“As one of the company’s organs, the tasks of the Board of the Directors are determined by the Articles of Association of the company, and if needed, they may engage in the Directorship Agreement.”
Limited-Liability Company (“Company”) can be defined as a legal entity that take form of a capital partnership and established based upon an agreement to conduct business activities. One of the Company’s Organ that managed the Company is Director that has its own function and obligation in the Company. Director cannot be categorized as the same of worker in the Company since their task is determined according to the Article of Association (“AoA“) and General Meeting of Shareholders (“GMS”). However, the Company can conduct a specific duties and responsibilities that can be covered in an agreement which known as a Directorship Agreement.
In this Articles, we will elaborate more regarding the Directorship Agreement in Indonesia.
A. Definition of Board of Director in the Company
According to Article 1 Paragraph (5) of Law No. 40/2007 concerning Company (“Company Law”), Board of Directors can be defined as the company organ which authorized and fully responsible for the management of the Company for the interest of the Company, in accordance with the purposes and objectives of the Company, and represents the Company for both in and out of the court as stated in the provisions of the Articles of Association.
The responsibility of Directors is beginning from the time when the Directors are appointed or from the time the Director are serve as Director in the Company, until the expiration or termination of the Director in accordance with the result of the GMS Decision.
According to Article 93 and 110 of Company Law stated that anyone that may be appointed as Board of Director and Board of Commissioner shall be individual persons capable of conducting legal acts, unless if within a period of 5 (five) years prior to their appointment there has ever:
- Been declared bankrupt;
- A member of the Board of Director or Board of Commissioner who was declared at fault in causing the Company to be declared bankrupt; or
- Been convicted for committing a criminal offense that is detrimental to the finance of the state and/or related to the financial sector.
Based on Article 92 of Company Law, the Board of Directors carries out the management of the Company for the interest of the Company in accordance with the purposes and objectives of the Company. The Board of Directors are required to:
- Draw up the register of shareholders, the special register, the minutes of the GMS, and the minutes of meeting of the Board of Directors;
- Draw up the annual report as referred to in Article 66 of Company Law and the financial documents of the Company as set out under the Law on Corporate Documents; and
- Maintain all registers, minutes, and financial documents of the company as the Board of Directors or Board of Commissioner have a conflict of interest with the company.
In conclusion, Director will be managed the Company and maintain the system of the Company.
B. The Directorship Agreement
As mentioned above, the rights and regulation of the Director are obliged and fully responsible for the Company management in accordance to the interest of the Company. The responsibility will decide according to the purposes and objectives of the Company and the Director should represent the Company either outside or inside the court. Technically, the duties of Directors will be translated into the policies made at the GMS as stated in the Article 94 Paragraph (1) of the Company Law.
In regard that the Director will have full responsibility to the management of the Company, then all control is accountable by the Directors to the shareholders at the GMS. However, in the event that the GMS does not determine the duties and authority of the Directors, then it can be determined based on the decision of the Directors as regulated in the Articles 92 Paragraph (6) of Company Law.
From the provisions of Company Law and Law No. 13 of 2003 regarding Employment, the Directors cannot be categorized as workers since they are included as the Company’s organs. Therefore, if there are specific arrangements between the company and Directors, they may have an alternative to have a separate agreement, namely a Directorship Agreement.
One of the advantages of having the Directorship Agreement is that there is a basis for determining the salaries and benefits. As it stated on Article 96 Paragraph (1) of the Company Law, the Director will have rights regarding its salary and benefit which the amount as determined by the GMS decision. Directors will receive a salary for carrying out the management of the Company based on the GMS decision. However, in the condition that it is not specified in the decision, then it can be determined through the Directorship Agreement. The most important thing is the Directorship Agreement is not contradictory with the company law, the AoA, and GMS.
Furthermore, the Director has an obligation to manage the Company in good faith and will full responsibility as stated in Article 97 Paragraph (1) of Company Law in regard to good corporate governance. In regard to conduct the Directorship Agreement will maintain the duties and obligations of the Directors in accordance with the principles of good corporate governance that are not set in the AoA or GMS decision.
However, no regulations state for the requirement for the Directorship Agreement. Therefore, the parties may negotiate and agree on the provisions arranged in the Directorship Agreement, and it must be consistent with the Company Law, AoA, and the GMS decision.
Author: Naomi Catherine Felencia
Gaffar & Co. is an Indonesian Boutique Law Firm focusing on commercial law, Investment Regulatory and Corporate Secretarial Services.
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