Local Nominee Shareholder Services in Indonesia – The Advantages and Disadvantages
It is well-known that companies in Indonesia may appoint a local nominee shareholder either privately or through a consulting firm. However, whether or not to appoint one is an important decision to make, and business owners should weigh the options carefully. This article provides information about Local Nominee Shareholder Services in Indonesia.
What Is a Nominee Shareholder?
A nominee shareholder is an individual or legal entity appointed to hold company shares on behalf of the actual (beneficial) owner. This arrangement is governed by a legally binding agreement in which the nominee agrees to act strictly under the instructions of the beneficial owner, without asserting any ownership rights over the shares.
In Indonesia, nominee shareholder structures are frequently used by foreign investors to navigate regulatory restrictions outlined in the country’s Positive Investment List, which limits foreign ownership in specific sectors. By appointing a nominee, foreign investors can participate in restricted industries while remaining compliant with local legal frameworks.
This structure enables foreign investors to retain corporate benefits—including voting rights, dividend entitlements, and ownership of business assets—without directly holding shares in their own name.
Understanding Nominee Shareholder Structures in Indonesia
Nominee arrangements in Indonesia typically function under a contractual trust-based structure, designed to safeguard the interests of the beneficial owner while complying with national laws. Key components of this setup include:
- Nominee Agreement: A formal document naming a local individual or entity as the registered shareholder, often filed with regulatory authorities.
- Deed of Trust: A confidential legal instrument confirming that the nominee holds shares on behalf of the foreign investor, establishing the relationship of trust.
- Power of Attorney (POA) & Security Documents: These grant the beneficial owner operational authority over the company and ensure the nominee cannot act unilaterally.
To further protect the foreign investor’s interests, the arrangement may also include:
- Irrevocable POAs
- Loan agreements
- Pre-signed share transfer documents
Such safeguards ensure that while regulatory compliance is maintained, control, profits, and decision-making authority remain with the actual investor. This model offers a practical solution for foreign businesses to enter Indonesia’s partially closed sectors without compromising strategic interests.
Why Use Nominee Shareholder Services in Indonesia?
Foreign investors frequently rely on nominee shareholder services in Indonesia to effectively navigate regulatory constraints and streamline the establishment and operation of a business. Below are key reasons why this structure is commonly adopted:
1. Compliance with Foreign Ownership Restrictions
Indonesia regulates foreign investment through its Positive Investment List, which specifies the permitted level of foreign ownership across different sectors. While specific industries allow 100% foreign ownership, others impose limitations—or entirely restrict—foreign participation.
In such cases, appointing a local nominee shareholder becomes essential to comply with the legal framework while still enabling foreign investors to engage in restricted sectors. This arrangement allows the business to legally operate under a local structure while the beneficial ownership and control remain with the foreign investor.
2. Reduced Minimum Capital Requirements
A foreign-owned company (PT PMA) in Indonesia is subject to higher minimum capital requirements, typically USD 700,000 or equivalent. This can be a significant financial commitment, especially for small to medium-sized enterprises or startups.
By structuring the company through local nominee shareholders, it may qualify as a local entity, which generally benefits from lower capital requirements. This makes it more accessible for foreign investors to establish a presence without incurring high initial investment obligations.
3. Simplified Local Processes and Faster Approvals
Having a local nominee shareholder can significantly streamline bureaucratic procedures. Local nominees often bring familiarity with domestic administrative processes and can assist with tasks such as:
- Liaising with government authorities
- Facilitating licensing and permit approvals
- Navigating ministry-level regulations
- Smoothing communication in Bahasa Indonesia
This local representation can accelerate timelines, reduce administrative friction, and enhance compliance—particularly in sectors with extensive regulatory oversight.
Disadvantages of Local Nominee Shareholders
1. Always carries a level of risk
Having local nominee shareholders will always carry a high level of risk, primarily because it does not give a business owner complete control over their assets. Although the risk level can be managed, the risks will always remain, and the overall arrangement requires a high degree of trust and commitment.
2. Requires complex legal paperwork and agreements
Managing the risk associated with appointing local nominee shareholders requires a business owner to complete various legal procedures and paperwork. A number of legally binding documents, such as (but not limited to) Call Option Agreement, Letter of Indemnity, POA to Vote and Sell, Cooperation Agreement, Loan Agreement, Pledge of Shares Agreement, etc., can be put in place to limit the risks involved.
There will therefore be an additional cost to manage the procedures involved in appointing a local nominee shareholder for a company in Indonesia.
3. May not be sustainable for the long-term
Given the number of procedures and the time required to appoint local nominee shareholders, it may not be very sustainable in the long term, especially if a shareholder decides to drop out in the future or if there are issues involving breaches of trust.
3E Accounting
At 3E Accounting, we understand the risks involved in local nominee shareholder services, and therefore, we do not provide it as we prefer transparency with our clients.
As Indonesia’s economy opens further, more businesses can be 100% foreign-owned with the right setup. Directly owning your own company is still the best and most sustainable choice.
