The process of foreign direct investment (FDI) in Indonesia is governed by the Law No. 25 of 2007 on Investment, which defines FDI as investment activities within the territory of the Republic of Indonesia, carried out by foreign investors, either fully foreign-owned or in joint ventures with domestic investors. This law mandates that FDIs must be executed in the form of a limited liability company (Perseroan Terbatas or PT) based on Indonesian law and located within its territory.

Foreign investors, who can be foreign individuals, business entities, or governments, have three main avenues for investment: participating in the establishment of a PT, purchasing shares, or other methods as permitted by the regulatory framework.

In particular, the acquisition of a closed PT (a private company with restrictions on share transferability) by an FDI entity entails specific procedures and legal consequences, significantly impacting the company’s operational and ownership structure. Here’s an overview of the process and its legal impacts, as derived from the Indonesian Company Law (Law No. 40 of 2007) and other relevant regulations.

Process of Acquisition

Acquisition Through the Board of Directors

1. Initial Proposal: The acquiring party must express its intention to the board of directors of the target company.
2. Acquisition Plan: Prepared by both companies’ directors with approval from their respective commissioners, detailing the rationale, financial statements, share valuation and conversion methods, proposed amendments to the articles of association, funding sources, and expected outcomes.
3. Shareholders’ Approval: Obtaining approval from an extraordinary general meeting of shareholders, requiring at least three-quarters of the votes from shareholders present or represented.
4. Public Announcement: A summary of the acquisition plan must be published in a daily newspaper and notified to employees at least 30 days before the shareholders’ meeting.
5. Creditor Objections: Creditors have 14 days post-announcement to express any objections, which must be resolved before proceeding.
6. Legal Documentation: The acquisition agreement is formalized in a notarized deed, in Indonesian, followed by notification to the ministry responsible for corporate registrations, without needing further approval.

Direct Acquisition from Shareholders

This method is considered simpler, bypassing the need to inform the company’s directors or draft a detailed acquisition plan, but still requiring negotiations with the shareholders, public announcements, and formalization in a notarized deed.

Legal Implications of Acquisition by an FDI Entity

The primary legal consequence of an acquisition is the transfer of share control, effectively changing the company’s shareholder composition, including the majority or controlling stake. Specifically, when an FDI entity acquires a domestic private company, the target’s status transitions from a Domestic Direct Investment (DDI) to an FDI. This change subjects the company to the regulations and limitations on foreign shareholding outlined in Presidential Regulation No. 10 of 2021 and its amendments.

The acquisition process thus not only alters the operational dynamics of the acquired company but also aligns it with the broader regulatory framework governing foreign investments in Indonesia. These procedures ensure a structured transition, safeguarding stakeholders’ interests and promoting transparency and accountability in corporate governance.

Legal Framework:

• Law No. 25 of 2007 on Investment
• Law No. 40 of 2007 on Limited Liability Companies
• Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation, as affirmed by Law No. 6 of 2023
• Government Regulation No. 27 of 1998 on Mergers, Consolidations, and Acquisitions of Limited Liability Companies
• Presidential Regulation No. 10 of 2021 on Investment Business Fields, as amended by Presidential Regulation No. 49 of 2021

This overview provides a comprehensive understanding of the acquisition process of a private company by an FDI entity in Indonesia, highlighting the procedural rigor and legal considerations that safeguard the interests of all parties involved.

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Are you a Foreign Direct Investment (FDI) entity looking to expand your footprint in the vibrant Indonesian market? Gultom Law Consultants is your trusted partner in navigating the complexities of acquiring a private company in Indonesia. With our expert guidance, the intricacies of legal procedures, regulatory compliance, and due diligence will no longer be barriers to your business growth.

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• Expertise in Indonesian Corporate Law: Our team of seasoned attorneys specializes in FDI regulations, ensuring a smooth and compliant acquisition process.
• Tailored Legal Solutions: We understand that each acquisition is unique. Our customized legal services are designed to meet your specific business needs and objectives.
• Comprehensive Support: From initial consultation to the finalization of your acquisition, we offer end-to-end support, including negotiations, document preparation, and liaising with regulatory bodies.

Our Services Include:

• Assessment of legal frameworks and investment climates
• Assistance with due diligence and valuation
• Drafting and reviewing acquisition agreements
• Guidance through the approval process with Indonesian regulatory authorities
• Post-acquisition integration and compliance advice

Let’s Make Your Investment Journey Seamless Embarking on an acquisition in Indonesia can be challenging, but with Gultom Law Consultants, you’re not alone. Our expertise and commitment to excellence ensure that your investment is not just secure, but also poised for success.

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