A dividend distribution is important not exclusively to companies but also to the shareholders of those companies. As for the company, it is one of the indicators that shows whether or not the company is being run in the right and proper way.  As for the shareholders, it is one of the most profitable side income that could help to maintain a good financial balance.

Prior to discussing about the distribution procedure of dividend in Indonesia, let us first understand what is a dividend. A dividend is an amount of the profit that a company pays to shareholders. In general, the distributed profits will be in form of cash, but it can also be distributed in the form of a script or a company property.

A dividend distribution in Indonesia is specified in Law No. 40 of 2007 on Limited Liability Companies. It is stated on Article 70 and 71 of Indonesia Law No. 40 of 2007 on Limited Liability that the company should allocate 20% (twenty percent) of the company net profit in its each accounting year as a reserved fund, and the company is obliged to distribute all net earnings after deduction for the reserved fund to the shareholders as a dividend unless any other agreements are provided in the General Meeting of Shareholders (GMS).

The amount of dividends that the shareholders received are in proportion of the shares that the shareholders have.  Also, a dividend can only be distributed to shareholders if the company has a positive bank balance. Do take note that dividends that have not been distributed will be placed in a separate reserve. The undistributed dividend amounts will be stated in GMS. If the undistributed dividends are not circulated within 10 years, all these dividends will be turned over to the company as the other forms of company’s income.

While it does seem easy for one to gain profits from shares, but in reality there are a lot of factors that could affect the company shares worth especially if it is a large amount of shares that are at stake.

Article 70 Law No. 40 of 2007 on Limited Liability Companies

1. The Company shall be obliged to allocate a certain amount from the net earnings of each accounting year for a reserved
2. The obligation to allocate the reserved fund as referred to in paragraph (1) shall apply if the Company possesses a positive profit balance.
3. The allocation of net earnings as referred to in paragraph (1) shall be performed up to an amount of 20% (twenty percent) from issued and paid-up capital.
4. The reserve fund as referred to in paragraph (1) which has not yet reached the amount as referred to in paragraph (3) may only be utilized to cover the loss that can not be covered by other reserves.

Article 71 Law No. 40 of 2007 on Limited Liability Companies

1. The use of net earnings including the amount of allocation for reserve fund as referred to in Article 70 paragraph shall be determined by the GMS.
2. All net earnings after deduction for a reserved fund as referred to in Article 70 paragraph (1) shall be distributed to the shareholders as a dividend, except otherwise provided in the GMS.
3. The dividend as referred to in paragraph (2) can only be distributed if the Company possesses a positive profit balance.

BP Lawyers can help you: we can assist you in providing the best solution to the legal problem of your business or your company’s. You can contact us via ask@bplawyers.co.id  or +62821-1234-1235