BUSINESS ENTITIES IN INDONESIA: RESIDENT

Indonesia, with its dynamic economy and vast market potential, is an attractive destination for foreign investors and entrepreneurs looking to expand their business operations. The Indonesian government offers several business permits and licenses to facilitate foreign investment, each tailored to different business needs and activities. Understanding the registration process, required permits, and associated costs is crucial for a smooth entry into the Indonesian market.

2.2  Resident

A Trading Company, often referred to as a Trading Business (Usaha Dagang/PD or UD), is an independently operated business entity managed by a single individual without requiring a partner. Legally, a Trading Company is considered the same as its owner, meaning there is no separation of assets or responsibilities between the company and the owner. Certain business activities necessitate that the business entity be in the form of a legal entity. For example, hospitals established by the community to provide health services must be legal entities, except for those organized by non-profit legal entities (Article 185 section (3) Law Number 17 of 2023 on Health (“Health Law”) & (Article 184 section (4) Health Law).

Additionally, if there is foreign capital participation, the business entity must be a legal entity, specifically a Limited Liability Company (LLC) (Article 5 section (2) Law Number 25 of 2007 on Investment (“Investment Law”)). Therefore, if a Trading Company is involved in such activities or has foreign capital participation, it must become a legal entity.

To determine the appropriate business entity for a Trading Company, we outline the characteristics of both legal and non-legal entities below.

2.2.1 Legal Entities

A legal entity is characterized by the separation of the owner's assets from the business entity's assets, limiting the owner's liability to their investment in the entity **Yohana. Tanggung Jawab Hukum Atas Bentuk Usaha Badan Hukum dan Bentuk Usaha Non Badan Hukum. Jurnal Mercatoria, Vol. 8, No. 1, Juni 2015, p. 48**. The types of legal entities include:

a.     Limited Liability Company (LLC)

• Characteristics:
  • A capital partnership.
  • Established based on an agreement.
  • Conducts business activities.
  • Formed through a legal process involving government authorization.
• Liability: Shareholders are liable only to the extent of their shares, not their personal assets **Article 3 section (1) and its elucidation Law Number 40 of 2007 on Limited-Liability Company (“LLC Law”)**.
• Capital Requirements: The authorized capital is determined by the founders, and at least 25% must be placed and fully paid, evidenced by valid proof of deposit **Article 3 section (1) Regulation of the Government in Lieu of Law Number 2 of 2022 on Job Creation (“Perppu Cipta Kerja/Job Creation”) which amended Article 32 section (2) LLC Law & Article 33 section (1) and (2) LLC Law)**.

b.     Foundation

• A foundation is a legal entity comprising separated assets aimed at achieving specific social, religious, or humanitarian goals. It does not have members **Article 1 number 1 Law Number 16 of 2001 on Foundation (“Foundation Law”)**. Foundations may conduct business activities to support their objectives by establishing or participating in other business entities **Article 3 section (1) Foundation Law**.

c.     Cooperative

A cooperative is a business entity formed by individuals or cooperative legal entities, operating based on cooperative principles and the principle of family-based economic movement **Article 1 number 1 Law Number 25 of 1992 on Cooperative (“Cooperative Law”)**. Membership in a cooperative is voluntary and open to all **Article 5 section (1) letter a and its elucidation Cooperative Law**.

2.2.2 Non-Legal Entities

Non-legal entities do not separate the owner's assets from the business entity's assets. The types of non-legal entities include:

a.     Civil Partnership (Maatschap)

A civil partnership is an agreement where two or more individuals contribute to a partnership with the intent of sharing profits **Article 1618 Civil Law Code**. Partners are personally liable as per their agreement or legal provisions **Prof. Dr. Agus Sardjono, et.al, Pengantar Hukum Dagang, cet.3, Jakarta: Raja Grafindo Persada, 2016, pp. 26-27**

b.     Firm

A firm is a company established to conduct business under a common name **Article 16 Commercial Code**. Members are jointly and severally liable for the firm's obligations (Article 18 Commercial Code).

c.     Limited Partnership (Commanditaire Vennootschap or "CV")

A CV consists of active and passive members. Active members are personally liable with their assets (Prof. Dr. Agus Sardjono, et.al. Pengantar Hukum Dagang, cet.3. Jakarta: Raja Grafindo Persada, 2016, p. 67.), while passive members are only liable up to the amount of capital they have invested (Article 20 Commercial Code).