Joint Venture in Indonesia: Partner Agreements and Control
How a joint venture in Indonesia works: the shareholders' agreement beside the articles, board seats, voting thresholds, deadlock and new funding.
References (9)
- UU No. 25 Tahun 2007 (the Investment Law). Article 1, point 3, counts as foreign investment both wholly foreign capital and capital joined with a domestic investor.
- UU No. 40 Tahun 2007 (the Company Law), as amended by UU No. 6 Tahun 2023, which changed only Articles 1, 7, 32 and 153 and inserted Articles 153A to 153J. Article 4 names the law and the articles of association as what governs a company. Articles 7(1) and (2) require at least two founding shareholders, each taking up shares. Article 7(1) requires the deed of establishment to be a notarial deed in Indonesian. Articles 15, 21, 23, 29 and 30 set what the articles contain, how they are amended in a notarial deed in Indonesian, and how they are registered and announced.
- UU No. 40 Tahun 2007, continued. Articles 53 and 84 allow share classes, including shares without a vote and shares with a special right to nominate directors or commissioners. Article 62 gives a shareholder who disagrees with certain decisions a buy-out right. Articles 57, 94, 98, 111 and 117 cover transfer conditions, appointment and nomination, joint signing by directors, and acts needing the commissioners’ approval. Article 102 requires the general meeting’s approval to transfer or pledge more than half of the net assets, outside the ordinary course of business. Articles 86 to 89 and 91 set the quorums and approvals for decisions.
- UU No. 40 Tahun 2007, continued. Articles 86 to 89 and 91 set quorums and majorities, which the articles may raise, and decisions taken outside a meeting. Articles 33(3), 35, 41, 42(3) and 43 cover new shares, their pre-emptive offer and the conversion of a claim into shares. Article 146(1)(c) and its elucidation allow a shareholder to petition the district court to dissolve a company that cannot continue, giving two camps of 50% each as an example.
- The Civil Code (KUHPerdata), Articles 1338 and 1340. A lawfully made agreement has the force of law for its parties, is performed in good faith, and binds only them.
- Peraturan Menteri Investasi dan Hilirisasi/Kepala BKPM No. 5 Tahun 2025. Article 37(5), the sources that may fund the investment plan.
- UU No. 24 Tahun 2009, Article 31, and Perpres No. 63 Tahun 2019, Article 26. An agreement with an Indonesian company or citizen is in Indonesian, is also written in the foreign party’s language or English, and the parties agree which version governs a difference.
- SEMA No. 3 Tahun 2023, the Supreme Court’s 2023 plenary formulations, civil chamber, general civil item 1. Guidance to judges that a missing Indonesian version is not a ground to annul an agreement with a foreign party unless it results from bad faith.
- UU No. 30 Tahun 1999 on arbitration. Articles 3 and 11 take a dispute covered by a written arbitration agreement out of the district courts. Articles 65 and 66 send the enforcement of an award made abroad to the Central Jakarta District Court.
A joint venture in Indonesia is a PT PMA (Perseroan Terbatas Penanaman Modal Asing, a foreign-invested limited company) in which a foreign investor and an Indonesian partner each take up and pay for shares of their own. The Investment Law names the arrangement itself: foreign investment includes capital put up jointly with a domestic investor, berpatungan (Law 25/2007, Article 1, point 3). Every ordinary PT (Perseroan Terbatas, limited company) needs at least two shareholders (Company Law, Article 7(1)), so when the company is formed with a partner, the partner is one of the founders; who may hold shares is covered in our guide for shareholders.
How the shares can be split depends on the business activity, because the foreign-ownership limit follows its classification code, the KBLI (Klasifikasi Baku Lapangan Usaha Indonesia); see how foreign ownership follows the business field. The investment and paid-up capital a PT PMA must meet are in our guide to PT PMA capital.
The Company Law sets default rules and lets the partners vary several of them: who nominates the board, how many votes a decision needs, who must sign. Two documents carry what they agree.
The shareholders’ agreement and the articles of association
The articles of association govern the company, and the shareholders’ agreement binds the partners who sign it. Each does a different job.
| Articles | Agreement | |
|---|---|---|
| Binds | The company itself (Article 4) | Only the parties who sign (Civil Code, Article 1340) |
| Language | Indonesian, in a notarial deed (Articles 7(1), 21(4)) | Indonesian, plus the foreign party’s language or English (Law 24/2009, Article 31) |
| On record | Registered and announced (Articles 29 and 30) | Private between the parties |
| Terms set by | Resolution and deed; two-thirds vote (Article 88); some need the Minister’s approval (Article 21) | What the parties lawfully agree (Civil Code, Article 1338(1)) |
| Carries | Share classes, nominations, transfer conditions, thresholds (Articles 15, 53, 57, 94, 111) | Funding, deadlock and exit terms, and how disputes are settled |
The articles are the public constitution of the company: the Company Law, the articles and other legislation are what govern it (Law 40/2007, Article 4).
The agreement is a contract, and a contract lawfully made has the force of law for the people who made it and must be performed in good faith (Civil Code, Article 1338(1) and (3)).
When we prepare a joint venture, we carry its key terms, such as board seats, approvals and transfer conditions, into the articles as well as into the shareholders’ agreement, which we prepare in Indonesian and English. That way the company is bound by them too.
Board seats and reserved matters
The general meeting of shareholders (GMS, Rapat Umum Pemegang Saham) appoints both the directors and the board of commissioners. The articles may set how candidates are nominated (Articles 94(1) and (4), 111(1) and (4)). A partner’s right is therefore a right to nominate; the appointment is still the meeting’s. Four provisions the articles can carry give each partner a say:
A class of shares that nominates
The articles can create a class of shares carrying a special right to nominate directors, commissioners or both (Article 53(4)(b)).
Commissioners approve named acts
The articles can require the commissioners’ written approval before the directors take named steps (Article 117(1) and its elucidation).
Two directors sign together
Where there are several directors, each may act for the company unless the articles say otherwise, so they can require two signatures (Article 98(2)).
Conditions on selling shares
The articles can require shares to be offered to the other shareholders first, or a company organ’s consent, before a transfer (Article 57(1)).
The people who take the seats carry duties of their own, set out in what directors and commissioners answer for.
The Law also reserves some decisions to the GMS itself. Transferring or pledging company assets worth more than half of the net assets, outside the ordinary course of business, needs the meeting’s approval, at the three-quarters thresholds that apply to a merger (Article 102(1), (3) and (5)).
How decisions are taken
Each share carries one vote unless the articles provide otherwise (Article 84(1)). At a first meeting, the Company Law asks for these approvals:
- Ordinary decision: more than half 50%
- Amend the articles: at least two-thirds 66.7%
- Merger or dissolution: at least three-quarters 75%
- Decide without a meeting: every voting shareholder 100%
Company Law (UU 40/2007), Articles 87 to 89 and 91
For the first three of these, the articles may set higher quorums and approval thresholds than the Law’s own (Articles 86(1), 87(2), 88(1) and 89(1)). An ordinary meeting can proceed when more than half of the voting shares are present or represented (Article 86(1)). Raising a threshold is one way for a partner with a minority stake to have a say over the decisions that matter to it.
When the partners cannot agree
The Company Law expects decisions to be reached by consensus first, and by vote only when consensus fails (Article 87(1) and (2)). If the partners split evenly, they can agree their own steps in the shareholders’ agreement: referring the question to their senior people, mediation, or one partner buying the other out on agreed terms. A shareholder who disagrees with certain decisions also has a right to be bought out (Company Law, Article 62), which the shareholders guide above explains.
A 50/50 split: the Law’s fallback
Where two camps of 50% each cannot take a valid decision, a shareholder may ask the district court to dissolve the company (Article 146(1)(c) and its elucidation). The court may order dissolution; it is not automatic. Partners can instead agree their own way through a deadlock at the start.
Funding the company later
When the company needs more money from its partners, the Company Law sets the order in which new shares are issued:
-
Shareholders approve
A general meeting approves the increase in capital.
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Offered pro rata
Existing shareholders are offered new shares first, in proportion to their holding in the same class (exceptions in Article 43(3)).
-
14 days to take up
Shares not taken up and paid in time may go to others.
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Paid and recorded
New shares are paid in full and the Ministry of Law is notified.
So a partner who does not take up its share of a new issue can be diluted.
Money can also come as a loan. Turning a shareholder’s claim into shares needs a general meeting’s approval, at the same thresholds as amending the articles (Article 35(1) and (3)).
For a PT PMA, the investment plan may be funded by the company’s own capital, loans, reinvested profit or share premium (the investment ministry’s regulation (Permeninves/BKPM 5/2025), Article 37(5)). How much of it must be paid-up share capital is in the PT PMA capital guide above.
The language of the agreement
An agreement with an Indonesian company or citizen must be in Indonesian. Where a foreign party is involved, the parties also write it in that party’s language or in English (Law 24/2009, Article 31; Presidential Regulation (Perpres) 63/2019, Article 26(1) and (2)). The parties agree which version governs if the two differ (Perpres 63/2019, Article 26(4)).
Since 2023, the Supreme Court’s guidance to judges, in Supreme Court Circular (Surat Edaran Mahkamah Agung, SEMA) 3/2023, has been that a missing Indonesian version is not in itself a reason to annul such an agreement, unless it results from one party’s bad faith. The simple course is to sign both versions from the start. The articles of association are in Indonesian (Articles 7(1) and 21(4)).
Settling disputes
Partners can agree in writing to take disputes under their agreement to arbitration, and a written arbitration agreement takes the disputes it covers out of the district courts (Law 30/1999, Articles 3 and 11(1)). An award made abroad is recognised and enforced through the Central Jakarta District Court, where the conditions in Article 66 are met (Articles 65 and 66).
Before you sign: checking your partner
Before you commit, look at the record of the partner you are joining. That check is for the partners to make before signing. For a company, it means the partner’s entry in the Ministry of Law’s company register, its business identification number (NIB, Nomor Induk Berusaha) and its beneficial-owner record; how to check an Indonesian company walks through each.
Questions about a joint venture in Indonesia
Can the Indonesian partner hold a small stake?
Can some shares carry no vote?
Who appoints the first directors and commissioners?
Next step: settle the terms before you form the company
It helps the partners to settle the hard questions first: who nominates which seats, which decisions need both of them, how new money comes in, and what happens if they cannot agree. We help the partners structure the joint venture, carry its key terms into the articles and prepare the shareholders’ agreement, alongside setting up the PT PMA itself.