Job Creation Law: The Aspect of Limited Liability Company Establishment for Micro and Small Business

Introduction

Indonesia has recently introduced its “first-ever” Omnibus Law – Law No. 11 of 2020, which was enacted back on November 2nd of 2020 (better known as the “Job Creation Law”). The Job Creation Law itself had raised many pros and cons since the early days that it had been proposed by the Government. As to how the name sounds, the Law is meant to support job creation within the Republic of Indonesia, with many “eased” requirements compared to how those were originally regulated.

As the Job Creation Law is an omnibus type of law, it covers quite a lot of different fields of law, e.g. investment law, business law, labour law, land law, etc. This article will particularly discuss how businesses in Indonesia are eased due to the existing Job Creation Law, specifically in the aspect of the limited liability company (“LLC”) establishment. From this aspect, the Law has changed some provisions of Law No. 40 of 2007 on the Limited Liability Company (“LLC Law”). Some of the major changes are, for example, the establishment of LLC by micro and small business is excluded from the basic minimum two-founder obligation. Besides, the Job Creation Law also regulates that the authorized capital for the establishment of an LLC depends on the decision of the founders.

In general, the changes in this aspect might be seen as advantageous in encouraging the development of local micro and small businesses. However, it still needs to be discussed further whether the changes would really provide support to the realization of the greatest prosperity of the people – as to how it is mandated by the Constitution of Indonesia. This concern arises as it is highly related to the limited liability characteristic of the LLC itself.

Analysis

Prior to the enactment of Job Creation Law, according to Article 7 paragraph (1) of LLC Law, an LLC shall be established by at least two founders, with the exception in paragraph (7), such as for the establishment of state-fully-owned enterprises, regional-owned enterprises, village-owned enterprises, and capital market-related enterprises, as to how it is stipulated in the capital market law. Through the Job Creation Law, micro and small enterprises are added into the exception list, which therefore provides the possibility of the establishment of micro and small LLC by only one founder. The possibility is also strictly acknowledged in the Article 153A of Job Creation Law. Also, the establishment is sufficient only based on a written statement of establishment in Indonesian. This is different from the general requirement of LLC establishment, in which an LLC is established with a notary deed in Indonesian.

From one point, the Government’s intention on the establishment of micro and small LLC can be fully understood. Working on business under the LLC status would be preferred due to its limited liability characteristic. By this means, the business owner wouldn’t be liable personally for those claims against the LLC, as they exist as separate legal entities. This is also acknowledged in Article 153J paragraph (1) of Job Creation Law, which explicitly regulates that the shareholders of micro and small business LLC are not personally liable for any engagement made under the name of LLC, and are not liable for the LLC’s losses exceeding their owned shares.

Furthermore, in the means of easing the requirements in establishing an LLC, Article 32 of LLC Law on the authorized capital is also amended. The amount of authorized capital is now dependent on the “decision” of the founder. The amended provision is different from how it was previously regulated in the Government Regulation No. 29 of 2016 on the Change of Authorized Capital of Limited Liability Company (“GR 29/2016”). According to Article 1 paragraph (3) of GR 29/2016, the amount depends on the “agreement” among the founders. Originally, according to Article 32 paragraph (1) of LLC Law, the minimum amount of authorized capital of the LLC shall be at least fifty million rupiahs. What shall be noted here is, the previous analysis has shown that it is highly possible for an establishment of micro and small LLC by a single founder. With the current provision of Article 32, the amount is solely down to the decision of that one founder.

With no minimum amount or further provisions on the authorized capital, coupled to the current framework where the establishment of LLC by a single founder is possible, the risk of failure to pay by such LLC is quite high. In other words, there is low capital protection and LLC’s debt payment ability is also low-guarantee. Moreover, due to its limited liability characteristic, the creditors won’t be able to claim the payment of the debts against the founder’s and/or the shareholder’s personal assets. Nevertheless, Article 32 paragraph (3) of Job Creation Law has stated that the further provisions of authorized capital will be regulated by the government through the Government Regulation – as the implementing regulation of the Job Creation Law.

Meanwhile, Article 153E paragraph (2) of Job Creation Law regulates that the LLC founder can establish only one LLC for micro and small business within one year. Whilst this seems like a limitation, from another view, it enables the establishment of a new LLC each year by the same micro and small business owner. The provision only provides a limitation on micro and small LLC establishments each year, but not limiting the number of establishments that can be done by each individual. With this current provision, it can’t be denied that some micro and small business owners with limited capability might establish a new business in LLC each year with the mere intention to seek profits, and as self-protection behind the limited liability characteristic of LLC. This is also supported by the fact that micro and small businesses are given fee waivers related to the establishment of a legal entity, as accorded to Article 153I paragraph (1) of Job Creation Law.

Conclusion

Notwithstanding that the amended provisions which relate to the establishment of LLC in the Job Creation Law can be seen as micro and small business empowerment, its effectiveness, especially in job creation and therefore the prosperity of the people, are still quite questionable. Though the micro and small LLC establishment by a single founder with no minimum authorized capital is enabled by the Job Creation Law, it’s still doubtful that it would eventually contribute to increased job opportunity, since the sustainability of the LLC itself is as yet uncertain due to the possibly low capital and difficulty in obtaining trust from aspiring partners. Nonetheless, most of the provisions in the Job Creation Law are to be regulated further in the implementing regulation. Thus, it is to be hoped that the implementing regulations will provide more assurement and certainty that are yet to be found in the Job Creation Law itself.

References

Indonesia Law No. 11 of 2020 on the Job Creation

Indonesia Law No. 40 of 2007 on the Limited Liability Company

Indonesia Government Regulation No. 19 of 2016 on the Change of Authorized Capital of Limited Liability Company