ELUCIDATION OF
LAW OF THE REPUBLIC OF INDONESIA
NUMBER 40 OF 2007
CONCERNING
LIMITED LIABILITY COMPANIES
BY THE GRACE OF ALMIGHTY GOD
THE PRESIDENT OF THE REPUBLIC OF INDONESIA
I. GENERAL
The national economy, which is operated on a basis of economic
democracy with principles of community, efficiency, justice, sustainability,
environmental awareness, independence and safeguards for balanced
progress and national economic unity has the aim of creating prosperity
for society. Increasing development of the national economy needs the
support of an act regulating limited liability companies which can secure a
conducive climate for the business world. To date limited liability
companies have been governed by the Limited Liability Companies Act
No. 1 of 1995, which replaced legislative regulations originating from the
colonial period. However, in their development, the provisions in that Act
are viewed as no longer complying with legal developments and the needs
of society because the economic situation and progress in science,
technology, and information are developing so swiftly, particularly in the
era of globalisation. Besides, the increase in demand from society for quick
service, legal certainty and the demand for development of the business
world in accordance with principles of good corporate governance demand
the improvement of the Limited Liability Companies Act No. 1 of 1995.
This Act accommodates various provisions concerning Companies, both in
the form of the addition of new provisions, the improvement of others and
the keeping of old provisions evaluated as still relevant. To further clarify
the essence of Companies, this Act makes explicit that a Company is a legal
entity which constitutes an alliance of capital established pursuant to a
contract in order to carry on business activities with an authorised capital
all of which is divided into shares and which fulfils the requirements
stipulated in this Act and its implementing regulations.
In the context of complying with society’s demand for swift service, the Act
provides procedures for the electronic:
1. submission of applications for and the granting of ratification of
legal entity status;
2. submission of applications for and the granting of approval for the
amendment of articles of association;

3. delivery of notifications and receipt of notifications of amendments
to articles of association and/or notification of and receipt of
notification of other changes to data
by legal entity administration system information technology services
besides manual systems still being possible in certain circumstances.
With regard to applications for ratification of Companies as legal entities,
it is made explicit that such applications constitute the authority of the
founders jointly which they can exercise themselves or they can empower a
notary to exercise.
A Company’s deed of establishment which has been ratified and deed of
amendment of the articles of association which has been approved and/or
notified to the Minister must be recorded in the register of Companies and
announced in the Supplement to the State Gazette of the Republic of
Indonesia made by the Minister. In the matter of grants of status as a legal
entity, approvals and/or receipts of notification of amendments to the
articles of association, and changes to other data, this Act has not
connection with the Mandatory Company Registration Act.
To further clarify and make explicit provisions involving Company Organs,
this Act amends provisions involving the holding of General Meetings of
Shareholders (GMS) by using technological developments. Thus, a GMS
can be held by electronic media such as teleconferences, video
conferences, or other electronic media facilities. This Act also clarifies and
makes explicit the tasks and responsibilities of the Board of Directors and
Board of Commissioners. This Act provides for independent and delegated
commissioners.
In accordance with the development of business activities based on sharia
principles, this Act obliges Companies doing business on the basis of
sharia principles to have a Sharia Supervisory Board as well as a Board of
Commissioners. The Sharia Supervisory Board’s task will be to give the
Board of Directors advice and suggestions and to supervise the Company’s
activities so that they will be in accordance with sharia principles.
The provisions in this Act regarding Companies’ capital structure remain
the same, i.e., it consists of authorised capital, subscribed capital, and
paid-up capital. However, Companies’ authorised capital has been
changed to be at least Rp. 50,000,000 (fifty million rupiah), while there is
an obligation to fully pay up subscribed capital. With regard to buying
back shares issued by the Company, it can be done in principle with the
proviso of a 3 (three)-year time limit for the Company to own shares which
it has bought back. Especially for the use of profits, this Act makes explicit
that the Company may allocate profits and set aside the mandatory reserve
if the Company has a positive profit balance.
This Act provides for Environmental and Social Responsibility aimed at
creating sustainable economic development in order to improve the
quality of life and environment, which will be beneficial for the Company
itself, the local community and society in general. This provision is
intended to support the ties of Company relationships which are
harmonious, balanced and in accordance with the environment, values,
norms and culture of the local community, and so it stipulates that
Companies whose business activities are in the field of and/or related to
natural resources must put into practice Environmental and Social
Responsibility. In order to carry out this obligation of Companies, the
Environmental and Social Responsibility activities must be budgeted for
and calculated as Company costs to be performed with due attention to
decency and fairness. Such activities must feature in Companies’ annual
reports. If a Company does not put into practice Environmental and Social
Responsibility, the Company involved will be liable to sanctions in
accordance with the provisions of legislative regulations.
This Act makes explicit provisions with regard to the winding-up,
liquidation and expiry of the Company’s status as a legal entity with due
attention to the provisions in the Bankruptcy and Suspension of Payments
Act.
In the context of the implementation and development of this Act, a team
of company law review experts will be formed whose task will be to give
input to the Minister in relation to Companies. To ensure the credibility of
this team of experts, the membership of the team will consist of various
elements from the government, academics, the professions, and the
business world.
As a comprehensive regulation which covers various aspects of
Companies, it is to be hoped that this Act will meet society’s demands of
the law and give further legal certainty for the business world in particular.

II. ARTICLE BY ARTICLE
Article 1
Sufficiently Clear
Article 2
Sufficiently Clear
Article 3
Paragraph (1)
The provisions in this paragraph make explicit the character
of a Company that shareholders are only liable for the
amount paid up on all of the shares they own and it does not
cover their personal assets.
Paragraph (2)
In certain circumstances it is not impossible for limited
liability to be eliminated if it is proved that the matters stated
in this paragraph have occurred.
It is possible for shareholders’ liability in the amount of all
the shares they own to be eliminated if it is proven that,
among others, there has been a mixing of the shareholder’s
personal assets and the Company’s assets so that the
Company was established purely as a tool to be used by the
shareholder to reach his personal aims as contemplated in
subparagraphs a and d.
Article 4
The fact that this Act, their articles of association and the provisions
of other legislative regulations apply to Companies does not detract
from the obligation of each Company to comply with the principles
of good faith, decency, and fairness and the principle of good
corporate governance in running the Company.
“Other legislative regulations” means all legislative regulations
related to the existence and running of Companies, including their
implementing regulations, among others banking, insurance and
financial institution regulations.
In the event that there is found to be any conflict between the
articles of association and this Act, this Act prevails.
Article 5
The Company’s domicile also constitutes the Company’s head
office.
The Company must have an address in accordance with its domicile
which must be mentioned in, amongst others, correspondence, and
at which the Company can be contacted.
Article 6
If the Company is established for a limited period, the length of that
period must be explicitly stated; for example, 10 (ten) years, 20
(twenty) years, 35 (thirty-five) years, and so on. Similarly, if the
Company is established for an unlimited period, this must be
explicitly stated in the articles of association.