The Indonesian Government has been very outspoken on the development of Micro, Small, and Medium Enterprises (“MSMEs”) especially concerning how to provide incentives and facilities for investors to invest more in MSMEs. One of the initiatives of the Indonesian Government is tosupport the development of the Venture Capital institutions in Indonesia, asstipulated in Article 22 of Law of Number 20 of 2008 concerning MSMEs.
Venture Capital (“VC”) Business is a Financing Business by way of share participation and/or financing in a certain period. Unlike other financing business, the uniqueness of VC is that it isconducted for the specific purpose of developing the business of venture partner or the borrowing investor.
In the legal basis front, the Indonesian Financial Authority Services (OtoritasJasaKeuanganor “OJK”) has stipulated the following regulations (“OJK Regulations”) forVC:

  • OJK RegulationNumber 34/POJK.05/2015 concerning the Business License and Organization of Venture Capital (“POJK 34/2015”);
  • POJK  Number 35/POJK.05/2015 concerning the Business Implementation of Venture Capital(“POJK 35/2015”);
  • POJK Number 36/POJK.05/2015 concerning Good Corporate Governance of Venture Capital (“POJK 36/2015”); and
  • POJK Number 37/POJK.05/2015 concerning Direct Inspection of Venture Capital (“POJK 37/2015”).

Pursuant to Article 2 POJK 34/2015, a VC is established in the form of business entity, which can take form as follows:

  • Limited Liability Company(“Company”);
  • Cooperatives;
  • Limited Partnership.

In the establishment of VC Company, ownership of shares is limited for the following participants:

  • Indonesian Individual;
  • Indonesian Legal Entity;
  • Foreign Institutions;
  • Republic of Indonesia; and/or
  • Local Government.

Foreign institutions can directly own shares in a VC Company by purchasing the issued shares, or indirectly by purchasing other financing instruments. However, the foreign ownership of VC Company, both direct and/or indirect, is limited to 85% of ownership.
As the case is with other Financial Institutions established in Indonesia, aVC Company is also required to have a significant amount of paid-up capital upon its establishment, which isa minimum of IDR 50,000,000,000 (fifty billion Rupiah).
Please note that VC Company can also trade at maximum 85% shares of paid-up capital in the stock exchange.

The Business License for VC is issued by the OJK.To obtain the Business License, the Director of Company must submit the complete application of Business License to OJK.
The requirements for a VC Business License, amongst others, consist of:

  • Legality documents of VC;
  • Identity documents of VC Shareholders, Directors, and Commissioners;
  • Evidence of Operational Readiness, such as List of Assets, Evidence of Building/Office Ownership, Agreement Templates, and Tax Documents;
  • Business Plan for the first 5 (five) years;
  • Organizational Structure;
  • Anti-Money Laundering and Anti-Terrorism Funding Implementation Guidelines;
  • Good Corporate Governance Guidelines; and
  • Evidence of full payment of the licensing administrative fee.

As the governing authority, OJK shallapprove or reject the Business Licenses Application within 30 (thirty) working days once OJK has accepted the application. Prior to acceptance, OJK may return the application if it deems that the application is not completed.OJK shall provide the reasoning for its rejection of the license application.

Under Article 2 POJK 35/2015, a VC Company is allowed to conduct VC business, which includes the following scope of activities:

  1. Equity Participation
  2. Equity Participation means investment in Venture Partner by way of purchasing the shares issued by the Venture Partner whohas yet to be listed in the Stock Exchange. Purchase of shares referred to in Equity Participation also includes private equity, which is to purchase issued shares of a private company and directly become a shareholder.

    Equity Participation has a maximum period of 10 (ten) years. After the period ends, it can be extended twice with the total extension period of 10 (ten) years.

  3. Quasi Equity Participation
  4. Quasi Equity Participation means investment by way of purchasing convertible bonds, for conventional VC, or by way of purchasing sukukor sharia convertible bonds, for sharia VC.

    Upon the maturity date of the convertible bonds as stated in the agreement between VC and Venture Partner, the bonds can be converted to become shares, therefore the form of investment of VC changes from Quasi Equity Participation to Equity Participation.

  5. Purchase of Promissory Notes issued by Venture Partner in Start-Up or Business Development Phase
  6. Financing of Production Business
  7. Production business means that the VC Financing is distributed to borrower with the purpose to produce goods and/or services which increasethe borrower’s income.

  8. Other Fee-Based Services or Other Business Activities pursuant to OJK Approval

As part of the Government initiative to develop small and medium businesses in Indonesia, AVC Company must invest 5% of its total business activity in Venture Partners in the form of SMEs and/or Cooperatives as stipulated on Article 51 POJK 35/2015.

A VC Company in Indonesia can procure its funds from the following sources:

  • Government;
  • State-owned enterprise or regional government-owned enterprise;
  • Finance Company;
  • Indonesia Export Financical Institution;
  • Bank;
  • Other Financial Institution;
  • Multilateral Financial Institution;
  • Other Business Entity; and/or
  • Individuals.

The Party as mentioned above, can provide any fundsin the following forms:

  • Venture Funds;
  • Loans;
  • Assets Securitization as the applicable laws in Capital Market;
  • The issuance of Medium Term Notes;
  • The issuance of Bonds;
  • Subordinated loans;
  • The issuance of shares;
  • Donations; and/or
  • Grants.

Please be informed that ifthe source of funds came from individual loans, the Loan Agreement must be made in a notarial deed and the period of loan is 1 (one) year at minimum. The minimum amount of Loan allowed for such funding is IDR 250,000,000 (two hundred and fifty million Rupiah).

VC Companies are not allowedto conduct the following activities :

  • Collecting funds directly from society, in the forms of giro, savings, and/or forms equivalent to such;
  • Providing guarantee in any forms for the fullfilment of another party’s obligation;
  • Issuing the promisory note except as guarantee of its loanto the Bank as its Creditor;
  • Conducting any action which results in causing or forcing other financial institutions under OJK supervision to violate the prevailing laws and regulations; and/or
  • Conducting any action which results in causing or forcing other financial institutions under OJK supervision to avoid or evade the prevailing laws and regulations.

Pursuant to the Article 54 of POJK 35/2015, VC Company must submit monthly report and financial report which has been audited by Public Accountant to OJK.
For VC Company which also handles venture funds (Dana Ventura), it has an obligation to submit a written report concerning the financial position of the VC Company every 3 (three) months to OJK and Investors, at the latest 10 (ten) working days after the end of the 3-month period as stipulated on Article 49 of POJK 35/2015.


To ensure a smooth investment and business operation from the legal perspective, but also still focus on establishing 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 investment laws and regulations

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