Latest Draft of Company Law - Significant Changes

The latest version of the Draft Company Law (RUU Perseroan Terbatas RUU PT) is attracting a lot of attention from the business community because if enacted in its current format it will require businesses in Indonesia to put in place corporate social responsibility (CSR) provisions. It is expected that these provisions will allow businesses to allocate a percentage of their income to implementing programs that benefit the communities in which they operate. Nevertheless, this is in addition to any community development programs that companies may already have in place. The target appears to be more in terms of fulfilling a company's corporate social responsibility when something goes wrong. The most often cited examples here are the Buyat Bay and Lapindo cases.

However, this is not the only change of note in the latest draft. The definition of a share has been removed. The time frame for the legalization of company documents has been reduced to 14 days. However, this is contingent on complete documentation being provided by the applicant and the satisfaction of all relevant conditions. The application for legalization as an incorporated entity is to be through the Incorporated Entity Administration System (Sistem Administrasi Badan Hukum / Sisminbakum). Where the conditions are not fulfilled the time period for rectifying these deficiencies has been reduced from 120 days to 60 days.

The final change of note between the previous draft and the current RUU PT is that the amount of nett profit that is to be retained as reserves against capital assets has been raised from 10% to 20%.

The current RUU PT is still subject to considerable discussion and debate. However, it is a prioritized piece of legislation and there is therefore a corresponding degree of urgency to see this legislation pass the House of Representatives (DPR) and become law, as the current Company Law (Law No. 1 of 1995) is seen to be no longer appropriate to regulate the changing company environment in Indonesia.