Legal Nature and Rights Attached to Shares under the Indonesian Company Law

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Shares represent the fundamental unit of ownership in a Limited Liability Company (Perseroan Terbatas or PT, hereinafter referred to as “Company”). They form the basis of a shareholder’s rights and obligations, including participation in decision-making, entitlement to dividends, and claims over the Company’s residual assets. This ARMA Update will provide a concise overview of the nature, classification, rights, and transferability of shares as governed by Indonesian Company Law. The key regulation on this matter is Law No. 40 of 2007 on Limited Liability Companies, as amended (“Company Law”).

Issuance of Shares

Shares are issued as a representation of ownership in a portion of the Company. Accordingly, the total number of shares cannot exceed the Company’s authorized capital. See our ARMA Update on Capital "Key Concepts of Capital under Indonesian Law".

It should be noted that shares of a Company are issued in the name of their owner.^[1] The requirements for share ownership may be stipulated in the Company’s Articles of Association (“AOA”). For all shares issued, the Board of Directors is obliged to maintain a shareholder register, which must at a minimum include the following information:^[2]

1. The name and address of each shareholder;

2. The number, serial number, acquisition date, and classification of shares, if more than one class of shares is issued;

3. The amount paid up for each share;

4. The name and address of any individual or legal entity holding a pledge over the shares or holding the shares as fiduciary collateral, including the date of the pledge or registration of the fiduciary security; and

5. Details of any payment for shares made in forms other than cash.

Shareholding Restrictions in Certain Sectors

Based on Article 48 (2) of Company Law, share ownership requirements may be stipulated in a Company’s AOA, taking into account the conditions set by the relevant authorities in accordance with prevailing laws and regulations. ^[3] The term “relevant authorities” refers to institutions vested with regulatory or supervisory powers over companies operating in specific sectors, for example, shareholding in commercial banks is governed under Financial Services Authority (Otoritas Jasa Keuangan – “OJK”) regulation.

In addition, some sectors also impose foreign ownership limitations, meaning the percentage of shares that may be held by foreign shareholders depends on the nature of the business. Currently, these restrictions are governed under Presidential Regulation No. 49 of 2021 regarding Amendment to the Presidential Regulation No. 10 of 2021 on the Investment Business Fields or known as the “Positive List”. This list may be amended by the President from time to time, typically occurs in conjunction with revisions to the prevailing KBLI framework.

For example, industries such as wood-based building materials manufacturing or traditional cosmetics manufacturing must be 100% owned by Indonesian individuals or legal entities, prohibiting any foreign shareholding. Conversely, certain sectors allow partial foreign ownership, such as domestic marine tourism transportation, where foreign individuals or legal entities may hold up to 49% of the total shares.

In conclusion, certain sectors in Indonesia are subject to ownership restrictions that limit who may hold shares in companies operating within those industries.

Classification of Shares

A Company’s AOA may stipulate one or more classifications of shares. The term “classification of shares” refers to the grouping of shares based on similar characteristics. Each share within the same classification confers identical rights to its holders. ^[4]

Company Law recognizes several shares classifications that includes: ^[5]

1. shares with or without voting rights;

2. shares granting special rights to nominate members of the Board of Directors and/or Board of Commissioners;

3. shares that, after a certain period, may be redeemed or converted into another class of shares;

4. shares entitling their holders to receive dividends prior to other share classes, whether on a cumulative or non-cumulative basis;

5. shares granting their holders priority over other share classes in receiving remaining Company assets upon liquidation; and

6. shares combining two or more of the above classifications. ^[6]

If more than one share classification exists, the AOA must designate one of them as ordinary shares, which refers to shares that grant voting rights in the General Meeting of Shareholders (“GMS”) on all matters concerning the Company’s management, entitle holders to dividends, and provide the right to receive remaining assets upon liquidation. ^[7]

Shareholders’ Rights

Each share grants its holder an indivisible right to: ^[8]

1. attend and cast votes at the GMS;

2. receive dividend payments and any remaining assets upon liquidation; and

3. exercise other rights as provided under the Company Law.

However, certain rights listed above may not be granted to holders of specific share classifications. For instance, shareholders holding non-voting shares do not possess the right to cast votes at the GMS.

In practice, it is common for a company to issue more than one class of shares. For ease of illustration, we provide an example of PT A, a limited liability company, with the following shareholding composition:

Shareholders	Number of Shares
	Class A	Value per share	Amount	Class B	Value per share	Amount	%
PT X	3,000 shares	Rp1,000,000	Rp3,000,000,000	-	-	-	30%
PT Y	3,000 shares	Rp1,000,000	Rp3,000,000,000	-	-	-	30%
PT Z	-	-	-	4,000 shares	Rp10,000,000	Rp40,000,000,000	40%
Total	10,000 shares (Rp46,000,000,000)						100%

The shareholding composition details as follows:

a. Class A Shares are ordinary shares with a nominal value of Rp1,000,000 (one million Rupiah) per share.

b. Class B Shares are preferred shares with a higher nominal value of Rp10,000,000 (ten million Rupiah) per share. Holders of Class B Shares are entitled to receive dividends in priority over the holders of Class A Shares and shall also have a liquidation preference in the event of a sale or liquidation of PT A.

In this scenario, in the event PT A declares dividends, the distribution will be carried out in the following order:

1. Priority dividend to Class B shareholder

   PT Z, as the holder of Class B Shares, will receive dividend distribution first, in accordance with the preferential dividend rights attached to the Class B Shares.

2. Distribution to Class A shareholders

   After the preferred dividend rights of PT Z have been satisfied, the remaining distributable dividends will be distributed to PT X and PT Y, as the holders of Class A Shares, in proportion to their respective shareholdings.

Meanwhile, in the event PT A undergoes liquidation or sale of the company, the distribution of proceeds will generally follow this order:

1. Payment to creditors

   In the event of liquidation, the Company must first settle its obligations to creditors in accordance with the applicable laws and regulations.

2. Distribution to Class B shareholder (liquidation preference)

   PT Z, as the holder of Class B Shares, will receive payment in priority up to the amount of its liquidation preference.

3. Distribution to Class A shareholders

   Any remaining proceeds after satisfaction of the Class B liquidation preference will be distributed to PT X and PT Y proportionally based on their respective shareholdings.

Based on the above illustration, the issuance of different classes of shares allows a company to allocate different economic and governance rights among its shareholders. In practice, this type of share structure is quite common, particularly in startups.

Preferred shares are typically held by investors rather than founders, as these shares provide stronger economic protection, especially in relation to dividend distribution and liquidation proceeds. This ensures that investors have priority in receiving returns on their investment.

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1. Article 48(1) of Company Law. ↩
2. Article 50(1) of Company Law. ↩
3. Article 48(2) of Company Law. ↩
4. Article 53(1) and (2) of Company Law. ↩
5. Article 53(4) of Company Law. ↩
6. Elucidation of Article 53(4) of Company Law. ↩
7. Article 53(3) of Company Law and its elucidation. ↩
8. Article 52 of Company Law. ↩

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Disclaimer:
This client update is the property of ARMA Law and intended for providing general information and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. ARMA Law has no intention to provide a specific legal advice with regard to this client update.

Go to

1. Issuance of Shares
2. Shareholding Restrictions in Certain Sectors
3. Classification of Shares
4. Shareholders’ Rights

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