Indonesia Director Duties and Responsibilities: A Complete Guide
In Indonesia, serving as a company director involves a wide range of legal and managerial responsibilities. Directors are responsible for managing the company in alignment with its strategic objectives, ensuring compliance with Indonesian corporate laws, maintaining accurate statutory records, and protecting the interests of shareholders.
In addition to regulatory compliance, directors are responsible for preparing annual reports, financial statements, and other key documents that reflect the company’s performance.
A clear understanding of Indonesia director duties and responsibilities is essential for effective corporate governance and for protecting directors from potential liabilities.
Directors in Indonesia
Directors are the backbone of any organisation, responsible for guiding teams, making strategic decisions, and ensuring the smooth operation of the company. While the fundamental responsibilities of directors are similar worldwide, Indonesia has its own distinct legal framework that defines and regulates these roles.
With more than 267 million people calling Indonesia home, the largest archipelago in the world houses millions of active companies. With that being the case, the Nusantara has appropriately drafted and enacted laws to outline directorial duties and to combat mismanagement.
These regulations are designed to ensure that directors act responsibly, uphold corporate governance standards, and make decisions in the best interest of the company and its shareholders.
Key Qualifications for Directors
- Legal Capacity: A director must be legally competent to perform their duties and assume responsibility for the company.
- Financial Integrity: Within the five years preceding their appointment, a director must not have been declared bankrupt or held personally liable for a company’s bankruptcy.
- Clean Criminal Record: A director must not have been convicted of any crime that caused financial harm to the state or the financial sector.
What are the Requirements for Directors in Indonesia?
To qualify as a director in Indonesia, individuals must meet specific legal and ethical standards under Company Law:
- Legal capacity: Must be legally competent to perform legal actions.
- Clean record: Within the past five years, candidates must not have been declared bankrupt, served as a party responsible for a company’s bankruptcy, or been convicted of financial crimes.
- Resident director requirement: Foreign-owned companies (PT PMA) must appoint at least one resident director, who serves as the local legal representative for official matters.
These standards ensure that directors possess the integrity, competence, and accountability necessary to lead companies effectively while complying with Indonesian law.
What are the Key Duties and Responsibilities of Directors in Indonesia?
Indonesia’s Company Law was established to regulate the operations of companies and define the roles of directors. Directors play a pivotal role in managing the company, ensuring compliance, and safeguarding the interests of shareholders.
The responsibilities of company directors in Indonesia extend beyond routine management and include legal, fiduciary, and operational duties.
1. Fiduciary Duties
Directors in Indonesia owe fiduciary duties to the company, requiring them to act with integrity, loyalty, and good faith. These include:
- Acting in the company’s best interest:
Directors must manage the company in alignment with its objectives, ensuring decisions benefit the business rather than personal interests.
- Exercising due care and diligence:
Directors are expected to perform their roles with reasonable care, skill, and prudence. - Avoiding conflicts of interest:
Directors must avoid situations where their personal interests conflict with the company’s obligations and disclose any such conflicts transparently.
2. Core Operational and Administrative Duties
The Board of Directors (BOD) carries both operational and strategic responsibilities, including:
- Company representation:
Acting as the legal representative of the company, both inside and outside of court.
- Operational management:
Overseeing daily operations, implementing strategies, and ensuring effective corporate governance.
- Annual planning and reporting:
Preparing the company’s annual work plan, budget, financial statements, and annual reports for shareholder approval.
- Record keeping:
Maintaining accurate financial documents, shareholder registers, and minutes of both General Meetings of Shareholders (GMS) and board meetings.
- Regulatory compliance:
Ensuring adherence to applicable laws, tax obligations, statutory filings, and participation in required social programs.
Note: If there is a change in the company’s board members of directors or commissioners, notify the Minister of Law and Human Rights in a span of 30 days; preferably after the day of General Meeting of Shareholders’ resolution.
3. Director Liability
Although company assets and directors’ personal assets are legally separate, directors may still face personal liability under certain circumstances:
- Joint and several liability:
Directors can be held collectively responsible for losses caused by negligence or misconduct.
- Breach of duty:
Personal liability may arise if directors fail in their fiduciary or management duties.
- Bankruptcy:
If bankruptcy results from a director’s fault or negligence, they may be liable for unpaid company liabilities.
- Exemptions from liability:
Directors may be released from liability if they prove the loss was not due to their fault, that they acted in good faith, and that no conflict of interest existed.
Two-Tiered Board Structure
Indonesian companies follow a dual-board system:
- Board of Directors (BOD):
Responsible for managing daily operations, implementing strategy, and representing the company. - Board of Commissioners (BOC):
Functions as a supervisory and advisory body to the BOD, ensuring compliance and accountability.
In public companies, recent updates such as OJK Regulation No. 45 of 2024 have introduced stricter governance and reporting requirements, further shaping director responsibilities.
Conclusion
Directors play a crucial role in managing and guiding a company, carrying responsibilities that include overseeing operations, supervising staff, and ensuring compliance with Indonesian regulations. Understanding these duties is essential for effective leadership and long-term business success.
Explore our Indonesia director support services to see how we can help you navigate these responsibilities. Ready to take the next step? 3E Accounting is here to help—contact us today to get started.
