LEGAL STATUS OF A DIRECTOR IN INDONESIA

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February 10, 2017
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The position of a Director in a Company comes with the authority and responsibility to manage and lawfully represent the Company. Most of the time, people consider the Director as an employee, especially in regards to benefits and salaries payable to the Director. So, what is the legal status of the Director?


Rights and duties of the Board of Directors or Director in Indonesia are regulated under Law No. 40 of 2007 concerning Limited Liability Company (“Company Law”) and the Articles of Association of the Company. However, there is no specific law and regulations which provide an explanation regarding the Legal Status of Director in the Company.

In fact, Director is still considered as an employee in several cases in Indonesia. Which mean that most people are still confused regarding the Legal Status of Director between management or employee. Therefore, in this article, we would like to explain the Legal Status Legal Status of Director in the Indonesian Company.

COMPARISON BETWEEN DIRECTOR AND EMPLOYEE

DIRECTOR
Generally, a Director should undertake the management of the Company based on Article 92-107 Company Law. However, since a Directors are appointed by the General Meeting of Shareholders of the Company, the Articles of Association of the Company may determine the more specific requirement for a Director besides its day-to-day operational responsibility.

The following is the key criteria of a Director based on Company Law:

  1. Directors should be appointed for a certain period and may be re-appointed, such appointment should be stated in the Articles of Association of the Company.
  2. Director may represent the Company, in or outside the judicial courts.
  3. Only those who meet the following criteria can be appointed as a Director:
    • Individual;
    • Have not been declared bankrupt in the last 5 years;
    • Have not been adjudicated (either as a Directors or Commissioners) to be at fault in causing a company to be declared bankrupt in the last 5 years;
    • Have not been sentenced for a criminal offense which caused financial loss to the state and/or relating to the financial sector in the last 5 years.
  4. The duties, responsibilities, obligations, benefits, and rights including the appointment, replacement, and dismissal procedures of a Director are determined specific by a General Meeting of Shareholders and Articles of Association of the Company.
  5. Director has a responsibility to ask for approval for specific actions, and obligation of annual business plan and annual report.

EMPLOYEE
Employment in Indonesia is regulated under Law No. 13 of 2003 Concerning Manpower (“Manpower Law”) which regulates the terms and conditions for an employment relationship, including the benefits and rights of an Employee, and the obligation of the Employer.

However, to determine the differences between the Director and the Employees, it needs to be known about the definition of Employees and Employer based on Manpower Law:

  1. Employee means any person who works and receives wages or other forms of remuneration (Article 1 paragraph (3) of Manpower Law); and
  2. The Employer means an individual, entrepreneur, legal entities or other entity that employ employee by paying them wages or other forms of remuneration (Article 1 paragraph (4) of Manpower Law).

    However, there is a word in the definition of the Employer is similar with the Director ie: “Entrepreneur”. Pursuant to Article 1 paragraph (4) of Manpower Law, the Entrepreneur is defined as the following definitions:

    • An individual, a partnership, or a legal entity that operates a self-owned enterprise;
    • An individual, a partnership, or a legal entity that independently operates a non-self-owned enterprise; or
    • An individual, a partnership or a legal entity located in Indonesia and representing an enterprise as mentioned under point (1) and (2) that is domiciled outside the territory of Indonesia.

Referring to the above explanation, we can conclude that a Director cannot be considered as an Employee, since based on its duties and responsibilities pursuant to the Company Law, he/she fulfills the role of an Entrepreneur, which is one of the Employers as defined in the first and second definitions of “Entrepreneur”.

“DIRECTOR” WHO IS ALSO AN EMPLOYEE
What happens if the person has the title “Director” but is not appointed as Director pursuant to the Company Law?

The way to check it is easy: if the name of the Director is listed in the Articles of Association of the Company, he/she cannot be considered as an Employee. But if he/she is not listed in the Articles of Association of the Company, the “Director” can be considered as an Employee.

HOW CAN SMART CONSULTING HELP YOU?
To ensure a smooth investment and business operation from the legal perspective, but also still focus on maintaining your business in Indonesia and reach your revenue target, it is advised for you to find capable and trusted lawyers or legal consultants for advice and assistance in ensuring your legal compliance with prevailing corporate and manpower laws and regulations.

SMART Consulting is an Indonesian Corporate Legal Services firm. We have assisted local and multinational companies in structuring their corporate structure, including matters related to the duties and responsibilities of Board of Directors of a Company, with effective legal cost. Our services include assistance in drafting and reviewing the agreement between a Director and a Company, agreements of Employment nature, and also Company Regulations and Employment Contract templates.

Contact Us Now to get your legal solution for your business goals, and still comply with the prevailing laws and regulations.
E:  info@smartcolaw.com
H: +62821-1234-1235

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