Indonesia's legal system is based on the European civil law system. This distinction from many other jurisdictions in the region, together with ongoing regulatory changes, requires careful consideration of the issues that arise in M&A. Most transactions in Indonesia are share deals, because asset deals are quite onerous to complete since there are no transfer of undertaking rules, or facilities to transfer across licenses from one legal entity to the other.

Increasingly, sellers are using auction processes with the aim of maximizing price. Not all auction processes are successful, as often the price expectations of buyers and sellers are not aligned. Sometimes, the process is aborted altogether. In other instances, the process continues as exclusive negotiations with one bidder. Where an auction process is used, this process is generally governed by one or more process letters issued by the seller or its financial advisers governing the rules of the sale process. Generally, those process letters would provide for two or more rounds of bidding, with generally the first round being a non-binding bid based on limited financial information of the target and the second and subsequent rounds being based on in-depth due diligence by the buyer and with such bids being binding on the buyer.

A key element of Indonesian transactions is that many transactions are not full buy-outs. Typically, a joint venture is created, because of foreign ownership restrictions but also because sometimes the (family) sellers want to retain a stake in the company they built (often a controlling stake). Given that a relatively high number of companies are listed in Indonesia, we also see a relatively large number of deals with a public element.

Mergers are possible, but not very common, in Indonesia. In a merger, by operation of law, all assets and liabilities of the disappearing company are assumed under universal title by the surviving company. As a result of the completion of the merger, the disappearing company is dissolved.

There are two main types of company that can be established in Indonesia: private companies and public companies. There are substantial differences in the laws and regulations as they apply to public versus private companies. Further, there are foreign investment restrictions that mean that foreign investors can only invest in foreign investment status companies. For further information, please see the more detailed “Foreign investments restrictions” section below.

Limited liability companies are the only type of corporate entity in Indonesia.

For a limited liability company, generally, the minimum requirement is that there must be at least two shareholders. However, this requirement is excluded from the following companies:

• State owned enterprises (persero) with all its shares owned by the state.
• Regional owned companies.
• Village owned companies.
• Companies that manage stock exchange, clearing and guarantee institutions, storage and settlement institutions, and other institutions in accordance with the provisions and regulations in the capital market sector.
• Micro and small businesses. Businesses that are categorized as micro and small businesses are as follows:
  • Micro businesses have: (i) less than 1 billion Rupiah of investment value (excluding land and building); or (ii) annual sales of no more than 2 billion Rupiah.
  • Small businesses have: (i) 1 billion – 5 billion Rupiah of investment value (excluding land and building); or (ii) annual sales of 2 billion – 15 billion Rupiah.

  Businesses that fulfill this requirement can be established by one individual. The founder of micro and small businesses can only establish one company in a year.

Under the Company Law, an acquisition is a lawful act executed by a legal entity in the form of a company or other entity, or by an individual, to take over all or a majority of a company's shares, whether existing or newly issued, which may cause a change in the control of the company. The Company Law does not state the meaning of “control” but it is reasonable to assume that the term refers to the capacity to determine, directly or indirectly, in any way, the management or policies of the company concerned.

Acquisitions instigated by the management of a company are treated differently and have more complex requirements than an acquisition between an existing shareholder and a proposed new shareholder.

Generally, all that is required to transfer legal title in the shares in an Indonesian private company is for a share transfer deed to be executed by the seller and buyer (under hand by way of an agreement or in notarial deed form) and then registered in the company's shareholders' register. The transfer is effective on the date of the share transfer deed. However, there are subsequent requirements to notify or make registrations with the MOLHR and other government agencies (including, in some circumstances, changes in licensing). If the transaction fulfills merger control filing requirement, the KPPU will consider the MOLHR approval/receipt as the effective date of the transaction when the filing deadline of 30 business days start counting.

For minority shares transfer, unlike acquisitions which require more procedures (e.g., announcement of acquisition plan in a newspaper, settlement with creditors), the only requirements are to transfer the legal title of the shares.

When a business is being transferred by way of an asset purchase, each individual asset must be transferred in accordance with the formalities applicable to that type of asset. For some assets, this will simply be a case of delivering the asset to the buyer, but in other cases, the formalities are more prescriptive, as is the case in real property or intellectual property transfers. It is therefore necessary to include a provision, either in the purchase agreement governing the purchase of the business and its assets or in separate agreements, for the relevant formalities to be complied with.

• In conducting an asset purchase in Indonesia, acquirers need to be aware theThe multitude of government agencies that may be involved in effecting the transfer of registrable assets.
• Procedures for acquiring good title to land.
• The often time-consuming efforts needed to:
  • Obtain consents and approvals (including those from banks, third parties and government agencies)
  • Establish the new investment company as the buyer
  • Obtain all general and industry-specific licenses for the business being acquired
  • Apply for expatriate work plans and permits
  • Transfer over employees and deal with statutory benefits that they may be entitled to on the transfer.

While these matters are not insurmountable, they do make closing an asset acquisition much more difficult and time-consuming than a transaction involving shares. In many respects, the business in an asset sale needs to either cease operating until all licenses are obtained or otherwise operate without licenses in its name (this is a consequence of licenses not being transferable in Indonesia).

In contrast, share acquisitions generally require far fewer consents and approvals and are less problematic.