Nominee shareholding arrangements create a major obstacle when a foreign investor wants to sell an Indonesian business. A sale must proceed through the company’s registered ownership structure, which can leave an investor relying on a nominee unable to transfer the shares as expected.
The same problem can emerge when shares need to be pledged for financing or ownership must be restructured before an exit.
Are Nominee Shareholding Agreements Legal in Indonesia?
Article 33 of Law No. 25 of 2007 on Investment, as amended, prohibits domestic and foreign investors from entering into agreements or making statements confirming that shares in a limited liability company are owned for and on behalf of another person. Such agreements or statements are declared null and void by law.
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A private nominee agreement prohibited by Article 33 cannot be relied upon as a valid basis for establishing that the shares are legally held for the foreign investor.
Using additional agreements or supporting documents does not remove the Article 33 issue where the arrangement establishes that shares are held for and on behalf of another person.
The problem becomes more important when the shares need to be sold, pledged, or transferred. The company may have followed the investor’s instructions for years, but that does not make the investor the registered shareholder.
Why Can a Nominee Structure Disrupt a Share Sale?
A share sale requires the seller to have the legal ability to transfer the shares. Buyers and their advisers will examine the company’s shareholder records, articles of association, previous share transfers, and other corporate documents during due diligence.
If the foreign investor claims economic ownership while another person is recorded as the shareholder, the buyer faces a basic question: who can legally sell the shares?
Preparing an Indonesian company for a sale? MAP Resources Indonesia can review the ownership structure before due diligence begins. Email info@mapresourcesindonesia.com.
The foreign investor cannot assume that a private nominee arrangement will allow the transaction to proceed as though the shares were formally registered in the investor’s name. The share transfer must follow Indonesia’s corporate requirements and the company’s legally recorded ownership structure.
A buyer may require the ownership issue to be resolved before closing rather than accepting a private arrangement as evidence of the seller’s rights. If the structure cannot be legally corrected, the proposed share sale may not be able to proceed in its intended form.
The same problem can affect a partial exit. Selling only part of the business still requires clarity over which shareholder owns and has authority to transfer the relevant shares.
What Happens if the Shares Need to Be Pledged or Restructured?
If shares are to be pledged as security, transferred between shareholders, or reorganized before a transaction, the formal shareholder position becomes relevant. A foreign investor relying on a nominee cannot assume that its private economic arrangement gives it the same authority as the shareholder recorded in the company’s corporate documents.
This can become important when a company is preparing for investment, refinancing, or a later exit, because the ownership structure may need to be addressed before the wider transaction can proceed.
Can a Nominee Structure Be Regularized Before an Exit?
Regularization cannot simply be treated as transferring the nominee’s shares to the foreign investor. The first question is whether the foreign investor is legally permitted to own the shares under the rules applying to the company’s business activities.
Need to regularize an ownership structure before financing or exit? Contact MAP Resources Indonesia at info@mapresourcesindonesia.com.
Indonesia’s foreign ownership framework can impose different conditions depending on the activity conducted by the company. If the relevant activity is restricted for foreign investment, transferring the shares directly to the foreign investor may not provide a lawful solution.
Where foreign ownership is permitted, regularization may require a formal share transfer or other corporate restructuring, together with the corresponding corporate and regulatory updates. The restructuring can also create tax consequences depending on how the shares are transferred.
How Can a Nominee Structure Affect an Exit in Practice?
Consider a foreign investor that funds an Indonesian business while the company’s shares are registered in an Indonesian individual’s name under a private nominee arrangement. Five years later, a third party offers to acquire the company.
During due diligence, the buyer verifies the corporate records and identifies the Indonesian individual as the registered shareholder. The foreign investor’s private arrangement does not replace the formal ownership position required for the share transfer.
The ownership structure must first be checked to determine whether it can be legally corrected and how the sale can proceed.
Address Nominee Ownership Risk with MAP Resources Indonesia
MAP Resources Indonesia advises foreign investors on addressing ownership structures that may create problems during financing, restructuring, or exit. Contact us today at info@mapresourcesindonesia.com.
