Other BriefingsDirector and Commissioner Duties in Indonesian Foreign-Owned Companies
In an Indonesian foreign-owned company (PT PMA), directors manage and represent the company, while commissioners supervise management and advise the directors. The distinction affects who can bind the company, how shareholder controls operate, and when directors or commissioners can face personal liability.
What are directors responsible for?
Directors are responsible for managing the company in its interests and in accordance with its purposes and objectives. They must perform their duties in good faith and with full responsibility.
Their responsibilities also include maintaining required company records and preparing the company’s annual report and financial documents.
The Company Law, Articles of Association, and valid resolutions of the General Meeting of Shareholders (GMS) can determine how particular corporate actions must be approved.
Directors can face personal liability in certain circumstances. Where a company suffers losses because of a director’s fault or negligence in performing their duties, that director may be personally responsible. Where there are several directors, responsibility can potentially extend to other members of the Board of Directors, although the Company Law provides circumstances in which a director can avoid liability.
A director is not automatically personally liable simply because the company loses money or a business decision turns out badly. The issue is whether the director properly carried out their duties.
What are commissioners responsible for?
Commissioners must supervise how the directors manage the company and provide advice to them. They can face personal responsibility where company losses result from their fault or negligence in carrying out these duties.
The Articles of Association may require Board of Commissioners approval or assistance before directors take specified actions. However, a failure to obtain that approval does not necessarily mean the transaction cannot bind the company. Where the directors proceed without required commissioner approval, the transaction may still bind the company if the other party acted in good faith.
Commissioners can also take on functions normally performed by directors in limited circumstances. If all directors have a conflict of interest with the company, for example, the Board of Commissioners may represent the company unless the Articles of Association provide otherwise.
Separately, the Articles of Association or a GMS resolution may allow commissioners to manage the company for a specified period in particular circumstances. When commissioners take on management responsibilities in this way, the rights, powers, and obligations that normally apply to directors also apply to them.
Can foreign investors appoint foreign directors and commissioners?
Foreign nationals can generally be appointed as directors or commissioners of a PT PMA, but being appointed to the position does not automatically give the individual the right to work or live in Indonesia.
A foreign national who performs work in Indonesia must comply with the applicable immigration and foreign-worker rules. However, specific exemptions from certain foreign-worker requirements can apply, including in some circumstances to directors or commissioners who are also shareholders.
Foreign workers also cannot hold certain personnel and human resources positions. These include Personnel Director, Human Resources Manager, and other personnel-related positions specified by the Ministry of Manpower. A PT PMA appointing foreign directors should take these restrictions into account when dividing management responsibilities.
An overseas director may sit on the board, but the company still needs to be able to handle contracts, banking, regulatory filings, tax administration, and other corporate matters efficiently in Indonesia.
How should authority be controlled within the company?
The Articles of Association can regulate who can represent the company and which actions require additional approval within the limits of Indonesian law. Certain decisions may also require approval from the Board of Commissioners or GMS. Shareholder agreements and internal authorization policies can provide additional controls.
These controls do not all have the same legal effect. An internal approval matrix, for example, may require a director to obtain regional headquarters approval before signing a contract above a certain value. Whether the director can legally bind the Indonesian company to that contract is a separate question governed by Indonesian corporate law and the company’s Articles of Association.
Responsibilities can also be divided among several directors. One director might oversee finance while another manages operations. The allocation should be clear enough for the company to determine who is responsible for each area and who has authority to act.
What happens when a director or commissioner changes?
A change in the Board of Directors or Board of Commissioners must be approved through the appropriate shareholder decision and recorded or stated in an Indonesian-language notarial deed. The change must then be notified to the Minister of Law through the Directorate General of General Legal Administration for recording in the company register.
Under the current rules, a change in directors or commissioners must be notified within 30 days of the change. This is a notification of a change in company data rather than a change that generally requires approval from the Minister of Law.
The company may also need to update other records and arrangements where the departing person had authority over bank accounts, contracts, licenses, tax administration, or other company matters.
Dezan Shira & Associates can support your corporate governance in Indonesia
Dezan Shira & Associates can assist foreign investors with structuring director and commissioner authority, appointments and changes, Articles of Association, and ongoing corporate secretarial requirements in Indonesia.
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