[Last updated: 1 January 2025, unless otherwise noted]

Indonesia's legal system is based on the European civil legal system. Mergers and acquisitions are strictly regulated by laws and regulations. Indonesian law is constantly evolving and the provisions are not always clear. In such cases, the law is usually clarified through implementing instruments like regulations or circulars. Otherwise, the interpretation of such unclear provisions is heavily influenced by the views and positions of the relevant government authorities.

In addition, there will most likely be amendments to existing laws and regulations or new laws and regulations in the near future.

2.1 Practice and regulatory procedure

The practices, procedures and policies of the relevant Indonesian government agencies, including the Ministry of Law, Bank Indonesia, the OJK and the Ministry of Downstreaming and Investment/Capital Investment Coordination Board (Kementerian Hilirisasi dan Investasi/Badan Koordinasi Penanaman Modal or "BKPM") through the Online Single Submission ("OSS"), and in some cases, the Business Competition Supervisory Commission (Komisi Pengawas Persaingan Usaha) are as important in consummating a transaction as the Indonesian laws governing M&A.

a. Company Law and M&A regulations

The Company Law is provided in Law No. 40 of 2007 on Limited Liability Companies (as amended) ("Company Law") and it sets out a statutory framework for the combination of businesses conducted through limited liability companies. The Company Law promotes fair competition and the protection of minority shareholders. It also considers the interests of the company, its employees and the general public.

b. Capital Markets Law

Where a merger or acquisition proposal involves a public company, the companies involved are also required to comply with the general requirements of Law No. 8 of 1995 on Capital Markets (as amended) ("Capital Markets Law") and the regulations of the OJK.

The OJK issues new regulations on a regular basis as the capital market sector continues to mature. The regulations can be accessed through the OJK's website at http://www.ojk.go.id.

c. Other laws

For M&A involving certain sectors/industries, public companies must also follow the specific laws and regulations governing those sectors/industries, e.g., banking, insurance, financing, mining, broadcasting and telecommunications.

2.2 Types of transactions

The Company Law succinctly defines and differentiates between the concepts of merger, consolidation, spin-off and acquisition.

• A merger is a legal act executed by one or more companies to merge with an existing company(ies), which causes the dissolution of the merging company(ies) but the continuing existence of the surviving company.
• A consolidation is a legal act executed by two or more companies to fuse together, forming a new company, followed by the dissolution of both (or all) of the consolidating companies.
• A spin-off is a legal act whereby either:
  • all of the assets and liabilities of a company are transferred by law to two or more companies and the transferring company is dissolved by law; or
  • a part of the assets and liabilities of a company are transferred by law to one or more companies, while the transferring company still exists.
• An acquisition is a legal act executed by a legal entity (either a company or other entity) or by an individual to take over company's shares, whether existing or newly issued, which may cause a change in the control of the company. The Company Law does not specifically define the meaning of "control". However, in practice, the term is usually interpreted as the capacity to determine, directly or indirectly, in any way, the management or policies of the company concerned.

A merger, consolidation, spin-off, acquisition or other corporate action involving one or more public companies are subject to additional requirements. In addition to complying with the Company Law, the Investment Law and other relevant laws that are applicable for private companies, such transactions are subject to more extensive corporate and disclosure requirements of the Capital Markets Law and its implementing regulations. These regulations include those issued by the OJK and PT Bursa Efek Indonesia (Indonesia Stock Exchange or "IDX") that are relevant to merger, consolidation, spin-off or acquisition of public companies.

There will be circumstances where the Capital Markets Law is not entirely clear, and thus further case-by-case clarification or confirmation with the OJK would be required.

Apart from the normal takeover route, there are other avenues through which investors can acquire a shareholding, including:

• Acquisition of a shareholding through a rights issue
• Acquisition of a shareholding through a private placement (non-pre-emptive rights issuance)
• Acquisition of a shareholding through a debt-to-equity swap

2.4 Foreign investment restrictions

Unless specifically provided under separate regulations, in theory, there are no limitations on the percentage of shares that can be held by foreigners as "indirect or portfolio investment". There is no specific definition of "indirect or portfolio investment". However, one may construe "indirect or portfolio investment" as a "non-controlling" investment. In 2021, the government issued the positive investment list replacing the 2016 negative investment list. The general principle of the positive investment list is that a business sector is open to 100% foreign investment unless it is subjected to a specific type of limitation or restriction. Please note that the limitations that are applicable for some business sectors may be provided in a separate instrument, apart from the positive investment list. Therefore, it is important to obtain detailed advice based on the latest market practice and policy that are relevant to the business sectors when making an assessment.