“ Although Company Law does not define the definition of Minority Shareholders, however in practice, Minority Shareholders are Shareholders who do not own a large number of shares in a Limited Liability Company.”
Shareholders are one of the main elements in a Limited Liability Company. Shareholders have rights, obligations and interests that are protected in Law No. 40 of 2007 concerning Limited Liability Company as lastly amended by Law No. 6 of 2023 concerning the Enactment of Government Regulation in Lieu of Law No. 2 of 2022 concerning Job Creation to Become Law (“Company Law”). Under Article 1 point 4 of the Company Law, General Meeting of Shareholders (“GMS”), is the Company Organ having the authorities not vested in the Board of Directors (“BoD”) or the Board of Commissioners (“BoC”), within the limits set out under this Law and/ or articles of association.
Although the Company Law does not define the definition of Minority Shareholders, in practice, Minority Shareholders are Shareholders who do not own a large number of shares in a Limited Liability Company. Therefore, in practice there are many opinions that Minority Shareholders as they have small shares in the company, they do not have large control in a Company even though the Company Law facilitates their rights through the principle of equal protection. This principle can be referred to in Article 53 Paragraph (2) of the Company Law, in which “Each share of the same classification shall confer the same right upon its holders”. Therefore, in principle, Minority Shareholders have the same rights with other Shareholders within the Company.
In general, the Company Law provides equal protection rights for Shareholders and Minority Shareholders. Based on Article 52 Paragraph (1) of the Company Law, a share shall confer the rights upon its owner (Shareholder) to:
- attend and cast a vote at the GMS;
- receive dividend payments and remaining assets after liquidation; and
- exercise other rights based on the Company Law.
Apart from the legal provisions stipulated in the Company Law, Limited Liability Companies in running the company are required to apply the principles of Good Corporate Governance (“GCG“), as it is known that the GCG principles prioritize: fairness, transparency, accountability and responsibility.
1. Rights of Minority Shareholder Towards Corporate Actions
The problem of corporate action related to Merger, Acquisition, Consolidation, and Spin-off (“Corporate Actions”) of a company is often used by majority shareholders to dilute minority shareholdings. However, as long as this corporate action complies with the legal provisions in force in the Company Law, there are no legal violations that can be addressed to the company.
Under Article 89 Paragraph (1) of the Company Law, GMS to approve the Corporate Actions may be held if at least ¾ (three-fourths) of the total number of shares with voting rights are present or represented in the GMS, and the resolution shall be valid if approved by at least ¾ (three-fourths) of the total casted votes. Therefore, in general the potential of the GMS to approve such corporate action commonly approve if there is a Majority Shareholder that approves the corporate action and the Minority Shareholder will be outvoted. This can happen because the application of the principle of one-share-one-vote which implicates the simple majority principle in the GMS decision-making procedure.
Steps that can be taken by Minority Shareholders for the actions taken by the company are: every shareholder is entitled to request the Company to purchase his/her shares at a reasonable price, if the person concerned did not approve the acts of the Company which has incurred losses to shareholders or the Company in the form of Corporate Actions of the Company (Article 62 of the Company Law) or in the event that Minority Shareholders can prove that there has been a violation of the law by the corporation in connection with the said action or can prove that there has been a loss for the action deemed unfair and without reasonable reasons, the Minority Shareholders can file a lawsuit with the District Court where the company is domiciled (Article 61 of the Company Law).
2. Examples of Overlooked Minority Shareholder Rights
As mentioned on section 1 of this Article, Minority Shareholders can exercise other rights based on the Company Law. If described, the most important authority of the GMS which includes Minority Shareholders Rights is in accordance with the Company Law, includes the following:
- Amendments to the articles of association are determined by the GMS;
- Give approval for the buyback or further transfer of shares issued by the Company;
- Handing over authority to the BoC to approve the implementation of the GMS decision on the repurchase or further transfer of shares issued by the Company;
- Approved the increase of the Company’s capital;
- Approved the reduction of the Company’s capital;
- Approved the annual report and ratified the financial report and report on the supervisory duties of the Board of Commissioners;
- Deciding the use of net profit, including determining the amount of provision for statutory reserves and other reserves;
- Determine the distribution of tasks and management of the Company between members of the BoD;
- Appoint and dismiss members of the BoD and members of the BoC;
- Determine the amounts of salaries and benefits for members of the BoD.
As for legal instruments that can balance the power imbalance between shareholders, it can be done through the Shareholders Agreement (“SHA”) in managing the interrelationship between majority shareholders and minority shareholders in a fair and balanced manner.
Although the Company Law generally provides protection rights for Majority Shareholders and Minority Shareholders based on their share ownership in a limited liability company, SHA can be created to offset power imbalances among shareholders. Therefore, there is a tendency to make a SHA among shareholders which aims to provide more protection to minority shareholders. However, it should be a concern that the position of SHA in limited liability company law according to the regulatory hierarchy is lower than the stipulations of the prevailing laws and Articles of Association of the company, so that SHA can be enforced only if it does not conflict with the prevailing laws and Articles of Association of the company.
Author: Oddy Ramadhika Susmoyo
Gaffar & Co., Indonesian Boutique Law Firm which specializing and focus on commercial law areas e.g. Investment Regulatory, Corporate Law, Commercial Litigation.
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