Different types of Business entities in Indonesia

Ashish M. Shaji

20 Apr, 2022

The Indonesian economy has been going upward which points to the fact that the country has been business friendly. Indonesia is one of those countries which have taken measures towards encouraging business activities such as deregulation. Therefore, starting and registering your company in Indonesia there can be a fruitful exercise. However, before you proceed, you need to be aware of the different types of business entities in Indonesia. In this article, we have discussed it in a detailed manner.

Why you should opt for Indonesia?

Factors such as continued deregulation has opened wide range of investment opportunities for foreign investors. Moreover, Indonesia being rich in natural resources it is one of the hotspots for entrepreneurs looking to expand globally.  Recent initiatives that provide for more streamlined investment procedures have only improved ease of doing business there. Some of the progressive measures taken by Indonesia to attract foreign investment includes offering tax concessions, industry incentives and free trade areas.

There are various SEZs established in Indonesia that offer different types of benefits to investors like tax incentives, manufacturing benefits etc. Tax exemptions are also available.

Business entities in Indonesia

There are various types of business structure that is available in Indonesia. We have listed down some of the common forms of business structure. You can choose from the following types of business entities in Indonesia:

• Perseroan Terbatas (PT);
• Private-owned enterprises (BUMS);
• Sole proprietorship (UD);
• Representative office;
• Subsidiary company.

Perseroan Terbatas-

Perseroan Terbatas is a type of business structure or legal entity in Indonesia. Perseroan Terbatas is a Limited Liability Company in Indonesia and can be a publicly-listed entity or privately-owned entity. In this type of business structure if the company faces any financial liability, the personal assets of the Company are protected as the liability of the shareholder is limited to the number of unpaid shares in the capital of the company.

Generally, Perseroan Terbatas are categorised into local PT companies and foreign-owned PT PMA companies. In case a company is registered as a PT, then the name of the company must start with PT.

PT is one of the most common types of business structure which helps companies significantly as it assures better legal certainty and simplifies international business engagement. Stipulated conditions provide for the distribution of profits through dividends.

Private-owned enterprises (BUMS)

Private-owned enterprises or BUMs can be categorised into 3 different types of business entities in Indonesia:

• Firma/Firm (FA);
• Commanditaire Vennootschap (CV);
• Limited company (PT).

A firma is a type of a private owned entity which can be established by two or more Indonesian individuals. It is not a separate legal entity therefore there is no protection for the personal assets of an individual and the assets of the company. So if the company falls into financial crisis then partners will be liable to pay debt from their personal wealth.

Commanditaire Vennootschap (CV) is an LLP^[1]. There is no minimum capital requirement to set up a CV. It is one of those entities that can be easily set up. However, CV is also not a separate legal entity, hence it also does not protect personal assets of the partners.

Sole proprietorship

If you wish to start a business with only person then you may opt for Sole proprietorship. This form of business structure requires just one person and you can avoid complex procedures. Sole proprietorship is generally opted by small entrepreneurs with limited production quantity. This form of business structure can be easily formed and easily dissolved as well. Another feature of this form of business entity is that in case of any debt, it has to be borne by the business owner and in case of benefits, all the benefits can be enjoyed by the business owner.

Representative Office

A representative office business structure can be opted by foreign companies who wish to explore the Indonesian market. The representative office can perform market research, promotional activities and act as a buying/selling agent for the foreign parent company.  The representative office’s all commercial transactions shall be managed by foreign parent company. There is no minimum capital requirement. Both local and foreign employees can be employed by the representative offices. Some of the benefits of a representative office includes that it is easy to manage with full foreign ownership, it can be set up with minimum expenses and as stated above there is no requirement of minimum capital.

There are 3 different types of representative offices in Indonesia:

• Foreign representative office;
• Foreign construction representative office;
• Foreign trade representative office.

Subsidiary Company

Subsidiary companies are set up as LLCs in Indonesia and in case the parent company is a foreign company then the most appropriate form of business structure can be a foreign-owned company (PT PMA). Subsidiary companies are a separate legal entity and business owner form a subsidiary company in order to gain access to the Indonesian market.

Conclusion

Indonesia offers vast business opportunities for any business to thrive. It being a strategic location, no wonder why the authorities in Indonesia has been easing business regulations. Foreign investors have more business fields to tap into and also more incentives to operate there. However you can only take the advantage to its full extent if you opt for the apt business structure as per your business needs. Evaluate your requirements and make a wise decision among different business entities in Indonesia.