The amendments include: (i) the elimination of a minimum authorized capital requirement, (ii) the ability for a single person to establish a micro or small enterprise, and (iii) the replacement of the notarial deed of establishment with a statement of establishment that is registered online for micro or small enterprises.

The old law required the authorized capital of a company to be at least Rp 50 million (US$3,500). Under the Job Creation Law, the authorized capital of a company can be any amount, determined by a decision made by the company’s founders. This is a significant change from the somewhat large authorized capital requirement to what could technically be as small as Rp 100,000. The lack of a minimum authorized capital requirement means anyone can afford to establish a company.

To highlight the ease in establishing a company further, the Job Creation Law amends several requirements set by the Company Law to establish a micro or small enterprise.

One of the changes is a decrease in the minimum number of people required to found a company from two to just one person. This means that any person who wants to start a micro or small company can do so without having to find a partner.

Another change is that a notarial deed is no longer needed to set up an enterprise. A person or founder needs only to establish a micro or small enterprise by filing an online form of statement of establishment. This is a much easier and cost-effective process of establishing a company.

The easing of the requirements for company establishment shows that the Job Creation Law has been designed to encourage more and more people to establish companies by making it more accessible, cheaper and simpler. While under the Company Law, only people with medium to high levels of income could afford to set up a company, now a single person with even a low income can do so. Think of it this way; your next-door neighbor who might have lost his or her job as a seller of baked goods can now independently establish a micro enterprise company with only minimal capital.

The simple business establishment and licensing mechanism will encourage people to convert their micro and small enterprises, which may be informal in nature due to the inability to meet the arduous old requirements, into legal companies. This will limit their liability to their shares in the company, something that was not possible under the old law. Another benefit is that more and more micro and small enterprises will be registered as taxpayers as they operate in the formal economy (no longer in the underground economy).

However, there is still a sort of uncertainty until implementing regulations are issued on the technical details of company establishment. There is a lack of clarity as to whether there will be further additional requirements regarding the authorized capital and the criteria for a micro and small enterprise. The Job Creation Law states that both authorized capital and the criteria for a micro and small enterprise will be further regulated by a separate government regulation, which has not yet been issued.

Similarly, as the government regulation regarding the criteria for a micro and small enterprise has not been enacted, there is uncertainty as to who will fit the criteria of a single person able to establish a micro or small enterprise. Inherently, as mentioned in the general provision of the old Company Law, a company is a legal entity that forms a partnership of capital, established by an agreement. With the above changes by the Job Creation Law, a micro and small enterprise established by one person will no longer fit the criteria of “a partnership of capital” nor a company that is “established by an agreement” as an agreement requires more than one person.

Further, the replacement of a notarial deed of establishment with a simple statement of establishment may diminish or even eliminate the role of notaries as gatekeepers. Notaries hold prima facie evidence by helping ensure the credibility of a legal document as a part of the Indonesian legal system’s checks and balances. The lack of regulation further highlights the uncertainty of whether there is a system to ensure the legal compliance of a company.

While the lack of clear regulations and guidelines for the implementation of the Job Creation Law still raises questions about the enforceability of the law, its enactment shows a desperate measure to stabilize the local business climate through boosting micro and small enterprises. After the tumultuous year of 2020, we can only hope that the attempted changes will result in the desired improvement in doing business in Indonesia.

 ***

The writer is an associate at a law firm in Jakarta. The views expressed are personal.