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Nominee Shareholder

legal due diligence indonesia

Nominee Shareholder in Indonesia

When registering a limited liability company (foreign owned PMA or local owned PT), investors need to consider a number of legalities that are important to get right. In case the business is restricted or closed for direct foreign investment, investors have the option to appoint nominee shareholders. A nominee shareholder provided by PNB Law Firm is a fully controlled legal entity (in the form of an SPV) which shall act as nominee shareholder in the company of the Investor. The nominee shareholder shall sign a set of agreements with the investor, which stipulates that the nominee will not benefit from the ownership of shares in any way and that it has no legal claim over the shares.

Shareholder Requirements

Foreign investors who want to start operations in Indonesia, will need to decide the composition of shareholders of the company, taking into account that:

  1. there must  be at least 2 shareholders in the company;
  2. some business fields are restricted or closed to foreign investment (based on the Negative Investment List). When a business field is closed, only local companies can be active in this business field. When a business field is restricted, foreign investors can only hold a certain percentage of shares in a company (PMA) which is active in such business field.

Foreign investors may require nominee shareholders in case they are unable to provide a second shareholder. However, the most common reason for nominee shareholder requests is that the business of the foreign investor operates in a business field which is restricted or closed business field. In case the foreign investor has no local partner or wish to maintain 100% control over the company, the foreign investor can appoint a nominee shareholder.

Why Use Nominee Shareholders

Foreign investors may require nominee shareholders in the following cases:

  1. they are unable to provide a second shareholder;
  2. the are unable to meet the investment criteria of a foreign owned limited liability company (PMA), which require a paid-up capital of 2.5 billion rupiah and in addition an investment / proof of operational costs by the company of 10 billion rupiah within the first year of establishment. Locally owned limited liability companies (PT) have much lower investment requirements;
  3. the business of the foreign investor operates in a business field which is restricted or closed. In case the foreign investor has no local partner or wishes to maintain 100% control over the company, the foreign investor can appoint a nominee shareholder.

Restriction on Shareholder Nominees

Article 33 of the Indonesian Capital Investment Law provides that companies are not allowed to enter into agreements which state that shares are owned by one party on behalf of the other party. Therefore direct nominee agreements are prohibited in Indonesia. Investors and shareholders are however allowed to enter into a set of separate agreements, which allows the investor the fully legally control the company in compliance with regulations.

It is important to note that since direct shareholder nominees are prohibited in Indonesia, it is extremely important to find a trustworthy partner that can act as shareholder nominee. By engaging PNB Law Firm, you hire a credible and trustworthy expert who can provide you with reliable nominee service and expert advice on how to best structure your business.