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.
Advantages of Local Nominee Shareholders
1. Maybe a requirement due to restrictions on foreign ownership
Depending on the business clarification of the company, foreign ownership of a company may be permissible from 0% to 100%. Business owners will need to check the Negative Investment List (DNI) which stipulates which industries require a local partner and at what percentage. The list also stipulates which sectors are closed to foreign investment and details certain requirements whether in relation to small and medium enterprises (SMEs) or special licenses.
Due to various limitations set by the government, appointing a local nominee shareholder may be necessary to start a company in Indonesia in a certain industry.
2. Lower capital requirements for a foreign company
Investors may also opt to appoint nominee shareholders in Indonesia due to a difference in the minimum capital requirement for foreign companies. Starting a foreign company in Indonesia requires an amount of capital to be paid upfront and having all shareholders as local nominees will reduce the minimum capital requirements.
3. Helps with certain local procedures
Having local nominees may also help make it easier to perform various procedures in relation to applications, dealing with government offices and ministries, and cut through certain bureaucratic red-tape.
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 full 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 level of risk that comes with appointing local nominee shareholders requires a business owner to perform 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 made to limit the risks involved.
There will hence be an added amount of cost required to manage the overall procedures that come with 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 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 in breach of trust.
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 up and expands further, more businesses can be 100% foreign-owned with the right set-up. Directly owning your own company is still the best and most sustainable choice.