There are some legal aspects from the establishment and execution of startup company in Indonesia, those are divided into several aspects, as following:
I. The Legal Aspect of startup entities:
Based on The Law of The Republic of Indonesia No.19/2016 about Amandment of The Law of The Republic of Indonesia No.11/2018 about Information and Electronic Transaction, the startup company is more adviseable to establish their entity into a legal entity such as limited liability company (PT) or limited parnership (CV).
In the form of entities such as PT or CV, those startup companies would obtain some legal protections by the Government based on the related regulation’s instruction. And despite the aim to obtain the legal protection, on their daily business activities, to make those activities to be legal and protected, the owner of startup advised to form their startup into legal entities based on the regulation on the Republic of Indonesia. Therefore, the Writer would like to explain the legal entities of PT and CV as following below:
a. Limited Liability Company (PT)
Based on The Law of The Republic of Indonesia No.40/2007 about Limited Liability Company, it explained the definition of limited liability company is a legal entities based on capital alliance, established by an agreement, execute their business activities by authorized capital, the entire authorized capital divided into a shares and fulfill the requirements by the regulations also the implementing regulation.
The priority advantage of an entities formed into limited liability company, based on Article 3(1) is the shareholder of the company would not be individually responsible into the engagement made on behalf of the company and also would not be responsible to the loss of the company exceeds of the share of theirs (it does not included the individual property of the shareholder).
The entities intended on The Law of Limited Liability Company is the entities who has a name and domiciled in a Territory of The Republic of Indonesia which regulated in article of association. The establishment of limited liability company based on The Law of Limited Liability Company shall be comply to the requirements as following below:
(1) The company established by 2 (two) persons or more by notarial deed in Bahasa Indonesia, the means of “person” is the natural person, either Indonesian citizens or foreign citizens, or Indonesian legal entities/foreign;
(2) The founder of the company should have a share on the day of the establishment of the company;
(3) status of a legal entity on the date of issuance of a Ministerial Decree on the legalization of a legal entity of the Company;
(4) In order to obtain a Ministerial Decree on the legalization of a legal entity of the Company, the founder jointly submits an application through the electronic information technology administration system of legal entities to the Minister by filling the provided form;
(5) An application for obtaining a Ministerial Decree shall be submitted to the Minister not later than 60 (sixty) days after the date of the establishment deed has signed, and completed with a description of supporting documents;
(6) The Company which has obtained the status of a legal entity is required to execute the first general meeting of shareholders as it is not later than 60 (sixty) days after the Company obtains the legal entity status, in the event that the first GMS is not executed then any prospective founder who commits such acts is individually responsible to any consequences.
The authorized capital of the Company consists of the total par value of the shares, the intended shares are shares issued on behalf of the owner, intended that the Company is only permitted to issue shares on behalf of the owner and the Company may not issue shares on the basis of stock up point. The minimum Company's authorized capital at least Rp50,000,000, 00 (fifty million rupiah), subject to the following provisions below:
(1) At least 25% (twenty five percent) of the authorized capital shall be issued and be fully paid;
(2) The issued and fully paid-up capital shall be evidenced by valid proof of deposit, "legitimate deposited proof", including evidence of shareholder deposit into a bank account on behalf of the Company, data from financial statements audited by an accountant, or the Company's balance sheet which be signed by the Board of Directors and Board of Commissioners
(3) Any further capital expenses incurred at any time to increase the issued capital shall be fully paid up.
Deposits on share capital might be made in the form of money and/or in any other form, the shares deposited in the form of money shall be denominated in rupiah currency.
In addition to the advantages from the establishment of limited liability company whis has been mentioned above, there are several other advantages such as:
- there is no time limit on the establishment of a limited liability company;
- the use of the name of the PT is protected by law, as described above to establish the PT is required to obtain the approval of the Minister of Law and Human Rights, as the conclusion the Government would protect the existence of PT which has been approved and registered from other parties, either from the use of the name of PT and protection brand rights;
- Legitimized by the government, intended the article of associations shall be registered and be approved by the Minister of Law and Human Rights;
- Easy to transfer the ownership of shares to other parties;
- Easy to increase the company’s capital, such as establish a new shares;
- It has a complete standard provisions, intended that the management and organizing of a PT, whether for the management or finance, has the standard provisions contained in the articles of association of PT to protect the shareholders and creditors.
b. Limited Partnership (CV)
The legal basis of establishment of CV regulated in the code of trade law, particularly in the Article 19 – 21 which regulated about limited partnership, also the code of civil law as the basis of the establishment of an agreement. It regulated the company which was established by lending a money or also known as limited partnership, established between a person or between several Persero companies whose jointly responsible for the entire company’s responsibilities, and one or more people as the lender of money. The establishment of a CV business entity shall be made by an Authentic Deed as a Deed of Establishment by a Notary in accordance with the procedure of establishing a company (CV), as well as the Deed of Establishment of CV does not requiring Legitimized or Approval from the Minister of Law and Human Rights of the Republic of Indonesia or any other related Institution.
The limited partnership company shall be established by 2 (two) persons or more, also the founder should be Indonesian citizens. The founder of limited partnership company divided into two types as following below:
- Active pesero, board member with the position of Director who is fully responsible to carry out their business activities including taking all risks of his personal property;
- Passive pesero, different from the active pesero, the passive persero could be only responsible for the amount of capital which has deposited into the company.
Unlike the provisions concerning PT related to the capital of establishment, CV has not required any authorized capital, issued or paid up capital mentioned in the deed of establishment or amendment. It is intended that the amount of deposit of capital is determined and recorded separately by the founders, so that the proof of deposit of capital by the founders consisting of active pesero and passive pesero could be made in any other agreement agreed by the parties.
As well as the limited liability company, although CV is not a legal entity which regulated in spesific regulations but CV also has several advantages such as:
- The establishment of the CV is relatively easier than the establishment of the PT which must fulfill all the requirements required by law and other implementing regulations;
- The capital as the basis of the business activities is easier to be increased, so it would generate a plenteous capital;
- Also substantial and simple managerial capabilities.
However, that the CV is not a legal entity to become as an ally/member has an unlimited responsibilities, so it is different from the PT which has limited liability which is only has the responsibility to the shares owned without including the personal property of the shareholders.
II. Legal Aspect from the Protection of Intellectual Property Rights
For a startup company, the intellectual property rights entitled to be obtained and obliged to be protected by the Government are copyright and trademark rights, but the company should be adjust to their services or creations which are the object of business, it would be determine the type of industrial property rights which could be protect the business object within related companies. Broadly speaking, intellectual property rights can be divided into two parts: copyright and industrial property rights, including patents, brands, industrial designs, trade secrets and layout design of integrated circuits.
The most important elements while starting a business are to ensure and provide protection against IPRs related to the business. However, in business practice, many companies are mistaken in taking their steps without any regards for IPR protection at the beginning of the business and most of the company has just realized the importance of IPR after several years they were held the business, so on those situations could induce the company's important assets to be unprotected from the misuse unauthorized parties.
a. Copyright
Under Law of The Republic of Indonesia No. 28/2014 about Copyright, it regulated Copyright is an exclusive right of the authors that arise automatically on the basis of a declarative principle after it is manifested into tangible form without prejudice to restrictions in accordance with the provisions of legislation. Then, the means of creation is any work of creation in the field of science, art, and literature resulting from inspiration, ability, thought, imagination, dexterity, skill, or skill expressed in the real form.
Copyright is an exclusive right consisting of moral rights and economic rights. The moral right is an inherent right of the Creator, while the economic right is the exclusive right of the Creator or the Copyright Holder to obtain the economic benefit of the Creation.
The parties which intended as the creator based on the law are:
· Expressedly mention in the Creation;
· To be declared as the creator in the creation;
· Mentioned in the letters of the Record of Creation; and/or
· Listed in the General list of Creation as the creator.
In the era of information and electronic technology, the Copyright has been regulated for protection related to copyright content and related rights in information and communication technology. Under Article 55 which has explained that anyone who knows of copyright infringement and/or related rights through electronic systems for Commercial Use may report to the Minister. Subsequently, the Minister who conducts governmental affairs in the telecommunications and informatics field on the recommendation may close the content, and/or user access rights that violate Copyright and/or Related Rights in electronic systems and induce the electronic system services are inaccessible.
The period of validity of moral rights and economic rights in copyright are differentiated according to the Law, pursuant to Article 57 the period of validity of moral rights is without any time limits but pursuant to Articles 58 and 59 the period of validity of economic rights is determined by the related creation.
The requirement to obtain copyright protection is by registering the creation and the related right product by submitting an Application in writing in Indonesian by the Creator, Copyright Holder, the owner of the Related Rights, or his Attorney to the Minister. Such intended application might be electronically controlled by an attorney who is an expert in the field of IPR to reduce mistakes which might be delay the process of the registration. In the event that the Minister receives an application for registration of a creation, the Minister shall be issued a Letter of Registration of Creation and registered in the General Register of Creation.
Copyright Holder is entitled to grant Licensee to other parties based on a written agreement to perform an act which became the right of a creator provided which could only be valid for a certain period of time and does not exceed the validity period of Copyright. The licensee is required to grant Royalty to the Copyright Holder during the License period.
A copyright dispute resolution might be settled through an alternative dispute resolution, arbitration, or commercial court. The Creator, the copyright holder or his heirs who suffered economic loss shall be entitled to indemnification.
b. Trademark Rights
Pursuant to Law of The Republic of Indonesia No. 20/2016 about Trademarks and Geographical Indications, the right of the trademark is an exclusive right granted by the state to the registered trademark owner for a certain period of time by the sole use of the trademark or granting permission to the other party to use it. Brand is divided into two types, as following below:
· Trademarks, the Marks used on goods traded by a person or persons jointly or by a legal entity to distinguish with other similar goods;
· Service marks, Marks used on services traded by a person or persons jointly or by a legal entity to distinguish with other similar services.
The trademark right could be obtained after the mark has been registered, the Application for registration of a Mark shall be filed by the Applicant or his Attorney to the Minister electronically or non-electronically in the Indonesian language, accompanied by other conditions required by the Law and other implementing regulations. Pursuant to the Articles 20 and 21 of the Trademark Law and Geographical Indications have been classified several brands that are not listed and rejected.
Unlike copyrights whic havea different protection periods between moral and economic rights, in the entire trademark right registered marks have legal protection for a period of 10 (ten) years from the Filing Date. The protection period might be extended for the same period of time.
Based on Article 42, the registered Marks Owner may grant a License to any other party to use the Mark in whole or in part of all types of goods and/or services, but shall be required to apply for registration to the Minister with a fee.
A dispute of rights of a trademark might be settled by a registered Trademark Owner and/or a registered Trademark License holder through file a lawsuit to a commercial court against another person who unlawfully using a Mark which has in common or in its entirety for similar goods and/or services in the form of:
· indemnification; dan/atau
· termination of all actions involving the use of the Mark.
In addition, the parties might be settled the dispute through arbitration or alternative dispute resolution.
c. Patent
Pursuant to Law No. 13 of 2016 on patents, patents are exclusive rights granted by the state to the inventor of his invention in the field of technology for a certain period of time carrying out the invention himself or giving approval to other parties. Invention is an inventory idea poured into a specific problem-solving activity in technology in the form of a product or process, or refinement and development of a product or process. Thus, it could be concluded that patent protection is granted to the patent owner in the field of technology only.
Patent protection includes patents and simple patents. The meaning of patent is a new Invention, contains inventive steps, and could be applied in the industry. Whereas, the simple patent means any new Invention, the development of an existing product or process, and applicable in the industry. The Patent Holder is obligated to manufacture the product or use the process in Indonesia.
The invention shall be considered as the new invention as if on the Filing Date, the Invention is not the same as the previously disclosed technology. Then, the Invention contains an inventive step if the Invention for someone with a unexpected particular skill in engineering. And the Invention might be applied in the industry if the Invention could be executed in the industry as described in the Application.
The Patent Holder has the exclusive right to grant his or her Patent and to prohibit any other person without his consent:
· Product Patent: create, use, sell, import, rent, deliver, or provide for sale or lease or submitted Patented products;
· Patent-process: using a Patented production process to make the goods or other actions as defined above.
Patents are granted by the application. Such application might be submitted by the Applicant or his Attorney to the Minister in writing in Bahasa Indonesia including the fee. Each Application shall be filed for an Invention or multiple Inventions which constitute a unified entity of Invention. Pursuant to Article 22 (1) A patent shall be granted for a period of 20 (twenty) years since the filing date and the period referred above could not be extended.
The Patent Holder is entitled to grant a License to another party under either the exclusive or non-exclusive License Agreement to perform the conduct of a patent holder, but the transfer of the right does not eliminate the right of the Inventor to keep his name and identity in the patent certificate.
Unlike the copyright and brand rights described above, the holder of patent should be pay an fee payments provided, which the first annual fee payment must be paid not later than 6 (six) months from the date of the certificate was issued. Then proceed with the payment of the annual fee shall be done not later than 1 (one) month before the same date as the date of receipt in the next year protection period.
Settlement of disputes in the patent law might be made by a Person entitled to a patent and the holder could be sue to the Commercial Court if a patent is granted to any party other than who is entitled to obtain a Patent. The Patent Holder or Licensee shall be entitled to file a lawsuit against the Commercial court of any Person who knowingly and unlawfully to do harm to the related patent holder. In addition to the dispute resolution described above, the parties might be resolve the dispute through arbitration or alternative dispute resolution.
d. Trade Secret
According to Law of The Republic of Indonesia No. 30/2000 on Trade Secrets, trade secrets are information that is not to be known to the public in the field of technology and/or business, it has economic value as it is useful in business activities, and kept confidential by the owner of Trade Secret. The scope of protection of the Trade Secret includes the method of production, method of processing, sales method, or other information in the field of technology and/or business which has economic value and is not to be known by the general public.
The requirement of Trade Secret is to be protected as if the information is confidential, has economic value, and is kept confidential through its proper efforts. The law has provided an explanation of the nature of secrecy, economic value, and kept its secrecy through its proper efforts, as folllowing:
(1) The Information is deemed to be confidential if the information is only known by a particular party or is not generally known by the public.
(2) The Information shall be deemed to have economic value if the confidential nature of the information could be used to execute commercial activities or business activities or may increase profits economically.
(3) Information is deemed to be kept strictly confidential if the owner or the parties who took control have taken an appropriate measures.
The Owner of the Trade Secret or the Licensee may sue anyone who knowingly and unlawfully performing an act which should be the right of the trade secret owner and the owner of a trade secret might be filed the lawsuit above to the county court. The law has regulated the actions that are included in the violation of trade secrets,particularly Chapter VII as well as sanctions which could be applied to the perpetrators including criminal sanctions.
III. Legal Aspect of protected of technology information and electronic contents
Based on the Law of The Republic of Indonesia No.19/2016 about Amendment to the Law of The Republic of Indonesia No.11/2018 about Information and Electronic Transactions, related to the implementation of startup company, the company would be known as the administrator of electronic system. Under the ITE Law, an electronic system administrator is defined as any person, state administrator, enterprise, and community that provides, manages, and/or operates the Electronic System either individually or collectively to the users of the Electronic System for its own use and/or the needs of others. An electronic system is a set of electronic devices and procedures that prepare, collect, process, analyze, store, display, publish, transmit, and / or disseminate Electronic Information.
Pursuant to Article 5 of Government Regulation of the Republic of Indonesia No.82 /2012 concerning the Implementation of Electronic Transaction Systems and Transactions ragulates that te Electronic System Provider for public service is obliged to register, while Electronic System Provider for non-public service could be register. So for the administrator of electronic systems for public services, registration is an obligation but for the administrator of electronic systems for non-public services is not an obligation. As for the Law on ITE, any business actors conducting electronic transactions may be certified by a certification body of reliability. Reliability certification is intended as evidence that business entities conducting electronic commerce are worth trying after going through the assessment and auditing of the authorized body. Evidence of Reliability Certification has been demonstrated in the presence of a trust mark logo on the home page of the business actor. In addition to certification of reliability, an electronic system provider must also obtain a certification of eligibility without exception to the provisions governing it in relation to public services and nonpublic services.
Related to the distribution of types of public services and nonpublic services for electronic system providers has been described in detail in the Regulation of the Minister of Communication and Information Technology Republic of Indonesia No.36/2014 on the Procedure of Registration of Electronic System Implementation. Registration of electronic system shall be submitted by Electronic System Responsible to the Director General c.q. Director, The process of application for registration, validation, and all administrative processes as referred to in Article 8, Article 9, Article 10, and Article 12, shall be executed online through the internet network. The validity period of the Registered Registry for 5 (five) years from the date of ratification. Based on the Ministerial Regulation mentioned above, in the event of violation in the provisions of the article then the sanction that can be applied is only administrative sanction only.
Each State administrator, Person, Business Entity, and/or the public shall be entitled to Domain Name based on the principle of the first registrant. Ownership and use of Domain Names shall be based on good faith, could not be violating the principles of fair business competition, and not infringing the rights of others. And any state administrator, Person, Business Entity, or community adversely affected by the unauthorized use of Domain Names by others, is entitled to file a Domain Name cancellation suit.
Regarding to the protection of intellectual property rights, in addition to being protected by copyright law, brand rights and other intellectual property rights, in Article 25 of the ITE Law it is also affirmed that Electronic Information and/or Electronic Documents compiled into intellectual works, internet sites, and the intellectual works contained therein are protected as Intellectual Property Rights under the provisions of the Laws and Regulations.
Pursuant to Chapter VII of the ITE Law is regulated on prohibited acts, within those articles the Government expressly provides protection to the adminitrator of electronic systems. Settlement of disputes could be done by to sent file a lawsuit by civil, through arbitration, or alternative dispute resolution in accordance with applicable laws and regulations.
Here is an explanation from us regarding the implementation of startup in Indonesia based on the applicable law and its implementing regulations. If you need any further explanation regarding startup implementation in Indonesia, please contact us.