Article 36 paragraph (1) of Law Number 40 of 2007 on Limited Liability Companies (“Company Law”) regulates that, Limited Liability Companies (“Company”) are prohibited from issuing shares to be owned by the Company itself or by some other Company whose shares are already directly or indirectly owned by the Company. In principle, the issuance of shares is an effort to collect capital. Accordingly, share payment obligations should be imposed on other parties. For certainty, this article stipulates that a Company is not allowed to issue shares to be owned by Company itself.
Aforementioned prohibition also includes prohibition against cross holdings which occur if Company owns shares issued by another Company, whether directly or indirectly. Definition of direct cross holding is if first Company owns shares in second Company without holding ownership through one or more “intermediary Companies” and, vice versa second Company owns shares in the first Company. Whereas, definition of indirect cross holding means first Company owns shares in second Company through ownership of one or more “intermediary Companies” and, vice versa, second Company owns shares in first Company.
The provision of prohibition concerning share ownership as referred above does not apply in relation to share ownership which is obtained on basis of transfers due to law, gift or bequest as stated in Article 36 paragraph (2) of Company Law. In accordance with the Company Law’s elucidation, it is stated, since in this matter there is no share issuance which requires payment of funds from another party, it does not against the provisions of prohibition of shares issuance as referred in Article 36 paragraph (1) of Company Law.
Then, shares which are obtained by law, gift or bequest based on the provision of Article 36 paragraph (2) of Company Law, must be transferred to the third party who is not prohibited from owning shares in Company within time period of one year after the date of obtaining shares. If another Company is a securities Company, then the provision of law regulation in Capital Market field shall apply.
Sofie Widyana P.
