Using Nominee Shareholders the Safe Way

Nominee shareholders safely

Many industries in Indonesia are closed or with limited allowed foreign ownership. In the past we’ve been regularly warning investors against nominee arrangements as an unsafe practice.

However, there is a safe alternative to nominee arrangements which we are going to introduce in this article. This option allows you to run your business that is in the negative investment list without breaking the law.

Indosight also provides a Nominee Company package that allows you to operate a company in Indonesia without having to comply with the capital and ownership requirements.

Investment law on nominee arrangements

Indonesian Law does not recognize the concept of “trust” or “trustee” in a common law system, there is no distinction between beneficial owner and legal owner. The owner of the shares stated in the AKTA/Article of association of limited liability company is the benefial and legal owner.

Article 33 of Investment Law states:

  1. Any domestic investor and foreign investor conducting investment in the form of limited liability company are prohibited from making any agreement and/or any statement expressly setting forth that the shareholding in such limited liability company is for and on behalf of another party
  2. In the event that domestic investor and foreign investor mke such agreement and/or statement as referred to in paragraph (1), such agreement and/or statement shall be declared null and void.

A common malpractice used by many agents in Indonesia is simply registering the company under a different business classification. While it might make it easier to register the company, it will inevitably bring problems when getting future business licenses. As a foreign investor such behavior is essentially gambling with your business.

Therefore nominee arrangements and games with business classifications are out. So what is the safe way of having nominee shareholders?

Nominee shareholders done in legal way

Indosight provides nominee shareholder service using corporate shareholders. This has many advantages, greatest of them being that it allows the shareholders to sign agreements that comply with Indonesian laws and civil code and holds up at court. Individual nominee shareholder does not allow that.

This gives investors more certainty than just “blind faith” that the local shareholders won’t run away with the company. Here’s how it’s guaranteed legally:

  1. Loan agreement between investor and local shareholder.
  2. Pledge of shares agreement
  3. Assignment of dividends
  4. Power of Attorney to appear in General Meeting of Shareholders
  5. Transfer of shares in the future, signed in advance
  6. Option to purchase shares agreement
  7. Indemnity Agreement, which the indemnifies shall indemnify and hold nominee shareholder harmless from and against any and all bona fide claims, actions, liabilities,losses, and costs (including legal fees) reasonably incurred by nominee shareholder in its capacity as a shareholder
  8. Cooperation agreement

We will be providing exact details of each agreement to the prospective clients. The service is billed annually and can be extended as long as needed by the investor.

This gives you peace of mind that you can run business in restricted sector without breaking any laws and having a local partner you can both trust but who is also strictly governed by the signed agreements.

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Market entry services in Indonesia

Indosight provides legal and payroll services to companies entering and expanding in Indonesia. Get in touch with our consultants regarding our company registration, payroll, compliance or visa services.

The information provided will remain confidential to Indosight and will only be used to schedule and prepare for the meeting.

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