Holding a minority stake in an Indonesian Perseroan Terbatas (PT) does not mean losing your rights as a shareholder. Under Law No. 40 of 2007 concerning Limited Liability Companies (“UUPT”), shareholders have the right to attend and vote at the General Meeting of Shareholders (“RUPS”), receive dividends and proceeds from the liquidation of the company, and exercise other rights provided under the UUPT.
In practice, however, minority shareholders may face challenges when corporate decisions are largely determined by majority shareholders. So, what are the rights of minority shareholders, what is their position in RUPS, and what legal protections are available to them?
What Are the Rights of Minority Shareholders in a PT?
Minority shareholders continue to enjoy rights attached to their shares. These include the right to attend and vote at RUPS, receive dividends in accordance with applicable decisions and regulations, and receive a portion of the Company’s remaining assets upon liquidation.
Shareholders also need access to the information and documents necessary to effectively exercise their rights, including information concerning the annual report, RUPS agenda, and corporate decisions, subject to the UUPT, the Company’s Articles of Association (“AoA”), and, where applicable, a Shareholders Agreement.
Therefore, being a minority shareholder does not mean having no legal position within the Company. The key issue is how those rights can be exercised when a minority shareholder does not hold enough voting power to determine corporate decisions.
What Are the Risks of Being a Minority Shareholder?
The main challenge arises when majority shareholders hold sufficient voting rights to determine the outcome of a RUPS. As a result, minority shareholders may have limited influence over strategic corporate decisions.
These decisions may include amendments to the AoA, transactions or transfers of Company assets, changes to the capital structure, profit distribution, and corporate actions such as mergers, consolidations, acquisitions, or spin-offs.
However, majority voting does not mean that corporate decisions can be made without limitations. Corporate decisions must still comply with the UUPT, the Company’s AoA, and the applicable RUPS procedures.
Therefore, minority shareholders should not only consider the outcome of a vote, but also how the decision was made, whether the proper procedures were followed, and whether the decision affects their legal rights and interests.
Can Minority Shareholders Request a RUPS?
The UUPT provides a mechanism for shareholders to request the convening of a RUPS. Under Article 79 of the UUPT, one or more shareholders representing at least 1/10 or 10% of all shares with voting rights, unless the AoA provides for a lower threshold, may request the Board of Directors to convene a RUPS. The request must be submitted to the Board of Directors by registered letter, stating the reasons for the request, with a copy to the Board of Commissioners.
The Board of Directors must issue the RUPS notice no later than 15 days after receiving the request. If the Board of Directors fails to do so, the shareholders may submit the request again to the Board of Commissioners. If the Board of Directors and the Board of Commissioners still fail to convene the RUPS in accordance with the applicable requirements, eligible shareholders may apply to the Chairperson of the District Court where the Company is domiciled for permission to convene the RUPS themselves.
The court will consider, among other matters, whether the statutory requirements have been satisfied and whether the applicant has a reasonable interest in convening the RUPS. Therefore, minority shareholders cannot simply convene a RUPS on their own, but they may use the mechanism provided under the UUPT if the applicable requirements are satisfied.
What Legal Protection Is Available for Minority Shareholders?
The UUPT provides several legal mechanisms to protect shareholders whose rights or interests are adversely affected by corporate actions.
Under Article 61 of the UUPT, every shareholder has the right to file a claim against the Company before the District Court if the shareholder suffers loss as a result of Company actions considered unfair and without reasonable grounds arising from a decision of the RUPS, Board of Directors, and/or Board of Commissioners.
In addition, Article 62 of the UUPT allows a shareholder who does not agree with certain corporate actions to request that their shares be purchased at a fair price. This may apply, among other circumstances, to amendments to the AoA, the transfer or encumbrance of Company assets exceeding 50% of the Company’s net assets, as well as mergers, consolidations, acquisitions, or spin-offs.
Accordingly, where a majority decision affects the interests of a minority shareholder, the UUPT provides legal mechanisms that may be available depending on the type of corporate action and the nature of the loss or prejudice suffered.
How Can Minority Shareholder Rights Be Protected from the Start?
One important step in protecting minority shareholder rights is to ensure that the Shareholders Agreement, Articles of Association, and share transaction documents are properly drafted and clearly reflect the interests of the parties. These documents establish the legal framework for how shareholder rights, authorities, decision-making mechanisms, and protections will be implemented in the future. Therefore, before making an investment or participating in corporate decision-making, minority shareholders should ensure that the documents governing the relationship between shareholders provide adequate protection and clearly define each party’s rights and obligations.
Schinder Law Firm assists shareholders and companies with the drafting and review of Shareholders Agreements, review of Articles of Association and share transaction documents, Legal Opinions, corporate legal reviews, RUPS assistance, and shareholder dispute resolution.
Proper legal structuring and well-drafted corporate documents from the outset can provide greater clarity on how shareholder rights are exercised and protected throughout the Company’s operations. For further information please contact us at info@schinderlawfirm.com
Author:
Budhi Satya Makmur