In Vietnam, a signed contract is not always an enforceable one. Many foreign investors are surprised to learn that a fully negotiated and executed contract can be declared invalid by a court, simply because it failed to meet specific, overlooked, legal formalities. This critical gap between a contract’s formation (the moment of signing) and its […]
Definition of a nominee shareholder
A nominee shareholder is a person or company that is the registered holder of shares of a company on behalf of the real owner. This means that their name appears on the share certificate and their personal details are logged on all public documentation in place of the actual shareholder. The shareholder, or beneficiary owner, remains totally anonymous. Most of the time, the nominee does not have power in the operational business.
Two main reasons why company use nominee shareholders in Indonesia
- Restrictions on foreign ownership in Indonesia (Negative Investment List)
The total permitted foreign ownership of Indonesian shares depends on a company's business classification (“KBLI”). This could range from 100 percent open, to completely closed to foreign ownership.
The allowed foreign ownership is regulated by the Negative Investment List (DNI). This means that in order to start a business in an industry that falls under the negative investment list, foreign investors need to have a local partner.
In the event that a business is closed (either partially or completely) to foreign ownership but the investor would still like to maintain 100.0% control, the ideal solution is to start a locally held company using nominee shareholders.
- Minimum requirements for capital in Indonesia
To start a foreign company in Indonesia, investors need to submit an investment plan for at least Rp. 10 billion (~US$ 750,000) to show the sustainability of their business. Rp. 2.5 billion (~US$ 190,000) of the investment plan, however, needs to be paid up immediately.
When all shareholders of the company are local nominees, on the other hand, the capital requirements are a lot lower (start from Rp 51 million ~US$ 3,800).
Is it safe to use a nominee shareholder?
Ideally, the investor choosing this structure will work with nominees that they have a very high degree of trust, perhaps a member of the family or someone with whom they have a close personal relationship. It is important to remember that in the eyes of the law, the nominee shareholders are the rightful owners of the business. Using an individual nominee shareholder, especially without a legal set of agreements is very risky.
However, this does not mean that all nominee arrangements are unsafe. The right kind of nominee agreement is a set of complex legal agreements that protect your assets and are drafted by professionals.
Do you still have any questions unanswered regarding nominee shareholders in Indonesia? You can always email us!
