Following the enactment of Law Number 11 of 2020 on Job Creation, along with its amendments and implementing regulations, Indonesia has introduced a new format of Limited Liability Company (Perseroan Terbatas). Previously, Indonesia’s legal system only recognized the Capital Partnership Company (which requires at least two shareholders) and the Individual Limited Liability Company (restricted to Micro and Small Enterprises). Some legal scholars argue that Indonesia’s Individual Limited Liability Company resembles the Sole Proprietorship / Sole Trader model commonly found in Common Law jurisdictions.In many Common Law countries, a Sole Proprietorship is considered non–legal entity, resulting in the absence of asset segregation between the owner and the business.

Consequently, the owner’s personal assets remain liable for business obligations. In contrast, the Indonesian Individual Limited Liability Company is a legal entity whose shareholders enjoy limited liability based on their stated capital contribution. This limitation of liability is regulated under Article 3(1) of Law No. 40 of 2007 on Limited Liability Companies, as amended by Article 153J(1) of the Job Creation Law.1 The introduction of Individual Limited Liability Companies has raised concerns, particularly regarding the professionalism in corporate management. The traditional check-and-balance mechanisms embedded in the management structure of Capital Partnership Companies—whether One-Tier Management Structure or Two-Tier Management Structure—do not apply in the Individual Limited Liability Company framework. It is important to note that the limitation of shareholder liability stems from the doctrine of Separate Legal Personality, under which the company, though Following the enactment of Law Number 11 of 2020 on Job Creation, along with its amendments and implementing regulations, Indonesia has introduced a new format of Limited Liability Company (Perseroan Terbatas).

Previously, Indonesia’s legal system only recognized the Capital Partnership Company (which requires at least two shareholders) and the Individual Limited Liability Company (restricted to Micro and Small Enterprises). Some legal scholars argue that Indonesia’s Individual Limited Liability Company resembles the Sole Proprietorship / Sole Trader model commonly found in Common Law jurisdictions.In many Common Law countries, a Sole Proprietorship is considered non–legal entity, resulting in the absence of asset segregation between the owner and the business. Consequently, the owner’s personal assets remain liable for business obligations. In contrast, the Indonesian Individual Limited Liability Company is a legal entity whose shareholders enjoy limited liability based on their stated capital contribution.

This limitation of liability is regulated under Article 3(1) of Law No. 40 of 2007 on Limited Liability Companies, as amended by Article 153J(1) of the Job Creation Law.1 The introduction of Individual Limited Liability Companies has raised concerns, particularly regarding the professionalism in corporate management. The traditional check-and-balance mechanisms embedded in the management structure of Capital Partnership Companies—whether One-Tier Management Structure or Two-Tier Management Structure—do not apply in the Individual Limited Liability Company framework. It is important to note that the limitation of shareholder liability stems from the doctrine of Separate Legal Personality, under which the company, thoughrepresented by natural persons, remains an artificial legal person with its own legal standing.

In practice, several landmark judicial decisions have tested the consistency of applying the Separate Legal Personality principle in cases involving abuse of corporate structure, such as Gilford Motor Co Ltd v Horne, Smith, Stone & Knight Ltd v Birmingham, and Jones v Lipman. These decisions contributed to the development of the Piercing the Corporate Veil doctrine.

Under Article 3(2) of Law No. 40 of 2007, the Separate Legal Personality doctrine does not apply in the following circumstances (1) The company’s legal entity requirements have not been or are not fulfilled; (2) A shareholder, directly or indirectly, in bad faith uses the company for personal interests; (3) A shareholder is involved in unlawful acts committed by the company; or (4) A shareholder, directly or indirectly, unlawfully uses the company’s assets resulting in the company being unable to fulfil its debts.

Following the enactment of the Job Creation Law, these exceptions were expanded under Article 153J(2), covering essentially the same circumstances with reinforced emphasis on bad faith and unlawful use of company assets.These exceptions are intended to encourage professional corporate governance. Any losses suffered by the company and/or third parties due to improper management do not limit the rights of affected parties to file claims not only against the company but also against individuals directly responsible for such losses (including Management, Shareholders, and Beneficial Owners), in line with the Piercing the Corporate Veil principle.

We have experienced lawyers providing assistance and dispute resolution services in the field of Corporate Law. Our lawyers possess a deep understanding of various business entity forms and business cooperation structures—whether incorporated or unincorporated (Limited Liability Companies, Individual Limited Liability Companies, Cooperatives, Foundations, Civil Partnerships/Maatschap, Firms, Associations, Commanditaire Vennootschap/CV, and Joint Operations/Joint Ventures). Our expertise includes corporate management formats, allocation of responsibilities among corporate organs, governance structures, shareholder authority scenarios, nomination of corporate organs, business planning, and more. Our lawyers are available for further communication in both Indonesian and English.

We are well-positioned to offer innovative legal advice on determining appropriate business entity structures and cooperation models, establishing and operating them according to your needs. Many distinguished clients have entrusted the protection of their business legal aspects to us through the Retainer services of Margono-Ismawan & Co.