How to Prepare a Joint Venture Agreement in Indonesia

A joint venture in Indonesia means that two or more organizations join forces as a single commercial enterprise. In other words, two businesses combine their resources and expertise to gain a competitive edge to go after certain projects or achieve certain goals. Before they can merge, a joint venture agreement in Indonesia needs to be drafted.

Before setting up a joint venture in Indonesia, there are things that investors must pay attention to. One of those is that not only a joint venture binds resources, but it also shares risks and rewards of both businesses.

Therefore, to gain the greatest rewards and minimise risks, here are some of the considerations before forming a joint venture in Indonesia:

• Determine if the business sector you are interested in is allowed for a joint venture structure
• Check the Negative Investment List to know the maximum percentage of foreign ownership you can have for your joint venture
• Know your business location as some regions in Indonesia prohibit certain business sectors or activities to operate
• Get familiar with your tax matters especially the withholding and income tax payable

What to Include in a Joint Venture Agreement in Indonesia

It is very important to include all necessary terms and conditions in a joint venture agreement, especially when it is about share ownership and share transfer.

Below are a few critical terms and conditions you should have in your joint venture agreement:

• First offer rights or first refusal rights

Shareholders who would like to transfer their shares must offer their shares within 30 days. This offer is only available once.

• Tag-along rights

If the majority of the shareholders want to transfer their shares to an external party, the rest of the shareholders hold the right to request their shares to be bought by the external party as well. This is to protect the rights of all shareholders.

• Company’s organisation agreement

A joint venture company consists of the Board of Directors, Board of Commissioners, and General Meeting of Shareholders. Shareholders have the right to transfer their share under the General Meeting of Shareholders’ agreement.

• Drag-along rights

If the majority of the shareholders want to transfer their shares to an external party, this majority of shareholders have the right to sell their shares to the external party as well. This is to protect the rights of all shareholders.

• Call or put option

Call or put option term signifies an option for transferring – either buy or sell – of specific shares in a particular time, from and to certain shareholders or other parties under the agreement.

• Lock-up term

A fixed transfer of specific shares at a particular time, from and to certain shareholders or other parties under the agreement.

• Permitted transfer

Restrictions or limitations of share transfer to a third party. The share’s owner must ensure that the new shareholder agrees and is bound by the current joint venture agreement to protect the existing owners’ rights.

• Compulsory transfer

Share transfer that occurs under certain conditions.

How Cekindo can Assist

Cekindo’s contract drafting practice consists of leading legal advisors who can provide the best recommendations on your joint venture agreement in Indonesia. Our clients seek our assistance because we are their trusted consultants to help them achieve their business goals.

Before drafting your joint venture agreement in Indonesia, we will first acquire a deep understanding of how your business operates and what the key business drivers of your industry are. Cekindo’s approach will not only help you with the contract drafting process, but also throughout your business lifecycle.

If you need assistance, please reach out to us and we will deliver the most complete solution to you. Fill in the form below.