FORMATION OF A P.M.A. COMPANY
By. Muchammad Alfarisi Fadjari, SH., M.Hum
The formation of a P.M.A. company requires the approval of the Minister of Investment or of the President through Badan Koordinasi Penanaman Modal (“BKPM”), as the case may be, and the Department of Justice (DOJ) for its Articles of Association. The procedures for these approvals are as follows:
1. BKPM’S Approval Procedure:
1.a. The investors in the proposed company must prepare and file a foreign investment application, known as a Model I P.M.A. Application. The application is signed by all the investors. A copy of the current form Model I is attached.
For a joint venture company, the foreign investor may be either a legal entity or an individual, whereas the Indonesian investor can be one of the following:
1. Limited liability company (P.T.);
2. Cooperative;
3. State owned/regional owned company (BUMN/BUMD); and
4. Individual.
The Application should be submitted to the Chairman of BKPM, copy to the Chairman of BKPMD, with the following attachments:
1. the Indonesian Investor must provide:
- copy of the articles of incorporation if a corporation, or identity card, if an individual
- copy of the Tax Identification Number (NPWP).
2. the foreign investor must provide:
- copy of the articles of incorporation as well as its English/Indonesian translation, if a corporation.
- passport, if individual
3. a. description of the production process together
with the flow chart
b. the scope of activities (service companies)
4. draft of the Joint Venture Agreement which has been initialed/signed. For a direct Investment (100%) the Joint Venture Agreement is not required.
5. Power of attorney, if the application is signed by an attorney-in-fact.
6. Terms and conditions on certain sectors issued by the Government as contained, among others, in PT. PPM Book.
7. For sectors which require Partnership:
a. Agreement of Partnership with small scale Business;
b. When the Partnership is in form of Share Participation by the small-scale Business, such small-scale Business is already mentioned as shareholder in the Joint Venture Agreement;
c. Statement on duty stamped Letter from the small-scale Business stating that such small-scale Business fulfills the criteria of small-scale as mentioned in Article 1 item 23 in the Decree of the Minister of Investment/Chairman of BKPM No. 30/SK/1998 on the Guidelines and Procedures of Investment Applied established for the purpose of Domestic/Foreign Investment.
1.b. BKPM assesses the Application’s compliance with the Government’s policies and priorities. The Daftar Negatif Investasi (“DNI”) sets forth those areas of activity which are closed to foreign investment.
1.c. After BKPM completes its evaluation, for investment over US$ 100,000,000.00 (United Stated Dollars one hundred million), the Minister of Investment (MOI)/Chairman of BKPM will recommend to the President of the Republic of Indonesia through the State Secretary that the project be approved. The Presidential approval will be notified to the investors by the MOI/Chairman of BKPM through the Notification of Presidential Approval (“SPPP”). The SPPP will be issued not later than 20 (twenty) days as of receipt of complete required documents by BKPM.
1.d. For Investment up to US$ 100,000,000.00 (United States Dollars one hundred million), the Minister of Investment/Chairman of BKPM will issue Approval Letter for foreign Investment (SP-PMA). The SP-PMA will be issued not later than 10 (ten) days as of receipt of complete required documents by BKPM.
1.e. The SP-PMA/SPPP contain the terms and conditions of approval and represents the Government’s official position and approval of the foreign investment. Therefore, any particular facilities requested by the shareholders of the proposed company should be contained in the SP-PMA/SPPP. The SP-PMA/SPPP will constitute a Principal Approval, which enables the investors (after execution and submission of Articles of Association to the DOJ) to proceed immediately with the construction or pre-operation phase. As a general rule, the investors have 3 (three) years as of the date of the SP-PMA/SPPP in which to complete the project, except if specifically provided otherwise. Further, a number of separate licenses and permits as set forth in Section D hereunder must be acquired by the proposed company.
2. Department of Justice Approval Procedure:
2.a. After the proposed company receives its SPPP, the investors may execute the Articles of Association before an Indonesian Notary Public and file the company’s Articles of Association with the DOJ, which reviews and approves them on an individual basis. The Indonesia Company Law - Law No.40/2007-(“ICL”) requires that the founders of limited liability company (including a Joint Venture P.M.A. Company, as well as a Foreign P.M.A. Company), must consist of at least 2 (two) parties. The ICL contains no minimum shareholding percentage for either of the shareholders. Under the ICL, if at any time 100% of the outstanding shares are held by only one person, within 6 months of the commencement of that state of facts, shares must be sold to another party, failing which the sole shareholder will have unlimited liability for the liabilities of the company.
While there is no standard form Articles of Association as such and terms and provisions thereof may very somewhat, Articles of Association are highly stylized and any substantial changes from the customary provisions will require negotiation with the DOJ. It is unlikely that the DOJ will approve changes that depart radically from its usual format. The Articles of Association of a Joint Venture P.M.A. Company as well as a Foreign P.M.A. Company must be prepared in notarial deed form in the Indonesian language. Currently, DOJ approval typically requires three months and may take considerably longer. We note that the ICL requires the DOJ to turn around applications for approval within 60 days of submission. During the approval period, the proposed company’s SPPP permits it to engage in business as a company-in-formation. The rules as to liability of the founders are essentially the rules that apply to partnerships. Upon approval by the DOJ, the company will acquire limited liability status, meaning the shareholders henceforward no longer have personal liability for the acts of the company. From the date of Department of Justice approval to the date the Articles of Association are published in the State Gazette, the directors of the company are personally liable for the acts of the company. The shareholders can indemnify the directors against such liability.
2.b. Under the ICL, by establishment of the company (meaning execution of the notarial form Deed of Establishment), at least 25% of the authorized capital must be issued and paid up. The remainder of the issued capital shares must be paid up by DOJ approval of the Articles of Association. Thereafter, all shares issued must be fully paid issuance. The ICL establishes a minimum capitalization of Rp.50.000.000. This represents a significant change from the practice prior to the ICL. The previous requirement was that by no later than DOJ approval, at least 25% of the authorized capital of the proposed company had to be issued and be fully paid. BKPM requires that all authorized capital must be issued and fully paid by the commencement of commercial production or operation. This is a date certified by BKPM and it is important not only for capital issuance purposes but for divestment purposes as well.
By. Muchammad Alfarisi Fadjari, SH., M.Hum
The formation of a P.M.A. company requires the approval of the Minister of Investment or of the President through Badan Koordinasi Penanaman Modal (“BKPM”), as the case may be, and the Department of Justice (DOJ) for its Articles of Association. The procedures for these approvals are as follows:
1. BKPM’S Approval Procedure:
1.a. The investors in the proposed company must prepare and file a foreign investment application, known as a Model I P.M.A. Application. The application is signed by all the investors. A copy of the current form Model I is attached.
For a joint venture company, the foreign investor may be either a legal entity or an individual, whereas the Indonesian investor can be one of the following:
1. Limited liability company (P.T.);
2. Cooperative;
3. State owned/regional owned company (BUMN/BUMD); and
4. Individual.
The Application should be submitted to the Chairman of BKPM, copy to the Chairman of BKPMD, with the following attachments:
1. the Indonesian Investor must provide:
- copy of the articles of incorporation if a corporation, or identity card, if an individual
- copy of the Tax Identification Number (NPWP).
2. the foreign investor must provide:
- copy of the articles of incorporation as well as its English/Indonesian translation, if a corporation.
- passport, if individual
3. a. description of the production process together
with the flow chart
b. the scope of activities (service companies)
4. draft of the Joint Venture Agreement which has been initialed/signed. For a direct Investment (100%) the Joint Venture Agreement is not required.
5. Power of attorney, if the application is signed by an attorney-in-fact.
6. Terms and conditions on certain sectors issued by the Government as contained, among others, in PT. PPM Book.
7. For sectors which require Partnership:
a. Agreement of Partnership with small scale Business;
b. When the Partnership is in form of Share Participation by the small-scale Business, such small-scale Business is already mentioned as shareholder in the Joint Venture Agreement;
c. Statement on duty stamped Letter from the small-scale Business stating that such small-scale Business fulfills the criteria of small-scale as mentioned in Article 1 item 23 in the Decree of the Minister of Investment/Chairman of BKPM No. 30/SK/1998 on the Guidelines and Procedures of Investment Applied established for the purpose of Domestic/Foreign Investment.
1.b. BKPM assesses the Application’s compliance with the Government’s policies and priorities. The Daftar Negatif Investasi (“DNI”) sets forth those areas of activity which are closed to foreign investment.
1.c. After BKPM completes its evaluation, for investment over US$ 100,000,000.00 (United Stated Dollars one hundred million), the Minister of Investment (MOI)/Chairman of BKPM will recommend to the President of the Republic of Indonesia through the State Secretary that the project be approved. The Presidential approval will be notified to the investors by the MOI/Chairman of BKPM through the Notification of Presidential Approval (“SPPP”). The SPPP will be issued not later than 20 (twenty) days as of receipt of complete required documents by BKPM.
1.d. For Investment up to US$ 100,000,000.00 (United States Dollars one hundred million), the Minister of Investment/Chairman of BKPM will issue Approval Letter for foreign Investment (SP-PMA). The SP-PMA will be issued not later than 10 (ten) days as of receipt of complete required documents by BKPM.
1.e. The SP-PMA/SPPP contain the terms and conditions of approval and represents the Government’s official position and approval of the foreign investment. Therefore, any particular facilities requested by the shareholders of the proposed company should be contained in the SP-PMA/SPPP. The SP-PMA/SPPP will constitute a Principal Approval, which enables the investors (after execution and submission of Articles of Association to the DOJ) to proceed immediately with the construction or pre-operation phase. As a general rule, the investors have 3 (three) years as of the date of the SP-PMA/SPPP in which to complete the project, except if specifically provided otherwise. Further, a number of separate licenses and permits as set forth in Section D hereunder must be acquired by the proposed company.
2. Department of Justice Approval Procedure:
2.a. After the proposed company receives its SPPP, the investors may execute the Articles of Association before an Indonesian Notary Public and file the company’s Articles of Association with the DOJ, which reviews and approves them on an individual basis. The Indonesia Company Law - Law No.40/2007-(“ICL”) requires that the founders of limited liability company (including a Joint Venture P.M.A. Company, as well as a Foreign P.M.A. Company), must consist of at least 2 (two) parties. The ICL contains no minimum shareholding percentage for either of the shareholders. Under the ICL, if at any time 100% of the outstanding shares are held by only one person, within 6 months of the commencement of that state of facts, shares must be sold to another party, failing which the sole shareholder will have unlimited liability for the liabilities of the company.
While there is no standard form Articles of Association as such and terms and provisions thereof may very somewhat, Articles of Association are highly stylized and any substantial changes from the customary provisions will require negotiation with the DOJ. It is unlikely that the DOJ will approve changes that depart radically from its usual format. The Articles of Association of a Joint Venture P.M.A. Company as well as a Foreign P.M.A. Company must be prepared in notarial deed form in the Indonesian language. Currently, DOJ approval typically requires three months and may take considerably longer. We note that the ICL requires the DOJ to turn around applications for approval within 60 days of submission. During the approval period, the proposed company’s SPPP permits it to engage in business as a company-in-formation. The rules as to liability of the founders are essentially the rules that apply to partnerships. Upon approval by the DOJ, the company will acquire limited liability status, meaning the shareholders henceforward no longer have personal liability for the acts of the company. From the date of Department of Justice approval to the date the Articles of Association are published in the State Gazette, the directors of the company are personally liable for the acts of the company. The shareholders can indemnify the directors against such liability.
2.b. Under the ICL, by establishment of the company (meaning execution of the notarial form Deed of Establishment), at least 25% of the authorized capital must be issued and paid up. The remainder of the issued capital shares must be paid up by DOJ approval of the Articles of Association. Thereafter, all shares issued must be fully paid issuance. The ICL establishes a minimum capitalization of Rp.50.000.000. This represents a significant change from the practice prior to the ICL. The previous requirement was that by no later than DOJ approval, at least 25% of the authorized capital of the proposed company had to be issued and be fully paid. BKPM requires that all authorized capital must be issued and fully paid by the commencement of commercial production or operation. This is a date certified by BKPM and it is important not only for capital issuance purposes but for divestment purposes as well.
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