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REMOVAL OF MINIMUM CAPITAL REQUIREMENT IN THE ESTABLISHMENT OF A LIMITED LIABILITY COMPANY: PROBLEM OR SOLUTION?

n 14 July 2016, the President of the Republic of Indonesia has issued Government Regulation Number 29 of 2016 on Adjustment of Authorized Capital of Limited Liability Company (“PP 29/2016”). PP 29/2016 essentially governs that the number of authorized capital of Limited Liability Company shall be determined by the agreement of founders of Limited Liability Company, and shall no longer be limited to Rp 50 million.

The provisions of PP 26/2016 also revokes Government Regulation Number 7 of 2016 on Adjustment of Authorized Capital of Limited Liability Company.

However, PP 29/2016 was yet to be supported by the revision of Law on Limited Liability Company, particularly Article 32, which still regulates that the minimum authorized capital to establish limited liability company is Rp 50.000.000,- (fifty million rupiah). As a result,
PP 29/2016 could not be implemented since it contradicts with higher provision namely Law of Limited Liability Company Number 40 of 2007.

The background for the issuance of PP 29/2016 is to provide legal certainty and to stimulate small and medium enterprises to start the business in the form of legal entity of PT (limited liability company).

With the enactment of PP 29/2016, people from lower and middle income class will have easier access to establish limited liability company without being restrained by the minimum capital requirement of Rp 50 million or issued capital of Rp 12,5 million. Nonetheless, the removal of minimum capital requirements of a Limited Liability Company does not reduce the price for the establishment of a Limited Liability Company (notary, agent etc.), which are still considered to be rather costly.

Another impact that may arise as a consequence of the enactment of PP 29/2016 is evident in
the practice of guarantee law, namely the rise of prudential analysis of guarantee for the implementation of contract by the Limited Liability Company. Such impact will also cause a shift of the meaning of “limited” on Limited Liability Company, namely the responsibility of Company could shift to the assets of individual shareholder or the caretaker due to the Company’s inability to provide guarantee in the fulfillment of obligation in the implementation of a contract.

During the period of Rp 50 million minimum capital requirement many parties still do not pay the capital. Therefore, it is predicted that the negative impact that may arise from the enactment of PP 26/2016 is the increase of shell Companies establishment.

-TSH-