Company with Foreign Directors: 5 Points Legal Dos and Don’ts of 2025 (Part 2)

Currently, more and more companies in Indonesia are recruiting foreign directors to run their businesses. This is driven by the need for experience, expertise, and international business networks that foreign professionals can bring. 

However, although the presence of foreign directors offers many benefits, there are several regulations that must be considered regarding their authority and limitations in managing a company in Indonesia.

By understanding what foreign directors are allowed and not allowed to do, companies can maximize their expertise without violating the applicable regulations in Indonesia. In Part 2 of this article, we will continue discussing what company with foreign directors in Indonesia are allowed and not allowed to do.

Read more: Foreign Individuals as Directors in Indonesia: 5 Points Legal Do’s and Don’ts of 2025 (Part 1)

1. Prohibitions in Appointment of Foreign Individuals in Indonesian Company (PT)

Foreign individuals cannot be hired by individual employers/businesses. Foreign individuals cannot be hired for multiple positions (rangkap jabatan) in the same Indonesian Company (PT).

Most importantly, foreign individuals cannot be hired for positions that handle and/or manage Human Relations / Personalia (HR). This impacts the appointment of the Board of Directors in Indonesian Company (PT). 

Even though an Indonesian Company only requires a minimum 1 (one) Director in the Board of Directors, a foreign individual cannot be appointed as the sole member of the Board of Directors. This is because he/she is not allowed to handle and/or manage HR matters, including signing employment contracts when the Company is hiring employees. 

Therefore, the Board of Directors must consist of foreign individuals and Indonesian individuals, with the Indonesian Director acting for and on behalf of the Company for HR matters, including signing employment contracts.

2. Duties and Responsibilities of the Board of Directors

The Board of Directors has the authority and full responsibility for managing the company with good faith and accountability in the interests of the company, in accordance with the company’s purposes and objectives. The Board of Directors also represents the company, both within and outside the court, in accordance with the provisions of the Articles of Association.

The obligations of the Board of Directors per Indonesian Company Law are as follows:

1. Prepare a list of shareholders, a special register, minutes of the General Meeting of Shareholders (RUPS), and minutes of the Board of Directors’ meetings.
2. Prepare the Annual Report and Financial Documents.
3. Maintain all registers, minutes, financial documents, and other company records.
4. Report any shares owned by members of the Board of Directors and/or their family in the company and other companies to be recorded in the special register.
5. Submit a work plan that includes the company’s annual budget to the Board of Commissioners for approval before the fiscal year begins.
6. Provide explanations on any matters questioned by the Board of Commissioners.

The obligations of the Board of Directors can increase based on the line of business of the Company. For example, the Board of Directors of the Companies (PT) in the financial sector have obligations as determined by the financial regulator of Indonesia for the Board of Directors, such as anti-fraud, anti-corruption, and anti-money laundering obligations among others.

The Shareholders of the Company (PT) can also determine more detailed duties and responsibilities of the Board of Directors in the Company Articles of Association or through GMS (including the signed circular resolution document of the Shareholders).

Read more: Expanding Business to Indonesia: Do You Really Need to Establish an Indonesian Company?

3. Company with Foreign Directors: Limitations of Authority of the Board of Directors

Through the Articles of Association, the Board of Directors can be required to obtain prior approval from the Board of Commissioners and/or the General Meeting of Shareholders (GMS) before carrying out certain management or actions. For example:

1. Borrowing or lending money in the name of the company (excluding taking company money from the bank).
2. Establishing a new business or participating in another company both at home and abroad.
3. Signing contracts and/or approving certain transactions with the nominal value of transaction exceeding a determined amount.
4. Other actions deemed necessary to require approval from the Board of Commissioners and/or GMS as stated in writing in the Articles of Association.

By law, the Board of Directors must obtain the approval from the GMS for the following management or actions:

1. Transferring the company’s assets, more than 50% (fifty percent) of the Company’s net assets in 1 (one) or more transactions, whether related to each other or not.
2. Serve as collateral for debts of the company’s assets, more than 50% (fifty percent) of the company’s net assets in 1 (one) or more transactions, whether related to each other or not.

4. President Director vs. Director: Shareholders’ Decision for Board Structure

As explained in Point A of this Article, if there are multiple Directors in an Indonesian Company (PT), 1 (one) of them will be given the position of President Director.

What separates the President Director from the other Directors in the Company? This is up to the Shareholders to decide, through the Articles of Association. 

The Articles of Association of the Company can set up the structure of the Board of Directors, such as giving the most extensive duties and authorities to the President Director, or distributing the Board of Directors powers and authorities equally among all members of the Board of Directors, which allows any other Director to substitute the President Director without requiring further evidence if the President Director is absent or unable to act for and on behalf of the Company.

It must be noted that in practice, Indonesian authorities and companies still commonly deem the President Director as the main person or Director in charge of the Company, therefore they usually require signatures or approval from President Director first, and would ask further questions upon the authority of the other Directors if a non-President Director is signing on behalf of the Company. 

Even though the Articles of Association of the Company allows for other Directors to substitute President Director, a counterpart still can request for only the President Director to sign the contract with them.

In highly regulated sectors such as the financial sector, it is an unspoken rule that the President Director must be present and actively representing the Company in Indonesia. 

It becomes a small but critical point when the President Director cannot attend meetings or summons by Indonesian authorities, and can lead to assessment that the Company does not have the ability to carry out business activities in Indonesia as required by the Indonesian authorities.

Therefore, deciding the Board Structure is very important for the Shareholders, to ensure that the Company is led by the intended individuals in Indonesia.

Read more: Corporate Social Responsibility Obligation for the Company

5. Authority of Board of Directors to Authorize Other People to Act For and On Behalf of the Company through Power of Attorney

Article 103 of Indonesian Company Law states that the Board of Directors is allowed to grant a power of attorney to 1 (one) or more Company employees or to any other individuals to perform specific legal actions on behalf of the company as described in the Power of Attorney.

When making such Power of Attorney, it is advised for the Board of Directors to be very specific in describing the specific legal actions authorized for other parties to do, as well as the validity period of the Power of Attorney. The Board of Directors is also allowed to set up maximum nominal value of contracts and/or transactions in the Power of Attorney.

References:

 

• Law Number 40 of 2007 concerning Limited Liability Company

• Law Number 6 of 2023 concerning Stipulation of Government Regulations intended to become Law, in Lieu of Law no. 2 of 2022 concerning Job Creation

• Law Number 13 of 2003 concerning Manpower

• Government Regulation Number 34 of 2021 concerning Foreign Workers Utilization

 

Do you have further questions concerning Directors in Indonesia, or concerning companies and company law in Indonesia? Contact our lawyer now via email ask@bplawyers.co.id or 082112341235.

Author: Sekar Ayu Primadani/Genies Wisnu Pradana

This article has received approval for publication by Partner BP Lawyers Counselors at Law.