Types of Business Entities and Their Characteristics

PERTANYAAN

A business activity that is established with the status of a trading company or trading business (shop) that has grown in quality and quantity of business, is it mandatory to change its business status? What is the legal relationship with the workers employed in the place of business when the relationship between employers and workers is not based on an agreement? Is it obligatory or not for the company/trading business to establish company regulations, as well as workers' rights, according to the Manpower Law? Thank you.

INTISARI JAWABAN

If in its development, a Trading Company/Trading Business has a vision, mission, and objective to expand the activities of the Trading Company and/or is required by laws and regulations, then the type of Trading Company can be "changed" by forming a new business entity. Basically, the types of business entities in Indonesia consist of legal entities and non-legal entities.

So, what are the characteristics of each business entity?

Please read the review below for a further explanation.

ULASAN LENGKAP

This article is an English translation of Jenis-jenis Badan Usaha dan Karakteristiknya written by Erizka Permatasari, S.H. and published on Tuesday, 3 October 2023.

This article is the third update of the article with the same title, which was first written by Bimo Prasetio, Pamela Permatasari, Fetroki Rhomanda, dan Dwinanda Febriany on Tuesday, 20 March 2012, and updated for the first time by Abi Jam’an Kurnia, S.H. on Friday, 22 February 2019, and updated for the second time on Friday, 13 November 2020.

All legal information available on Klinik hukumonline.com has been prepared for educational purposes only and is general in nature (read the complete Disclaimer). In order to obtain legal advice specific to your case, please consult with Justika Partner Consultant.

Before answering your question, you first need to know the definition of a Trading Company. A Trading Company often referred to as a Trading Business is a business entity that is run independently by one person only and does not require a partner in business. According to the law, a Trading Company is the same as its owner, meaning that there is no separation of assets or separation of responsibilities between the Trading Company and its owner.[1]

Is It Mandatory to Change the Type of Business Entity?

Answering your question, if what you mean by business status is the type of business entity, then changing the type of business entity depends on the business entity's vision, mission and objectives. In this case, if the Trading Company is currently running according to its business activities, then it does not need to be "converted" into another business entity.

However, if in the development of a small-scale trading company, the vision, mission, and objectives of the company are expanded and/or required by law, the type of Trading Company can be "changed" by forming a new business entity.

Based on certain laws and regulations, a business entity is required to be in the form of a legal entity, such as a hospital established by the community whose business activities are only engaged in health services,[2] except for hospitals organized by non-profit legal entities.[3]

In addition, if there is foreign capital participation in the business entity, the business entity is required to be a legal entity, namely a Limited Liability Company.[4]

Therefore, if the Trading Company will conduct business activities as mentioned above and/or there is foreign capital participation in the business entity, the Trading Company is required to be a legal entity.

To find out the right business entity for Trading Company, here we describe the characteristics of the types of business entities in Indonesia that are either legal entities or not legal entities.

1. Business Entities in the Form of Legal Entities

The characteristic of a legal entity is the separation of the owner's wealth from the wealth of the business entity, so that the owner is only responsible for the extent of his assets.[5] The types of business entities in the form of legal entities consist of:

1. Limited Liability Company ("LLC")

Yahya Harahap in his book Hukum Perseroan Terbatas (pp. 33-36), explains that basically an LLC must fulfill the following conditions:

1. is a capital partnership;
2. established based on an agreement;
3. conduct business activities;
4. the establishment of the company through a legal process in the form of government authorization.

Since an LLC is a capital alliance, the shareholders are only liable to the extent of their shares and not their personal assets.[6]

Regarding the authorized capital, the amount is determined based on the decision of the founders of the LLC.[7] The authorized capital of an LLC must be placed and fully paid at least 25% as evidenced by valid proof of deposit.[8]

2. Foundation

The foundation is a legal entity consisting of assets separated and intended to achieve certain goals in the social, religious, and humanitarian fields that do not have members.[9] The foundation can carry out business activities to support the achievement of its goals and objectives by establishing a business entity and/or participating in a business entity.[10]

3. Cooperative

A Cooperative is a business entity consisting of individuals or cooperative legal entities by basing its activities on cooperative principles as well as a people's economic movement based on family principles.[11] The nature of cooperative membership is voluntary that there is no compulsion to become a member of the cooperative and it is open that there are no exceptions to becoming a member of the cooperative.[12]

 

2. Business Entity Not in the Form of a Legal Entity

Then the characteristics of a business entity that is not a legal entity are that there is no separation between the assets of the business entity and the assets of the owner. Business entities not in the form of legal entities consist of:

1. Civil Partnership

A civil partnership (maatschap) is an agreement in which two or more persons bind themselves to incorporate something into a partnership with the intention of sharing the profits arising therefrom.[13] Since a civil partnership is a business entity not in the form of a legal entity, the allies are personally liable according to their own agreement or in accordance with the provisions of the law.[14]

2. Firm

A firm is a company established to conduct a business under one common name.[15] The members are jointly and severally liable to the firm.[16]

3. Limited Partnership (Commanditaire Vennootschap/ "CV")

Basically, a CV company in Indonesia consists of an active member and a passive member.[17] The active member is responsible for his/her personal assets,[18] while the passive member is only responsible for the capital that has been deposited into the CV.[19]

Irma Devita in her book Panduan Lengkap Hukum Praktis Populer Kiat-Kiat Cerdas, Mudah, dan Bijak Mendirikan Badan Usaha, explains that if the Trading Company is to be "changed" to another business entity, the founder of the Trading Company can make a Deed of Dissolution stating that as of a certain date, the Trading Company declares itself dissolved. With this deed, the founder can apply for revocation of the license that he/she has/had obtained (p. 7).

However, if the business establishment is not accompanied by a Notarial Deed, but has a complete business license, the person concerned can make a statement of quitting the business and then report to each issuing agency of the license in question so that administratively and publicly, the Trading Company has been declared terminated so that its obligations as a tax subject also end (p. 7). Thus, entrepreneurs can establish a business entity that is in accordance with the desired characteristics, vision, and mission.

Work Agreement

Basically, a work agreement/employment agreement can be made in writing or orally,[20] so a work agreement does not have to be made in writing. However, specifically for a Temporary Employment Agreement (Perjanjian Kerja Waktu Tertentu/ “PKWT”),[21] it must be made in writing. In order for an agreement made by an employer and an employee to be legally valid, the agreement must fulfill the conditions for the validity of the agreement in accordance with Article 1320 Civil Law Code jo. Article 52 section (1) Manpower Law, namely:

1. The agreement of the parties;
2. The capability or competence to take legal actions;
3. The availability/existence of the job which the parties have agreed about;
4. The notion that the job which the parties have agreed about is not against public order, morality, and what is prescribed in the prevailing laws and regulations.

If the above conditions have been met, then the work agreement is valid even though it is not made in writing. The implication is that there has been an employment relationship between the two parties.[22] Thus, an employer who makes an oral agreement with a worker is already an agreement that has legal consequences.

Thus, both written and oral agreements between employers and employees continue to have a legal relationship between them as long as the agreement is legally valid by following the conditions for the validity of the agreement.

Obligation to Establish Company Regulations

Every employer who employs at least 10 workers is obliged to make company regulations that come into force after being authorized by the Minister of Manpower or a designated official.[23]

What is meant by employers a.k.a. entrepreneurs according to Article 1 number 5 letter a Manpower Law is:

An individual, a partnership or a legal entity that operates a self-owned enterprise

From these two articles, it can be concluded that companies (including Trading Company) must have company regulations if they employ 10 or more workers.

The Rights of Employees

The rights of workers/employees are as follows:

1. Manpower has the right to acquire and/or improve and/ or develop job competence that is suitable to their talents, interests and capability through job training;[24]
2. Manpower shall be entitled to receive job competence recognition after participating in job training provided by government job training institutes, private job training institutes, or after participating in job training in the workplace;[25]
3. Receive time off and leave according to regulations:[26]

1. time off between working hours, at least half an hour after working for 4 hours nonstop and that time off does not constitute working hours;
2. weekly time off 1 day for 6 business days in 1 week;
3. the leave that must be given to workers/labourers, namely annual leave, at least 12 business days after the relevant workers/labourers work for 12 months nonstop;
4. certain companies may give long leave that is regulated in the employment agreement, company regulation, or collective employment agreement.

 

4. Every worker/labourer has the right to receive protection on:[27]

1. occupational safety and health;
2. morality and decency; and
3. treatment that shows respect for human dignity and religious values;

 

5. Obtain wages that meet a decent living for humanity;[28]
6. Workers/labourers shall each be entitled to social security;[29]
7. Every worker/labourer has the right to form and become member of a trade/labour union;[30]
8. Going on strike as a result of failed negotiations;[31]
9. In the event that there is a termination of employment relationship, businesses must pay severance pay and/or tenure awards and compensation of right that are supposed to be received;[32]
10. Special rights for women workers/labourers:[33]

 

1. Female workers/ labourers are entitled to a 1.5 month period of rest before the time at which they are estimated by an obstetrician or a midwife to give birth to a baby and another 1.5 month period of rest thereafter;
2. A female worker/labourer who has a miscarriage is entitled to a period of rest of 1.5 months or a period of rest as stated in the medical statement issued by the obstetrician or midwife.

These are the answers we can provide, we hope you will find them useful.

Legal Basis:

1. Civil Law Code;
2. Commercial Code;
3. Law Number 25 of 1992 on Cooperative;
4. Law Number 16 of 2001 on Foundation as amended by Law Number 28 of 2004 on the Amendment to Law Number 16 of 2001 on Foundation;
5. Law Number 13 of 2003 on Manpower;
6. Law Number 40 of 2007 on Limited-Liability Company;
7. Law Number 25 of 2007 on Investment;
8. Law Number 4 of 2023 on the Development and Strengthening of the Financial Sector;
9. Law Number 17 of 2023 on Health;
10. Regulation of the Government in Lieu of Law Number 2 of 2022 on Job Creation which has been enacted into law under Law Number 6 of 2023.

Reference:

1. Irma Devita Purnamasari. Panduan Lengkap Hukum Praktis Populer Kiat-Kiat Cerdas, Mudah, dan Bijak Mendirikan Badan Usaha. Bandung: Penerbit Kaifa, 2010;
2. Yahya Harahap. Hukum Perseroan Terbatas. Jakarta: Sinar Grafika, 2016;
3. Yohana. Tanggung Jawab Hukum Atas Bentuk Usaha Badan Hukum dan Bentuk Usaha Non Badan Hukum. Jurnal Mercatoria, Vol. 8, No. 1, Juni 2015;
4. Prof. Dr. Agus Sardjono, et.al. Pengantar Hukum Dagang, cet.3. Jakarta: Raja Grafindo Persada, 2016.

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[1] Irma Devita Purnamasari. Panduan Lengkap Hukum Praktis Populer Kiat-Kiat Cerdas, Mudah, dan Bijak Mendirikan Badan Usaha. Bandung: Penerbit Kaifa, 2010, p. 3.

[2] Article 185 section (3) Law Number 17 of 2023 on Health (“Health Law”).

[3] Article 184 section (4) Health Law.

[4] Article 5 section (2) Law Number 25 of 2007 on Investment (“Investment Law”).

[5] Yohana. Tanggung Jawab Hukum Atas Bentuk Usaha Badan Hukum dan Bentuk Usaha Non Badan Hukum. Jurnal Mercatoria, Vol. 8, No. 1, Juni 2015, p. 48.

[6] Article 3 section (1) and its elucidation Law Number 40 of 2007 on Limited-Liability Company (“LLC Law”).

[7] Article 3 section (1) Regulation of the Government in Lieu of Law Number 2 of 2022 on Job Creation (“Perppu Cipta Kerja/Job Creation”) which amended Article 32 section (2) LLC Law.

[8] Article 33 section (1) and (2) LLC Law.

[9] Article 1 number 1 Law Number 16 of 2001 on Foundation (“Foundation Law”).

[10] Article 3 section (1) Foundation Law.

[11] Article 1 number 1 Law Number 25 of 1992 on Cooperative (“Cooperative Law”).

[12] Article 5 section (1) letter a and its elucidation Cooperative Law.

[13] Article 1618 Civil Law Code.

[14] Prof. Dr. Agus Sardjono, et.al, Pengantar Hukum Dagang, cet.3, Jakarta: Raja Grafindo Persada, 2016, pp. 26-27.

[15] Article 16 Commercial Code.

[16] Article 18 Commercial Code.

[17] Article 19 Commercial Code.

[18] Prof. Dr. Agus Sardjono, et.al. Pengantar Hukum Dagang, cet.3. Jakarta: Raja Grafindo Persada, 2016, p. 67.

[19] Article 20 Commercial Code.

[20] Article 51 Law Number 13 of 2003 on Manpower (“Manpower Law”).

[21] Article 51 and its elucidation Manpower Law.

[22] Article 50 Manpower Law.

[23] Article 108 section (1) Manpower Law.

[24] Article 11 Manpower Law.

[25] Article 18 section (1) Manpower Law

[26] Article 81 number 25 Perppu Job Creation which amended Article 79 Manpower Law.

[27] Article 86 section (1) Manpower Law.

[28] Article 81 number 24 Perppu Job Creation which amended Article 88 Manpower Law.

[29] Article 99 section (1) Manpower Law.

[30] Article 104 section (1) Manpower Law.

[31] Article 137 Manpower Law.

[32] Article 81 number 47 Perppu Job Creation which amended Article 156 section (1) Manpower Law.

[33] Article 82 Manpower Law.