This article is an English translation of Perlukah Surat Izin untuk Usaha Dagang (UD)? which was written by Saufa Ata Taqiyya and was published on Tuesday, 22 February 2022.
This article below is an update of the article entitled Establishing Trading Business (Mendirikan Usaha Dagang) which was first written by Si Pokrol and was first published on Friday, 30 July 2004.
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We will first address two main issues related to your question. First, regarding the establishment of business entities in the form of Trading Business (Usaha Dagang/ "UD"). Second, the issue of a business license in relation to your trading business.
Trading Business Establishment
According to Irma Devita Purnamasari, in her book entitled Panduan Lengkap Hukum Praktis Populer: Kiat-Kiat Cerdas, Mudah dan Bijak Mendirikan Badan Usaha, UD is a business entity which is run independently by one person and does not require a partner in doing business. If anyone is assisting the business, they will not be in the same position as the UD owner, but will only act as an employee or a subordinate (p. 5).
Irma appends that, according to the law, UD is equal to its owner, meaning that there is no segregation of wealth or segregation of responsibilities between UD and its owner. According to Irma, there is actually no difference (with UD) if a person submits himself as an entrepreneur for the purpose of a business license, since the establishment of a UD does not have to be made in a notarial deed (p. 5). In addition, based on our research, registration of UD establishment is also not regulated, in contrast to Civil Partnership, Firm, and Commandite Partnership which are regulated in Regulation of the Minister of Law and Human Rights 17/2018.
However, according to Irma, if you wish to cooperate with a big company or government agency, the deed of establishment will usually be one of the prerequisites (p. 7).
In line with the abovementioned explanation, summed up from Business Entities in the Form of UD and Ltd., What's the Difference?, UD is a form of sole proprietorship and there is no segregation of assets or responsibilities between UD and its owners. Therefore, UD is not a legal entity, but an unincorporated business entity. It should be noted that the sole proprietorship that we are referring to here is of course not the same as the Individual Limited Company (“Ltd.”) which is legally recognized as a legal entity, as has been explained in Would you like to establish an Individual Ltd.? Here are the Terms of Capital!
If it is not a legal entity and is essentially the same as its owner, then what is the point in establishing a UD? According to Irma, the function of the establishment of UD is as a business identity (p. 6).
Thus, to answer your question, there is essentially no obligation for you to register a business entity in the form of a UD. Therefore, there are no legal consequences if you do not establish a UD and register it. However, as Irma explains, the establishment of a UD serves as a business identity, and its deed of establishment will usually make it easier for you to cooperate with a big company or government agency.
As for the costs, if the establishment of a UD is undertaken through the draw up of a deed of establishment at a notary, then you must prepare a notary honorarium for this service.
Trading Business License
Then, is it mandatory for UD to have a business license since there are no UD registration rules? The answer is no. In relation to the trading business license, we refer to Article 4 Government Regulation 5/2021 which states:
In order to start and conduct business activities, Business Actors are required to fulfill:
- Basic requirements for Business Licensing; and/or
- Risk-Based Business Licensing.
Business actors are individuals or business entities that engage in business and/or activities within certain sectors.
Based on this provision, UD, which is an individual business entity, is also required to fulfill the basic requirements for business licensing and risk-based business licensing.
The basic requirements for business licensing include the suitability of space utilization activities, environmental approvals, building approvals, and certificate of feasible function. This is generally related to your place of business, whether it is in accordance with the spatial plan in your area, whether it has an impact on the surrounding environment, and whether the building used for business activities has fulfilled the requirements or not.
As for risk-based business licensing, this licensing system is carried out based on the determination of risk levels which is based on the results of risk analysis and scale rankings of business activities including Micro, Small, and Medium Enterprises (MSMEs) and/or large businesses.
Eventually, it is the level of risk that determines the type of business licensing required. Regarding the types of business licenses at each level of rick, you can refer to the review written by Easybiz entitled Café Business License.
Therefore, a trading business license is determined by the type of business they run, i.e. how risky it could be.
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These are the answers we can provide, we hope you will find it useful.
- Government Regulation Number 5 of 2021 on Implementation of Risk-Based Business Licensing;
- Regulation of the Minister of Law and Human Rights Number 17 of 2018 on Registration of Commandite Partnertship, Firm, and Civil Partnertship.
- Irma Devita Purnamasari, Panduan Lengkap Hukum Praktis Populer: Kiat-Kiat Cerdas, Mudah dan Bijak Mendirikan Badan Usaha. Bandung: Kaifa, 2010.
 Article 1 Section (11) Government Regulation Number 5 of 2021 (“Government Regulation 2/2021”).
 Article 5 Section (1) Government Regulation 2/2021.
 x Article 7 Section (1) and (2) Government Regulation 2/2021.
 Article 7 Section (4) Government Regulation 2/2021.