Indonesia: New OJK Regulation On Licensing And Organization Of Venture Capital Companies

Background

On 28 December 2015, the Indonesian Financial Services Authority ("OJK") issued a new regulation No.34/POJK.05/2015 ("POJK 34") regarding Licensing and Organization of Venture Capital Companies which came into force on 28 December 2015.

The venture capital sector was regulated under Minister of Finance Regulation No. 18/PMK.010/2012 on Venture Capital Companies. However, OJK re-regulates the sector to revitalize venture capital business in Indonesia.

POJK 34 was issued to improve the national economic growth and revitalize the venture capital sector. This regulation also supports the alternative financing for the country's small enterprises and startups from micro, small, and medium-sized business, including the online app-based startups that have blossomed recently, but are often considered "not feasible" for financing by banks, due to the tight banking regulations.

Key Changes

This note is intended to give an overview only on the key provisions introduced under POJK 34, as described below:

1. Establishment of Venture Capital Companies

POJK 34 provides that a Venture Capital Company ("PMV") may engage in either conventional PMV or Sharia (Islamic-based) Venture Capital Company ("PMVS"). A PMV or PMVS can be established in the form of either a limited liability company ("PT"), cooperative, or limited partnership ("CV"). Cooperatives and CVs are limited to Indonesian Investment, while PMVs or PMVS in the form of a PT can be owned by (i) Indonesian citizens; (ii) Indonesian legal entities; (iii) foreign entities or institutions; (iv) Indonesian state government; and/or (v) regional governments.

Capital Requirement

POJK 34 provides a minimum capital requirement to establish a PMV or PMVS, as follows:

(a) In order to establish a PMV, an investor or institution is required to provide a minimum paid-up capital of IDR 50 billion for a PT and IDR 25 billion for either a cooperative or CV.

(b) An investor or institution planning to establish a PMVS is required to provide a minimum paid-up capital of IDR 20 billion for a PT and IDR 10 billion for either a cooperative or CV.

Foreign Ownership Limitation

The maximum shares which can be directly or indirectly owned by foreign party in a PMV or PMVS (in the form of PT) is 85%. Furthermore, PMV or PMVS may only trade a maximum of 85% of its shares on the stock exchange, and the remaining 15% must always be owned (directly or indirectly) by Indonesian citizens, Indonesian state government and/or regional government. Thus the 15% must remain unlisted.

The 85% foreign ownership limitation, however, does not apply to existing PMVs that have obtained its business licence before the enactment of POJK 34 as long as there is no change of capital structure, shareholding composition and/or shareholders. If existing PMVs whose ownership shareholding exceeds the 85% foreign ownership limitation and change their capital structure, shareholding composition and/or shareholders, then the 85% foreign ownership limitation shall be applicable to them starting from 31 December 2020.

Existing PMVs that have obtained business licence and have traded its shares on the stock exchange before the enactment of POJK 34 is not required to comply with the 85% maximum shares trading.

Net Equity Requirement

The maximum direct capital participation in a PMV or PMVS by either an Indonesian legal entity, foreign entity or foreign institution as a shareholder is limited to the maximum amount of such entity's net equity. This net equity requirement must be fulfilled at the time (i) such entity injects its capital at the time of establishment of the PMV or PMVS, (ii) any changes of shareholders and/or (iii) the PMV or PMVS increases its paid-up capital.

Controlling Shareholder

POJK 34 defines a "Controlling Shareholder" as an individual, legal entity, and/or a business group that: (i) owns 25% or more of the total issued shares with voting rights; or (ii) owns less than 25% of the total issued shares with voting rights but is proven to have direct or indirect control over the PMV or PMVS. POJK 34 does not specifically define what constitutes an "indirect control" for this purpose, but as a general concept, the ability of a shareholder to influence or determine the management and/or policy of the company by any means will be regarded as having control over the company.

2. Licensing and Organization of Venture Capital Companies

A PMV or PMVS must first obtain a business license from the OJK before conducting its business activity. The Board of Directors of PMV or PMVS must file an application to obtain the business license to OJK. After receiving the complete application, OJK will either issue the business license or reject the application within 30 working days. The PMV or PMVS must commence its business operation no later than 6 (six) months after obtaining the business license. Furthermore, a PMV or PMVS must also submit a business commencement report to OJK no later than 10 (ten) working days after commencing the business operation.

The PMV or PMVS must have an organizational structure which clearly illustrates, at least, the following functions: (i) administration and bookkeeping; (ii) business feasibility analysis; (iii) risk management and internal control; (iv) financial management including the investment portfolio management; and (v) program on anti-money laundering and combating terrorism financing.

Existing PMVs that have obtained business licence before the enactment of POJK 34 must comply with the organizational structure stipulated under POJK 34 within two years from 28 December 2015, which the latest date will fall on 28 December 2017.

3. Merger, Consolidation, and Acquisition of Venture Capital Companies

A PMV or PMVS may only conduct merger and consolidation with a same legal entity that engages in the same line of business (a PMV merges with another PMV or a PMVS merges with another PMVS).

Any party seeking to acquire an existing PMV or PMVS must comply with certain requirements provided under the POJK 34, among other things the maximum foreign ownership limitation, the maximum shares that can be traded on a stock exchange (in case of a listed PMV or PMVS) and the net equity requirement.

A merger, consolidation, or acquisition of PMV or PMVS must be prior approved by the OJK. Under POJK 34, the OJK will either grant the approval or reject the application within 30 working days as of a complete receipt of the application documents. The PMV or PMVS must commence the merger, consolidation, or acquisition no later than 60 (sixty) working days after obtaining the approval. Furthermore, the PMV or PMVS must also submit a written notice to OJK no later than 10 (ten) working days since the date of receipt of approval or notification of changes to the articles of association for the merger and consolidation, and the date of the deed made before a notary for the acquisition.

How does this affect you?

  • Existing PMVs that have obtained business licence before 28 December 2015 will not be subject to the 85% foreign ownership limitation as long as such PMVs do not change its capital structure, shareholding composition and/or shareholders.
  • Existing PMVs that have obtained business licence before 28 December 2015 whose foreign ownership exceeds the 85% limitation and have changed their capital structure, shareholding composition and/or shareholders recently will have time until 31 December 2020 to comply with the 85% foreign ownership limitation.
  • Existing PMVs that have obtained business licence before 28 December 2015 whose foreign ownership exceeds the 85% limitation and intends to change their capital structure, shareholding composition and/or shareholders will be subject to the 85% foreign ownership limitation.
  • PMVs that are planning to conduct initial public offering after 28 December 2015 may only list and trade up to 85% of its shares on the stock exchange, and the remaining 15% must not be listed and traded on the stock exchange and cannot be owned by foreign party.
  • The 85% foreign ownership and trading limitations apply in the case of merger, consolidation, and acquisition.

This note is intended to give a general overview only. There are more provisions stipulated under POJK 34. Please do not hesitate to contact us if you need a more detailed advice, or have specific questions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions