How To Avoid Legal Problems When Establishing Your Startups In Indonesia ?
Step To Avoid Legal Problems When Establishing Your Startups In Indonesia
Navigating the murky business culture in Indonesia can look daunting, especially for emerging startups used to well-developed infrastructure and unobstructive bureaucrats. The recent ban controversy on ride-sharing startups and the looming e-commerce regulations are just several issues that comes with the challenge to establish your startup in this lucrative market.
Due to the growing economic landscape and the regulations that comes with it, it becomes essential for startups to be aware of the legal requirements throughout the country in order to avoid falling into legal problems when they leap into trade. Here are some tips to stay in line with the law in Indonesia.
1. Establishment under the Right Business Structure
Foreign startups looking to establish themselves in Indonesia must structure their establishment wisely, since establishing your business in Indonesia takes more time than establishment in the neighboring countries such as Singapore and Malaysia. Hasty establishments using “shortcuts” in Indonesia, while convenient, will only waste your time and money if found legally insufficient, or even worse, were found conducted using illegal paperwork.
First thing you have to check is where does your startup capital came from. The investment regulations in Indonesia are strict, and there are several businesses that do not allow 100% foreign ownership. Some of them are startup favorites, like the retail e-commerce field. You can get around this restriction by partnering with local investors in various ways.
The second thing you have to check is how much money you are willing to spend to establish your presence in Indonesia. Companies with foreign shareholders are required to have a minimum amount of IDR 10,000,000,000 or ten billion Rupiah as its capital, and you are legally required to deposit a quarter of it as paid-up capital. If you want to start a company with 100% foreign shareholders, that equals a deposit of two and a half billion Rupiah, or around US$ 175,000. That is quite a large amount of investment for startups trying to establish their business in an emerging market.
Other than capital structures, the issue that you should keep updated about is the laws and regulations in Indonesia. It is best for startups to obtain legal advice before establishment. However, well-known local law firms charge sky-high costs per hour for legal consultation. A tip for startups is to directly contact trusted local Corporate Legal Services company for advice on how the company can be structured and how will it impact the stakeholders. They will charge less, and they have good connection with the government. Their services can include the establishment itself and securing business licenses.
2. Protect Your Intellectual Property
Your business will have numerous pieces of Intellectual Property (IP), whether you know it or not. Trademarks can protect things like your logo and brand name, or a combination of the two. Copyright can protect the marketing text on your website, or the content of marketing emails, applications and mailers. You may even have products that are patentable, if your startup focuses on developing new and original inventions that is unique.
IP laws and regulations in Indonesia generally provides sufficient legal protection for your creations, as long as you are registered as the rightful owner, especially when talking about Trademarks and Patents. Like most Southeast Asia countries, Indonesia follows the first-to-file rule, which means that it doesn’t matter how long you have been using a mark, or how long you have invented a new invention, if someone else registers it first. It is best for you to file a registration for your logo and store name as soon as you started your business in Indonesia.
Even before you effectively start your business in Indonesia, it is advised for you to start the registration process of your logo or brand before you have a corporate presence in the country. Especially if you have established your start-up in another country. This is because the trademark registration process can take up to 3 (three) years to complete in Indonesia. In this digital age, information travels very quickly. Your brand can already be well-known in the Indonesia market before you even enter the country, and someone else may use that opportunity to register your brand under their name to capitalize on it. The same also applies with patentable inventions— if you don’t get in quick and patent your invention, someone else may sneak in before you and have a monopoly on producing and selling that invention.
3. Set Up a Privacy Policy in Bahasa Indonesia
Until this article is written, Indonesia has only a partial privacy legislation in place, which is not as comprehensive as in Malaysia, the Philippines, and Singapore. That is not mean you can half-ass your privacy policy and get away with it—on the contrary, you have to get it right so you can spend less time worrying about possible disputes and lawsuits that can take a long time to settle.
There is no regulation that specifies what your privacy policy should state in Indonesia, but covering the basics as already regulated in the international laws should suffice, which includes:
- that you are collecting information from your customers;
- getting permission from your customers to collect the information;
- collecting information only for a fair and reasonable purpose;
- that you won’t disclose the information unless necessary, and if you do need to disclose it you will notify your customer;
- how you will be held accountable if the data is lost;
- how the information will be kept accurate and up to date; and
- how your customer can have access to the information.
It is essential to publish the privacy policy in Bahasa Indonesia, to follow the regulations on use of languages in legally binding contracts that applies here. You can still use your origin language in a bilingual/multilingual policy if you wish. The same applies for Terms and Conditions, Terms of Use, or any other Disclaimers you will use at your site or mobile application.
4. Obtain Digital Consent using Clickwrap Method
When your customers are using platforms such as websites and mobile applications to conduct transactions with you, keep in mind that in Indonesia, consent is one of the requirement for contracts to be legally binding. Privacy Policy, Terms and Conditions, Disclaimers—they are all contracts.
Obtaining digital consent in Indonesia is tricky—there is no regulation that specifically regulates and defines how you can give and/or receive consent digitally. So the most important thing for you is to ensure that the method of consent-giving can be digitally recorded to be used as evidence if needed. You also need to ensure that your customers and product users are completely aware that they are giving consent to agree with your terms, conditions and privacy policy.
Clickwrap is a method to obtain consent from your customers. It is a method where the customer has to click a button or checkbox that explicitly states “I Agree” to the terms, conditions, privacy policy, or other legal document. It is best for you to include a hyperlink in each Clickwrap step to the terms, conditions or privacy policy your customers are agreeing to, so it is easier to prove that the consent the customers give is based on sufficient information regarding the product.
Clickwrap is more complicated than the Browsewrap method, in which the customer is presumed to have agreed to legal documents such as the Terms and Conditions or Privacy Policy by browsing the website or mobile application and finding the documents themselves. However, the Browsewrap is a riskier method because the customers can claim that they have no idea about the terms and conditions, and that the legal documents are insufficiently displayed in your website or mobile application. You can get tangled in a legal dispute with your customers, and while you can win your disputes, it will take time and money for you to settle them. In Indonesia, the judicial system is complicated and time-consuming. Save your money by using Clickwrap method instead.
5. Avoid Shortcuts
There are many services in Indonesia claiming that they can establish your business legally in a short period of time. Be very thorough in examining these proposals. These “shortcuts” may take care of the legal part of your establishment very quickly, but hasty establishments can lead to legal problems in the future that can cause your emerging startups trouble and bad reputation.
The bureaucracy in Indonesia is gradually improving, especially if you are establishing your business in Jakarta. The application system for business establishments, licenses and permits is computerized, and district offices now maintain a stricter attitude towards applications. Of course, there is nothing stopping you from spending extra money to establish your business quickly (unless you get caught!) But as Indonesia grows day by day to become a more organized country, it is better for you to stay in line with the law now, rather than run into legal troubles later.
For foreign startups, it is best for you to have incorporated yourself in your origin countries, so you can follow the proper steps in starting your business in Indonesia, while strengthening your hold and knowledge on your target market in the country at the same time. You can also establish a representative office of your foreign company before establishing your company here, to conduct market research.
6. Know Your Obligations (Legal Compliance)
So you start your startups in Indonesia. Of course to make sure your business run smoothly and attracting more customers is at the top of your priority list. But also take your time to make sure that you are fulfilling your legal obligations. Keep track of the changes in your company’s structure, and whether that you have to legalize those changes. Keep track of the reports you have to submit periodically to the government. Keep track of your foreign employees and whether they already secured their work permits.
You might think it is troublesome, but it is much easier to keep track of your legal issues since the beginning of your startup, rather than hobbling around when you have a deal coming up and your legal documents have expired. The bureaucracy in Indonesia still take time to process things especially concerning the legal status of your business. Sorting your legal matters so close to business deals can be complicated and exhaustive.
A tip: have a local that you trust to act as your proxy in Indonesia to take care of legal matters, or find a local Corporate Legal Services that can act as your secretary or retainer so your legal documents are kept up-to-date, and your legal obligations can be fulfilled on-time in an efficient way. You can save a lot of money by asking for a retainer service, since they will charge you per month in a reasonable rate, and proportional to the use of their services.
HOW CAN SMART LEGAL CONSULTING HELP YOU?
SMART Legal Consulting is an Indonesian Corporate Legal Services. We provide Company Formation and License Services to startups looking to establish themselves in Indonesia. We provide retainer services to maintain their legal compliance in Indonesia. Our services for foreign startups also include securing Expatriate Permits for foreigners looking to work in Indonesia.
If you need immediate assistance, please contact the SMART Help Desk at:
E: info@smartcolaw.com