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IMPLICATIONS OF NOMINEE AGREEMENTS IN BUSINESS IN INDONESIA
When establishing a limited liability company, it is often found that there are nominee shareholders, which can lead to legal issues.
The issue with nominee agreements in relation to share ownership in the establishment of a limited liability company is the validity of such agreements under Indonesian law.
In business law, there are two types of business entities: legal entities and non-legal entities.
A limited liability company (PT) is one type of legal entity, and it is the most commonly used form of business entity today. A PT is a legal entity, meaning it has the necessary attributes to support rights and obligations. One of the reasons why entrepreneurs prefer using a PT is that shareholders who contribute capital in the form of shares are only liable to the extent of their capital contribution, which becomes the company’s assets. Article 7(1) of Law No. 40 of 2007 on Limited Liability Companies (UUPT) mentions that the establishment of a PT requires at least two individuals who create a notarial deed in the Indonesian language. In principle, the establishment of a PT requires at least two founders, whether Indonesian or foreign nationals. However, the UUPT does not clearly regulate the conditions for being a shareholder, which often leads to deviations, such as the use of nominee shareholders. A nominee shareholder agreement in a PT is an agreement or statement that affirms that the share ownership in the PT is on behalf of and for the benefit of someone else. The UUPT does not regulate the use of nominee shareholders, which can lead to legal issues if the nominee shareholder acts in bad faith.
The Validity of the Nominee Agreement on Share Ownership in the Establishment of a Limited Liability Company
The requirements for a valid contract are regulated in Article 1320 of the Civil Code, which states that for a contract to be valid, the following must be met:
- Agreement between the parties.
- Capacity to enter into an agreement.
- A specific object or subject matter.
- A lawful cause.
The first two requirements are called subjective requirements, as they must be fulfilled by the legal subjects (the parties involved). The agreement or consensus means that the parties agree or consent to be bound by the contract. The second requirement is the legal capacity of the parties, meaning that they must have the ability to perform legal acts. If these first two conditions are not met, the contract can be canceled if a party requests cancellation.
Regarding the third and fourth conditions, they are objective requirements that must be fulfilled by the object of the agreement. The third requirement is that there must be an object or matter in the contract, and the fourth requirement stresses that the agreement must not contravene applicable laws or public order. Article 1337 of the Civil Code states that a cause is unlawful if it is prohibited by law or if it is contrary to public morals or public order. If the third and fourth requirements are not fulfilled, the contract is deemed void and is treated as if it never existed.
There are no specific rules regarding nominee agreements, so such agreements are made based on the principle of freedom of contract. In a nominee agreement, the object of the contract is the ownership of something for and on behalf of someone else, or in other words, name lending. This type of agreement is not specifically regulated in the Civil Code, but Article 1338 clarifies that agreements must be executed in good faith, and for certain reasons, nominee agreements are often used to circumvent legal processes.
A limited liability company is established based on an agreement, and the founders of the company cannot be just one person, as a contract requires at least two parties: the promisor and the promisee. In Article 48(1) of the UUPT, it is only stated that shares in a company must be issued in the name of the owner, but it does not explicitly forbid the use of nominee shareholders. Therefore, if nominee shareholders are used in the establishment of a PT, legally, the rightful owner of the shares is the nominee or the person whose name is used.
However, the provisions of Law No. 25 of 2007 on Investment, in Article 33(1), explicitly state that both domestic and foreign investors are prohibited from entering into an agreement or statement affirming that share ownership in a PT is on behalf of and for the benefit of someone else. Article 33(2) provides sanctions for violations of this provision, stating that such an agreement or statement is void by law.
A nominee shareholder agreement used to fulfill the requirement for the establishment of a PT, which must be done by at least two people, can be considered as legal circumvention or manipulation. The nominee agreement does not fulfill one of the essential requirements for a valid contract under the Civil Code, namely that the cause must not be unlawful or against the law. The prohibition against using nominee agreements is clearly stated in Article 33(1) and (2) of Law No. 25 of 2007 on Investment. Therefore, the nominee agreement lacks legal force and is considered void, or it is as if the agreement never existed. If a nominee shareholder is used in the establishment of a PT, legally, the rightful owner of the shares is the nominee, or the person whose name was used.
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