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

10 Feb 2025

“Understanding the powers and restrictions of foreign directors in Indonesia is very important to maintain the continuity of company activities.”

With globalization, more multinational companies are operating in Indonesia. For management and operational purposes, it is getting increasingly common for foreign individuals to be appointed by the stakeholders to sit in the Board of Directors of companies in Indonesia (PT).

It is highly important for foreign individuals who are appointed as Director of companies in Indonesia, as well as for the companies who have foreign individuals as members of their Board of Directors, to pay close attention and comply with Indonesian laws related to corporate structure and board appointment.

Even in 2025, the presence of foreign individuals in companies in Indonesia is still a sensitive matter. Having foreign professionals in the structure brings significant benefits to the company, such as knowledge transfer, global experience, and new perspectives that can drive innovation and efficiency across various sectors. However, such presence requires closer attention to the laws and regulations in force in Indonesia to ensure that the management and business activities of the company continue to operate in accordance with the applicable laws.

This Article aims to outline the critical aspects of Directorship in Indonesia for foreign individuals, with the goal to help the readers understand how to carry out director duties effectively for the company in Indonesia, as well as mitigate any legal risks related to having foreign individuals in the Board of Directors.

1. Understanding Foreign Director Position in Indonesian Company (PT)

Directors are members of the Board of Directors in Indonesian Company (PT). There must be at minimum 1 (one) member of the Board of Directors. If there is only 1 (one) Director, then he/she will be given the position as Director. If there are multiple Directors, 1 (one) of them will be given the position of President Director.

Board of Directors is the company organ that can lawfully represent the Company, both inside and outside the courts, and such representation must be in accordance with the provisions of the Company Articles of Association.

When there are multiple Directors, the Company Articles of Association can determine further rules concerning the roles of Directors, if any. Examples are substitution of President Director by other Directors, separation of roles or sectors of Directors, single or joint signatory requirement for signing contracts on behalf of the Company, etc.

It is incredibly common to misunderstand the position of Director in Indonesia in comparison to the position of Commissioner, which can lead to critical risks.

2. Director vs. Commissioner in Indonesia: Understanding the Difference

The most common misconception regarding the Director and Commissioner in Indonesia is the misunderstanding that the Commissioner position is higher than the Director position. This is incorrect, and this interpretation can cause issues for the Company as well as the appointed persons in Director and Commissioner positions in the future.

Only the members of the Board of Directors (Director) can lawfully represent the Indonesian Company (PT), including in signing business contracts and transactions with counterparts on behalf of the Company.

Meanwhile, members of the Board of Commissioners (Commissioner) have the authority to supervise and provide advice to the Board of Directors. Most importantly, Indonesian counterparts and authorities do not recognize Commissioners as the party who can lawfully represent the Indonesian Company, including when signing contracts.

It is a common problem when foreign individuals are appointed as Commissioners (due to the understanding that it is the higher position) but are also expected to sign contracts on behalf of the Company. This is because the Indonesian counterparts and authorities would point out the lawful role, as well as potential conflict of interest when the Commissioner is signing contracts on behalf of the Company.

Therefore, it is highly advised to appoint all individuals who are expected to make decisions and sign contracts on behalf of the Company in the Director positions. Indonesian law allows the shareholders of the Company to set up a hierarchy-like structure for Directors in the Articles of Association.

Examples include providing the President Director with the widest scope of duties and authorities for the Company, separation or limits for each of Director roles in accordance to the individuals, as well as requiring single or joint signatures for certain actions, and also requiring Directors to seek approval from Board of Commissioners and/or GMS for more risky and critical actions for the Company.

3. Who Can Appoint the Board of Directors in an Indonesian Company (PT) ?

The people who can appoint the Board of Directors for an Indonesian Company (PT) are the Shareholders, through the process of the General Meeting of Shareholders (GMS).

If the GMS is held to appoint a Director, it means that the attendance quorum (more than ½ attendance by shares with voting rights) and voting quorum (more than ½ votes from the votes cast according to shares with voting rights) to appoint a Director must be met.

If the Shareholders unanimously agree to appoint a Director, this process can be expedited by way of signing the circular resolution document by the Shareholders. All Shareholders must sign this document, and meet the requirement if it’s signed in Indonesia (duly stamped) or outside Indonesia (legalized or apostilled depending on the country where it’s signed).

Note that this appointment process is strictly for when the Company intends to appoint Directors or Executives who can lawfully represent the Company in signing contracts, as well as carrying out other activities on behalf of the Company inside or outside the Indonesian courts.

If the Company intends to appoint professional directors who work as employees, such as directors and/or managers who are providing skills and expertise, and don’t have the authority to act for and on behalf of the Company, it falls under the scope of Manpower Law, and must comply with employer-employee relationship as stipulated under Indonesian laws.

4. Board of Directors vs. Professional / Employee Directors

When deciding on which individuals are to be appointed as Directors who are members of the Board of Directors, it is important to understand that by law, the members of the Board of Directors are the people who can act for and on behalf of the Company without further approval from other parties, including for signing contracts.

The Company is allowed to appoint or hire individuals as employees with the positions and duties of directors or managers, without giving the legal authority to represent the Company. The way to do this is to hire such individuals under employment contracts, with high or executive positions.

The applicable law would be Manpower Law, instead of Corporate Law. If the employee Directors are needed to sign contracts, they can only do it after receiving a proxy by way of signed Power of Attorney from the Board of Directors.

5. Appointment of Foreign Individuals as Directors of Indonesian Company (PT)

Foreign individuals can be appointed as Directors of Indonesian Company (PT), whether as the members of the Board of Directors, or as employee Directors.

If the foreign individuals are appointed as Board of Directors, the appointment process is by the Shareholders through GMS or through signing the circular resolution document, as explained in Point C of this Article.

If the foreign individuals are appointed or hired as professional / employee Directors, they are hired under an Employment Contract that is for a specified time (non-permanent) or known as PKWT.

The Company must also prove that the foreign individuals possess a certain competence required for the position they will occupy, by way of work experience documents as well as the education history documents. Every appointment of foreign individuals must be accompanied by appointment of Indonesian individuals as their partner, for transfer of knowledge purpose.

Both appointments of foreign individuals must comply with the staying and working visas and permit regulations in Indonesia. Failure to obtain staying and working visas and permits can lead to deportation sanctions against the foreign individuals.

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.