Private Equity and Venture Capital: Overview of Fund Formation Regulations in Indonesia – Corporate Law and Company Law

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Indonesia has seen remarkable growth in technology investment (see our editorial publications on Indonesian technology deals Vol. 1, Vol. 2, Vol. 3 and Vol. 4). Most of these investors are Private Equity (“PE“) and venture capital (“resume“), with major interests in continuing their investments in Indonesia. Although many of these PEs and VCs are overseas-based, with continued interest from local investors in Indonesia and the establishment of investment arms by Indonesian-based conglomerates, it would be interesting to explore the regulatory positions of the formation of private equity and venture capital companies in Indonesia.

In this article, we give a brief overview of the establishment of PE and VC based on the perspective of Indonesian law.

  1. General regulatory framework for private equity in Indonesia: Indonesian law does not provide any particular framework for the establishment and operation of private equity funds. Private equity activities are resolved by merger and acquisition (“M&A”) of unlisted companies, which generally comply with the provisions of the Limited Liability Companies Act No. 40 of 2007 (“company law“), or other transaction structures such as convertible notes and securities-backed loans or, in some cases, unsecured loans.

    For foreign private equity funds directly invested in target companies through equity acquisitions, it is important to comply with the positive investment list under Presidential Regulation No. 10 of 2021 on the areas of investment activity (“PR 10/2021“), which includes provisions on:

    1. Priority areas of activity;

    2. Areas of activity assigned or partnership with cooperatives and SMEs (Small and Medium Enterprises); and

    3. Fields of activity under certain conditions.




    The provisions are generally applicable to any foreign direct investment in Indonesia, and all investors must comply with PR 10/2021. In addition, foreign direct investments must also comply with all applicable requirements under the Investment Coordinating Council (Badan Coordinator Penanaman Modal or “BKPM“), such as a minimum investment of IDR 10 billion.


  2. General VC regulatory framework in Indonesia: Although there is no particular legal framework for the creation of a PE, the Financial Services Authority (Otoritas Jasa Keuangan or “OJK“) issued OJK Regulation No. 35/POJK.05/2015 on the implementation of venture capital enterprises (“Venture Capital Firms Regulation“) and OJK Regulation No. 34/POJK.05/2015 of 2015 on Licensing and Organization of Venture Capital Firms (“OJK Regulation 34/2015“). These regulations require venture capital firms operating under the venture capital firm regulations to be licensed by the OJK. In this regard, a venture capital firm licensed by the OJK in Indonesia can be a conventional or Sharia-based venture capital firm (that is to saythe investment is made on the basis of the principles of Sharia) VC.

    According to the Venture Capital Company Regulation, a venture capital company is a financing business entity that participates in the capital or finances its business partner for a certain period of time in order to improve the operation of the partner (the partner is generally a start-up or start-up company). ) or debtor. Please also note that the regulations require the equity participation of a licensed Indonesian VC in the form of equity participation for a maximum period of 10 years, renewable twice for a total extension period of 10 years.

    Authorized activities: A licensed venture capital firm (Perusahaan Modal Ventura) is authorized to carry out the following activities:

    1. Manage the venture capital funds of its investors;

    2. Provision of investment services for certain fees; and

    3. Other activities approved by OJK.




    More specifically, the investment activities of a VC must be aimed at the development of, among other things, new inventions, small and medium-sized enterprises or new technologies.

    Please note that an approved VC cannot perform the following activities:

    1. raising funds directly from the community (in the form of current accounts (payment) or savings);

    2. grant security in any form whatsoever to third parties;

    3. issue promissory notes, except as collateral for banks;

    4. take actions that render other financial organizations under the supervision of the OJK non-compliant with applicable laws and regulations;

    5. take actions that cause other financial organizations under the supervision of the OJK not to comply with applicable laws and regulations.


  3. Sources of funding for PEs and VCs: PEs and VCs raise funds from their investors. PEs can raise funds through stocks or shares, as well as issuing bonds, while VCs can raise funds from venture capital funds in accordance with the Capital Enterprises Regulation -risk. Indonesian law is generally silent on requirements and provisions regarding sources of funding for PEs. Funds are primarily raised overseas through private placements in PEs. If a private equity fund is formed in Indonesia, it would usually be structured under a limited liability company (Persian Terbatas or “PTIn this case, the PT must comply with the provisions of company law.

    Based on the regulation on venture capital enterprises, the maximum number of investors in venture financing is 25. These investors must enter into a fund formation agreement in the form of a notarial deed. A venture capital fund must be at least IDR 1 billion and it must be placed in a designated custodian bank.

    In addition, Article 36 (1) of the Venture Capital Firms Regulation states that the source of funds for a venture capital firm may be:

    1. Venture capital funds

    2. Ready

    3. Asset securitization

    4. Medium Term Notes

    5. Bonds issued

    6. Subordinated loan

    7. Shares issued

    8. waqfreferring to Islamic law

    9. To agree




    Parties that may participate in venture capital funding include:

    1. The government

    2. Public or regional companies

    3. Finance companies

    4. Indonesian Export Finance Agencies

    5. Banks

    6. Other funding institutions

    7. Multilateral financial institutions

    8. Other Business Entities

    9. People


  4. Licensing Requirements and Business Entity Forms for PEs and VCs in Indonesia

    PE License Requirements and Entity Form: As mentioned, there are no specific licensing requirements for a PE, and it is generally structured like a PT.

    VC Licensing Requirements and Entity Form: In Indonesia, Article 2 of OJK Regulation 34/2015 states that a venture capital company can be one of the following business entities:

    1. PT;

    2. Cooperative (cooperasi); or

    3. Partnership (“resume“)




    Although creating a CV in the form of a co-op or CV is allowed, it is very rare.

    A VC established in the form of a PT must have a minimum paid-up capital of IDR 50 billion, and a Sharia-based VC in the form of a PT must have a minimum paid-up capital of IDR 20 billion. A VC established as a PT is also subject to a maximum foreign ownership of 85% of its paid-up capital.

    Regarding the license, please refer to the points below, about the general requirements to obtain the VC company license (Izin Usaha Perusahaan Modal Ventura) from OJK:

    1. The VC Board of Directors submits the application to the OJK in the form provided by Regulation OJK 34/2015;

    2. The application must be accompanied by the supporting documents which include the deed of establishment, the register of shareholders, the identity of the members of the board of directors (BOD) and the board of commissioners (BOC), the letter of declaration of shareholders of the company on source of funding, underlying agreements with participating investors, proof of capital injection, proof of operational readiness, work plan, organizational structure, etc. ;

    3. Upon receipt of the complete application, OJK will evaluate and analyze the application within 30 working days, and then issue its approval or rejection on the relevant application in the form of an OJK decree (Keputusan OJK);

    4. The VC concerned should start its operations no later than six months after the publication of the OJK decree;

    5. The approved VC must submit a report on the start of operation no later than 10 days after the start.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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