INTRODUCTION

Of all the steps involved in planning the establishment of a business or organization, choosing the right legal vehicle is at the top of the checklist. The decision made will impact on many of the establishment procedures and later operations, including the necessary paperwork, taxes, legal consequences, ability to generate profit, and even the personal liability of the founders. No single approach is appropriate for all entities, and careful consideration must be given to choosing the proper entity that best suits the main objectives and characteristics of the activities.

Indonesia acknowledges two main categories of legal entities: the incorporated entity (badan hukum)and the unincorporated entity (bukan badan hukum). Of all of the differences between the two, the main difference relates to the separation between the organization’s assets and the owners’ assets. The common wisdom is to use an incorporated entity to protect business owners from personal liability.