are the:

  • JV/shareholders' agreement entered into by the JV partners, which is a private agreement documenting the relationship between the JV partners.
  • Deed of establishment, which contains the entity's articles of association and:
    • a list of the members of the board of directors and board of commissioners, for a limited liability company (PT); or
    • a list of the partners, for a partnership.
  • The deed of establishment must be executed in the form of a notarial deed.
  • Decree from the Ministry of Law and Human Rights (MOLHR) approving the establishment of the PT (MOLHR decree). A PT is granted limited liability status on issuance of the MOLHR decree.

Use of Foreign Language in JV's Founding Documents

Under Law No. 24 of 2009 regarding the Indonesian National Flag, Language, Emblem and Anthem (the “Language Law”), Bahasa Indonesia must be used in:

  • Official communications between the state and private entities.
  • Official documents issued by the state.
  • Agreements involving the Indonesian Government, Indonesian private companies or Indonesian individuals.

Therefore, a JV's founding documents, which comprise the JV agreement and/or the deed of establishment, must be prepared in Bahasa Indonesia if one of the parties is Indonesian. If one of the parties to the JV agreement is a foreign party, the agreement can be drafted in the language of that foreign party in addition to Bahasa Indonesia. In the vast majority of agreements with a foreign party, the parties typically agree that the foreign language version will prevail. However, the deed of establishment, which must be prepared in the form of a notarial deed, must always be in Bahasa Indonesia.

SSEK - 14th December 2017

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Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)