Author: Felicia Cindy Hanubrata
“Holding companies and venture capital are permitted activities for foreign direct investment; however, their activities, requirements and conditions for their establishment vary.”
Holding Company, its establishment and permits
A holding company is a company that controls the assets of a group of subsidiary companies. Their main activity is ownership of the group but are not involved in the business activities of their subsidiary companies. Its activities include services provided by advisors and negotiators in designing corporate mergers and acquisitions.
Provisions regarding holding companies are not specifically addressed in Indonesia. Thus, establishing a holding company in Indonesia would require the same prerequisite of establishing a regular limited liability company (“LLC”) as stipulated in the Law Number 40 of 2007 on Limited Liability Company (“Company Law”)
The KBLI for a holding company is KBLI 64200, which is categorized as a low-risk business activity. As such, based on Government Regulation No. 5 of 2021 concerning the Implementation of Risk-Based Business Licensing (“GR No. 5/2021”), the required license for a low-risk business is a business identification number (NIB).
Venture Capital, its establishment and permits
A venture capital company (“VC”) is a limited liability company, a cooperative or a commanditaire vennootschap that does venture capital business, which is financing activities through capital participation and/or financing for a certain period of time within the framework of the application. Governed under Article 2 of Financial Services Authority Regulation Number 25 of 2023 on Management of Venture Capital Companies and Sharia Venture Capital (“POJK 25/2023”), there are 4 types of investment that a VC can make:
- equity participation;
- participation through the purchase of convertible bonds;
- financing through the purchase of debt securities issued by Business Partners at the initial start-up stage and/or business development; and/or
- financing.
In Indonesia, a VC is categorized based on their activities, a VC whose activity focuses on equity participation and participation through the purchase of convertible bonds is called a Venture Capital Corporation (“VCC”), while a VC whose activities are focused on financing through the purchase of debt securities and financing are called Venture Debt Corporation (“VDC”). However, a VCC is also able to do the activities of a VDC.
Similar to establishing a holding company, the steps to establish a VC in the form of an LLC would be the same as establishing a regular LLC. However, the minimum authorized and paid-up capital of a Conventional VC is IDR 50 billion. The KBLI for a Conventional VC is KBLI 64931, and to operate a VC, the company must obtain a VC Permit from the Financial Services Authority (“OJK”). Based on Financial Services Authority Number 34 Year 2015 on Business License and Institutional of Venture Capital Company (“POJK 34/2015”), to obtain a VC Permit, the Board of Director of the company must submit an application to the OJK and attach the following documents:
- legalized deed of establishment of business entity by or registered with the authorized- agency authorities;
- ownership list;
- data of the members of the Board of Directors, Board of Commissioners and the list of shareholders (if any);
- minutes of the GMS regarding the appointment of members of the list of shareholders;
- photocopy of proof of repayment of Paid-up Capital and photocopy of proof of placement of Paid-up Capital;
- proof of operational readiness;
- work plan for the first 5 (five) years;
- organizational structure equipped with personnel composition, job descriptions, authority, responsibilities and work procedures;
- implementation guidelines for implementing anti-money laundering and preventing terrorism financing programs;
- good corporate governance guidelines for VC;
- proof of payment of licensing fees to grant a business permit.
The business license application will be processed within 30 working days after OJK receives the application along with the full required documents. After the license is obtained, the VC must start its business activity within 6 months starting from the date of the business license determined by OJK.
Foreign Direct Investment and Capital Ownership
Before establishing a foreign direct investment company in Indonesia, it’s crucial for the foreign business entity to ascertain whether the chosen sector permits foreign investment. Most sectors are open to foreign investment, with exceptions being those regulated as closed or reserved solely for central government involvement. This information is outlined in Presidential Regulation No. 10 of 2021 on Capital Investment Activities (“PR No. 10/2021“), which is further clarified in Presidential Regulation No. 49 of 2021 amending Presidential Regulation No. 10 of 2021 (“PR No. 49/2021“).
In this regard both a holding company and a venture capital can be established by foreign business actor however, there is a difference in the allowed capital ownership. A holding company can be 100% owned by a foreigner, while based on POJK 34/2015 the allowed foreign ownership for a VC is capped at 85%.
Author: Felicia Cindy Hanubrata
Gaffar & Co. is an Indonesian Boutique Law Firm focusing on commercial law, including investment regulatory and corporate action, such as mergers and acquisitions.
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