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Indonesia: Capital Requirement for Starting a Business Reduced

(Apr. 8, 2016) On March 21, 2016, Indonesia’s President, Joko Widodo, signed into effect a regulation changing the requirement for starting a business in the country. The previous requirement that any new limited liability company have initial capital of at least RP50 million (about US$3,780), with at least 25% of that already in hand, has now been dropped. (Indonesia Scraps Minimum Authorized Capital Requirement, JAKARTA GLOBE (Mar. 24, 2016).)

A 2007 law had established these requirements for limited liability companies. (Law of the Republic of Indonesia No. 40 of 2007 Concerning Limited Liability Company (Aug. 16, 2007), arts. 32 & 33, SCRIBD; Undang-Undang Republik Indonesia Nomor 40 Tahun 2007 Tentang Perseroan Terbatas, HUKUMONLINE  (click on disini to reach text).) The capital requirement for businesses with foreign investment has been even higher, at RP10 billion (about US$753,000). (SSEK Indonesian Legal Consultants, Establishing a Business in Indonesia: Minimum Capital Requirements, INDONESIAN INSIGHTS (Oct. 26, 2015).)

Under the previous rule, many small entrepreneurs could not formalize their businesses and register them as companies, making it hard for them to obtain financing and forcing them to keep their enterprises in the informal economy. In the World Bank’s Doing Business report for 2016, Indonesia is listed as number 109 out of 189 countries in the ranking of ease of doing business. (Indonesia, DOING BUSINESS 2016, World Bank website.) According to one government spokesman, the “[e]ase of starting a business [has] … a big impact on [the ranking], so we scrapped the requirement. We want to encourage more small and medium size business and entrepreneurs to flourish.” (Indonesia Scraps Minimum Authorized Capital Requirement, supra.)