“Upon the new regulation concerning the Investor ITAS, foreign investors must invest IDR 10 billion to have staying permit in Indonesia. It can possibly result in inadvertent acquisition process for companies.”
In August 2023, the government of Indonesia has promulgated a new regulation in which it is stated that the requirements for a foreign investor to obtain an Investor Stay Permit (Izin Tinggal Terbatas Investor or “Investor ITAS”) have been changed. This change has been made effective by the enforcement of the Regulation of the Minister of Law and Human Rights No. 22 of 2023 concerning Visa and Staying Permit, which was stipulated on 24 August 2023 (“MOLHR Regulation 22/2023”).
Previously, a foreign investor is eligible to obtain Investor ITAS if he/she is a member of the Board of Directors or the Board of Commissioners who is a minimum owner of shares in the company in the minimum amount of IDR 1,000,000,000 (one billion Indonesian Rupiah). Alternatively, a foreign investor is also eligible to obtain Investor ITAS if he/she is not within the organization structure of a company if he/she owns shares in the company in the amount of IDR 1,125,000,000 (one billion one hundred twenty-five million Indonesian Rupiah). However, with the MOLHR Regulation 22/2023, regardless of whether he/she is in within the organization structure of a company, he/she is only eligible to obtain Investor ITAS if he/she owns shares in the company in the minimum amount of IDR 10,000,000,000 (ten billion Indonesian Rupiah).
Whereas, under the implementing regulations, it should be noted that the previous requirements of obtaining Investor ITAS were stipulated in the Regulation of the Head of the Investment Coordinating Board (Badan Koordinasi Penanaman Modal or BKPM) No. 4 of 2021 (“Perka BKPM 4/2021”). However, at the time this article is written, even after the transitional period of the MOLHR Regulation 22/2023, Perka BKPM 4/2021 has not been revoked and/or replaced by any newly issued regulation. Nevertheless, in practice, provisions under the MOLHR Regulation 22/2023 have been enforced by the immigration authorities, i.e., Directorate General of Immigration and Immigration Offices all over Indonesia.
Upon this enforcement of the new regulation, all prospective appliers of the Investor ITAS must own the minimum shares in the amount of IDR 10,000,000,000 (ten billion Indonesian Rupiah). Furthermore, any holder of Investor ITAS can only renew his/her Investor ITAS if he/she can fulfill the minimum requirement as stated in the MOLHR Regulation 22/2023. As a result, many companies are required to change their shareholding composition in order to ensure that their investor(s) can maintain their entitlement over the Investor ITAS.
In order to ensure that an investor can maintain his/her entitlement over the Investor ITAS, a company’s options depend on the current conditions of their capital structure. If the company’s authorized capital exceeds the amount of IDR 10,000,000,000 (ten billion Indonesian Rupiah), the company has the option of either increasing the authorized capital and the paid-up capital of the company or restructuring the composition of shareholders of the company. Whereas, if the company’s authorized capital does not exceed the amount of IDR 10,000,000,000 (ten billion Indonesian Rupiah), the company only has the option of increasing the authorized capital and the paid-up capital of the company.
However, any of the options above cannot be executed without due consideration of the prevailing laws and regulations of the Law No. 40 of 2007 concerning Limited Liability Company as has been amended by the Law No. 6 of 2023 concerning Job Creation Law (“Company Law”). Hereinafter, this article shall discuss the legal matters following possible issues in capital restructuring of a company, namely the potential acquisition process.
Definition and Analysis of Acquisition under the Company Law
Under the Company Law, acquisition is defined as a transfer of control of a company. It is a legal action which is taken by a legal entity or an individual to acquire the majority shares of a company, which results in a transfer of control of the said company.
According to the Company Law, any major decision of a company is taken by a resolution of a General Meeting of Shareholders (“GMS”), in which the shareholders of a company cast votes in order to resolve an issue. Therefore, any shareholder who holds more than 50% (fifty percent) of voting rights in the GMS can be considered as a shareholder who makes all the decisions in the GMS. As such, the shareholder who holds more than 50% (fifty percent) of the voting rights in the GMS may be deemed to be the controlling shareholder of a company.
Upon the analysis above, if there is a change of composition of shareholders in a company, regardless of whether there is an outside party coming into the company, insofar as if there is a shareholder who becomes a shareholder who becomes a shareholder who owns more than 50% (fifty percent) of the shares in the company, it can be deemed that there has been an acquisition process in the company. This is because previously, the person or entity did not have the power to control any decision to be taken by the GMS. However, because of the restructuring of the shareholders, the person or entity gains power to control decision to be taken by the GMS.
Inadvertent Acquisition Process
Reverting to how a foreign investor is only eligible to obtain Investor ITAS if he/she owns shares in the minimum amount of IDR 10,000,000,000 (ten billion Indonesian Rupiah), there can be instances where companies decide to restructure the shareholding composition by increasing the shares ownership of the relevant investor alone without increasing the shares ownership of the other shareholders.
However, if currently the relevant shareholder is a minority shareholder and the other shareholder owns shares in the amount of less than IDR 10,000,000,000 (ten billion Indonesian Rupiah), by this specific capital restructuring, it will result in inadvertent acquisition process. This is because if the relevant shareholder increases his/her shares ownership and the percentages shift (i.e., the other shareholders’ percentages get diluted), it may cause a shift of control in the company. This, of course, depends on the specific percentage of the previous capital structure and the capital structure after the restructuring.
Nevertheless, if there is a change of control in the company, the company must endure an acquisition process, which is stipulated specifically under the Company Law. Among other things, this procedure involves a GMS for the acquisition process followed by an announcement for 30 (thirty) calendar days, which must be made in a local national newspaper. Afterward, the acquisition process must be finalized by another GMS to be registered to the Ministry of Law and Human Rights.
Author: Yohana Veronica Tanjung
Gaffar & Co. is an Indonesian Boutique Law Firm specializing and focusing on commercial law areas and related, e.g. mergers & acquisitions, Investment Regulatory and Corporate Secretarial Services.
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