INTRODUCTION

I. Introduction of a Shareholders’ Agreement

In order to incorporating a company to be a legal entity in Indonesia, we must to abide the rules under the Law No. 40 of 2007 on Company Law (“Company Law”). According to Art. 2 of Company Law, a company must to have: (i) purpose and objectives of the company; (ii) business activities that do not conflict with the provisions of laws and regulations, public order, and/or decency. Therefore, a company must to be clear on its purpose of the establishment.

Incorporating a company in Indonesia has a minimum of the shareholders. A potential company must meet a minimum of 2 (two) shareholders along with notary deed. The shareholders have to agree on terms that ruled under the Articles of Association (“AOA”). The shareholders allowed to make a separate agreement in order to providing or securing related matters that are not included in the AOA, as long as the provision in such agreement is not less than what is stated in the Company Law. This agreement called as the Shareholders’ Agreement (“SHA”).

Normally, AOA will contain general necessary matters or details of a company. On the other hand, SHA could arrange or provide for the complexity of the shareholders’ interests. Essentially, SHA does not regulate by the Company Law as requirements to incorporating a company, however SHA can be made by following applicable regulations on the Indonesia Civil Code (“ICC”).

II. Purpose of Shareholders’ Agreement

Despite the SHA is a non-mandatory, however SHA can be a benefit-maker for the company and its shareholders. The followings are the purposes and/or reasons of the importance of SHA:

1. regulate the reserved matters;
2. regulate the shareholders’ quorum requirement in details;
3. representative/position of Board of Commissioners (“BOC”) and Board of Directors (“BOD”);
4. promotes governance;
5. provides solution for deadlocks;
6. protects confidentiality;
7. protects minority shareholder;
8. provides non-compete restrictions; and
9. defines clear exit strategies.

In addition, there are more purposes and reasons to create a Shareholder Agreement to be considered.

CONCLUSION

SHA serves as a vital instrument in regulating the rights and obligations of shareholders beyond the provisions of the (AOA). While not a mandatory requirement under Company Law, an SHA provides numerous advantages, including safeguarding shareholder interests, mitigating disputes, and ensuring corporate governance.

The legal foundation for an SHA in Indonesia is derived from the principle of freedom of contract under the ICC, allowing shareholders to define specific terms tailored to their business needs. This agreement can encompass critical elements such as capital structure, dividend policies, confidentiality, non-compete restrictions, and dispute resolution mechanisms. By incorporating these provisions, shareholders can establish a structured framework that promotes stability, transparency, and long-term business sustainability.

Ultimately, a well-drafted SHA enhances legal certainty and minimizes risks by preventing conflicts and ensuring that shareholders operate within clearly defined boundaries. Therefore, companies seeking to strengthen their internal governance and protect their commercial interests should consider implementing a comprehensive SHA as part of their corporate strategy.

Regards, 

Pasaka Rievan Smith
Counsellors at Law

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