Omnibus Law Amends Provisions under Company Law to Empower Micro, Small, and Medium Business

As a follow up to our newsflash on the general update of the Job Creation Law or what is publicly known as the Omnibus Law, which can be access through this link, we will further discuss the key changes in relation to limited liabilities companies under the Omnibus Law.

Law No. 40 of 2007 dated August 16, 2007 on Limited Liability Companies (the “Company Law”) is one of the laws amended by the Omnibus Law. The amended Company Law mainly focuses in allowing micro, small, and medium enterprise to thrive by removing minimum capital required to establish a limited liability company and by recognizing sole shareholder in a limited liability company.

We elaborate the changes under the Omnibus Law below.

  • Removal of Minimum Authorized Capital

The Omnibus Law removes the requirement of minimum authorized capital of limited liability of Rp50 million. The amount of authorized capital is based on the discretion of the founders of the company. The requirement under the Company Law to have at least 25% of the authorized capital to be issued to and paid-up by the shareholders remains unchanged.

Founders’ right to determine the amount of authorized capital is not an entirely new concept as it has also been introduced under Government Regulation No. 29 of 2016 on Change of Authorized Capital of Limited Liability Company effective on July 14, 2016. Nevertheless, its incorporation under the Omnibus Law brings such provision to a higher level in the hierarchy of laws.

The Omnibus Law also removes the provisions that other laws (undang-undang) may stipulate minimum capital for specific businesses. This means that minimum capital requirement may be regulated under any laws and lower regulations. For example, the current BKPM regulations requires foreign investment (PMA) companies to have the issued and paid-up capital of at least Rp2.5 billion. Deletion on the requirement for a law to determine other minimum amount of capital further legitimizes this provision under these BKPM regulations.

  • Sole Shareholder and Simplification of the Establishment of Company for Micro and Small Business

To further clarify and simplify the procedure of company establishment, the Omnibus Law now expands the scope of business entity that may have sole shareholder under Article 7 of the amended Company Law to include:

  1. Regional Owned Enterprise (Badan Usaha Milik Daerah);
  2. Village Owned Enterprise (Badan Usaha Milik Desa); and
  3. Micro and small business.

For companies with micro and small business category, we shall refer to Law No. 20 of 2008 dated July 4, 2008 on Micro, Small, and Medium Enterprises (the “MSME Law”) as amended by the Omnibus Law on the scale of micro and small business. The MSME Law previously provided criteria for each micro, small, and medium business. Under the amended MSME Law, these criteria will be further provided under a Government Regulation.

Particularly for micro and small businesses, the Omnibus Law simplifies the company establishment procedure. In addition to the sole shareholder concept, micro and small businesses are only obligated to submit an establishment statement to the MOLHR, instead of the more extensive notarial deed of establishment. With this provision, micro and small business actors may be institutionalized with more lenient requirements, thus creating a separation of liability between the company and the individual owner. This provision is expected to empower the micro and small business so that they would be more eligible to acquire funding or to market their products.

Further requirements for the establishment of micro and small business companies will be stipulated under government regulations. The Omnibus Law only sets out the general conditions, i.e.:

  1. shareholder(s) of micro and small business companies must be individual(s); and
  2. the founders of micro and small business companies may only establish one micro and small business company in one year.

However, once the micro and small business companies have scaled up past the threshold stipulated under the amended MSME Law (and the corresponding Government Regulation), they should change their status into “regular” companies.

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November 20, 2020

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