General Meeting of Shareholders, also known as GMS or RUPS, is the only mechanism for a Company to make certain decisions pursuant to the Company Law. With its mandatory procedure, it can be impractical to hold GMS in Indonesia. The Company Law offers another alternative to make binding resolutions in the form of Circular Resolution of Shareholders in lieu of GMS.

With the development of technology and social media, businesses has grown so fast and most of them has taken advantage of the “borderless” world, connecting investors and entrepreneurs in different countries without a blink. This can be seen from the massive number of companies which has expanded into other countries by establishing subsidiaries or representative companies.

Currently, Indonesia has a good amount of foreign-owned subsidiaries and foreign direct investment companies (“PMA Companies”) which have expand their business to Indonesia. Pursuant to the Law No. 40 of 2007 concerning Limited Liability Companies (“Company Law”), these foreign-owned companies pose an unique challenge, especially in terms of mandatory procedure for certain corporate actions, including corporate decision making, through General Meeting of Shareholders (“GMS”). This is because the majority of shareholders in PMA Companies are overseas, while GMS is required to be conducted in the domicile where the company is currently addressed.

With shareholders preferring to hold meetings by phone conference or even Skype and other virtual meeting rooms, a physical GMS that is conducted in the Company office in Indonesia can be very impractical, especially for shareholders in faraway countries. However, GMS is mandatory to be conducted, especially to take important corporate decisions, including but not limited to changing the Articles of Association to corporate actions such as Merger, Acquisition, Consolidation, and even Liquidation.

The Company Law has accommodated the needs of shareholders to be able to make a decision in the form of Shareholders’ Resolution without having to hold a physical GMS. Such regulation is governed by Article 91 of Company Law. This provision allows shareholders, pursuant to their Company’s Articles of Association, to adopt binding resolutions outside the GMS in the form of Circular Resolution of Shareholders in lieu of GMS, which is unanimously agreed and physically signed by the Shareholders.

This way, the shareholders are allowed to hold their meeting without having to adhere to the prevailing regulations concerning GMS procedure. Of course, this also allows the shareholders to conduct their meeting by phone, through Skype, or using other virtual meeting forums. Such meetings are then conducted to reach a resolution between the shareholders.

The catch is this: the Circular Resolution must be unanimously agreed by the shareholders for it to have binding consequences equal to GMS Resolution. This is because the Shareholders’ Resolution will be passed around in a written resolution document (hence the “circular”) which must be physically signed by all Shareholders. If even one shareholder does not sign the resolution, the Circular Resolution will be invalid and will not have binding consequences and cannot be further processed to the Minister of Law and Human Rights.

Subsequently, after the shareholders have unanimously agree and sign on the Circular Resolution of Shareholders, the Circular Resolution can be further processed for it to commence effectively just like the GMS Minutes of Meeting and/or Statement of GMS Resolution.

In practice, since the Circular Resolution of Shareholder in lieu of GMS is a privately drawn document, shareholders usually authorize one of them, the Company Director, or an authorized consultant to notarize the resolution in a Deed of Circular Resolution. Once it is notarized, then it is submitted for aproval or notification to the Minister of Law and Human Rights, pursuant to the agenda of the Circular Resolution of Shareholders.

To ensure a smooth investment and business operation from the legal perspective, but also still focus on maintaining your business in Indonesia and reach your revenue target, it is advised for you to find capable and trusted lawyers or legal consultants for advice and assistance in ensuring your legal compliance with prevailing laws and regulations.

SMART Consulting is an Indonesian Corporate Legal Services firm. Our experience and dynamic firm value assist Clients in staying up-to-date with the newest Indonesian laws and regulations. SMART focuses on foreign investment and general corporate matters, including establishment of PMA Company and providing Corporate Secretarial and Legal Services to maintain investors’ business Indonesia.

Contact Us Now to get your legal solution for your business goals in Indonesia, and still comply with the prevailing laws and regulations.
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