HOW TO KNOW WHO IS THE CONTROLLING SHAREHOLDER OF A COMPANY?

Business community often associated a Controlling Shareholders as someone who owns more than 50% of shares in the Company. However, this assumption is not uncontested because there are many other factors that can make someone become a Controlling Shareholder such as specific regulation that regulates the lower amount of shares or the provision of the Articles of Association that vests privilege right to the minority shareholder.

A corporation or a limited liability company (the “Company”) is a business entity that divides its capital into the form of shares. The liability of each shareholder is limited to the shares he holds. At the same time, the number of his shares may signify his control over the Company in form of taking a decision without asking approval from remaining shareholders which only has a few shares (“minority shareholders”). The business community is often associated Controlling Shareholders as someone who owns the majority of the shares (“majority shareholders”) of the Company.

However, the controlling shareholder should not only determined by the shares proportion of a shareholder but also from the special right given by the Articles of Association (“AoA”) of the Company to a shareholder. More importantly, the regulation of particular business sector may govern specific criteria of Controlling Shareholder. This article will elaborate the Controlling Shareholders under company laws and other specific regulations.

The set of company laws, Law No. 40 of 2007 (the “Company Law”) and Law No.8 of 1995 on Capital Market Law (“Capital Market Law”), stipulate little on Controlling Shareholder. In fact, those laws do not make any classification of shareholders. In relation to the definition of control, the Company law only talks about a corporate action that may result in the passing of control of the Company, namely “acquisition”. Meanwhile, the Capital Market Law only a gives a definition of “control”. Under Capital Market Law, “control” is defined as the ability to determine management or company policy either directly or indirectly. However, none of those regulations mentions minimum shares proportion to be considered as Controlling Shareholders. With this regard, the reference to specific regulation may help to identify the Controlling Shareholders.

Arguably, the simplest way to know the controlling shareholder is by looking at the distribution of the shares. For companies listed on Jakarta Stock Exchange, the Controlling Shareholder is the one who has more than 50% shares of the whole paid-up shares .This definition may match with the minimum quorum of GMS that requires more than ½ (one half) of the total number of shares with voting right to present or represented in the GMS2. Put another way, by having more than 50% shares, a shareholder may take a decision by himself.

Meanwhile, in the banking and financial industry, a shareholder who holds 25% or more issued shares of a Company with voting right must be considered as the Controlling Shareholder of the Company3. However, the regulation also notes that even if the shareholder has less than 25% of the total issued shares, he/she can be considered as a Controlling Shareholder if some conditions support his/her controlling position. Practically, this type of control may be identified through the AoA of the Company.

Article 53 (4) Company Law allows a company to issue the variety of shares that may embed special rights to the minority shareholders4. This includes issuing shares that give the privilege to nominate the director of the Company (“priority shares”) or shares that may be used to veto the decision made by the majority shareholders. Moreover, the ability of control also may also be gained by minority shareholder if the AoA of the Company requires a higher quorum to convene a GMS and take a decision.

Provided with that conditions, it might be concluded that there is no raw formula to define the “Controlling Shareholder” as there are no specific laws and regulations that rigidly govern that matter. To determine the Controlling Shareholder, a consideration of the type of the company, law and specific law and regulation that specifically govern that industry and the AoA of the Company should be taken into account.

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Head of Capital Market Supervisory Agency and Financial Institution Decree (Head of Bapepam-LK Decree) No. Kep.264/BL/2011.
2 Article 86 Company Law.
3 Bank of Indonesia Regulation No. 12/23/PBI/2010 concerning Fit and Proper Test (BI Regulation), Indonesia Financial Services Authority (Otoritas Jasa Keuangan – “OJK”) Regulation No. 29/POJK.05/2014 concerning Business Operation of Leasing Company (OJK Regulation)
4 Article 53 (4) Company Law

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