Indonesia Limited Liability Company Rules Overview
The Indonesia limited liability company structure forms the legal foundation for conducting business activities in Indonesia, particularly for investors seeking long-term commercial operations. Under Indonesian investment regulations, companies are categorized into two main types: Foreign Capital Investment Companies (PMA companies) and Domestic Capital Investment Companies (PMDN companies). Both are established as limited liability entities but differ in their shareholding requirements, eligibility for incentives, and regulatory oversight.
A PMA company is characterized by foreign shareholding and must meet a minimum capital requirement determined under Indonesia’s investment framework. It must be established by at least two shareholders—foreign individuals or foreign legal entities—and is eligible for fiscal incentives, investment facilities, and sector-specific benefits. PMA companies must register with the Ministry of Law and Human Rights (MOLHR), obtain licensing through the Online Single Submission (OSS) system, and secure sectoral approvals from relevant authorities such as the Ministry of Trade, Ministry of Industry, or other regulators depending on the business activity.
Foreign Capital Investment (PMA) Company Structure
A PMA company serves as the primary legal entity for foreign businesses intending to engage in revenue-generating operations in Indonesia. Establishing a PMA company allows foreign investors to:
- Sign contracts
- Hire employees
- Issue invoices
- Acquire assets
- Participate in tenders
- Engage in commercial trade or service activities
However, the ability to operate is subject to Indonesia’s Positive Investment List, which defines business sectors open, restricted, or partially closed to foreign ownership. PMA companies must also obtain sector-specific licenses (e.g., industrial licenses, trading licenses, construction licenses) depending on their classification under the KBLI system (Klasifikasi Baku Lapangan Usaha Indonesia).
The OSS platform integrates all incorporation, licensing, and post-establishment compliance processes, ensuring that PMA companies maintain up-to-date permits such as NIB (Business Identification Number), operational licenses, and commercial licenses.
Domestic Capital Investment (PMDN) Company Structure
A PMDN company is an Indonesian limited liability company with 100% domestic shareholding. Like PMA companies, PMDN companies must be established by a minimum of two Indonesian shareholders and registered under MOLHR and OSS. Although PMDN companies do not face foreign ownership limits, they may still require sector-specific licenses depending on the type of business operation.
PMDN companies are often used by Indonesian entrepreneurs and local investors. However, they also play an important role for foreign investors who later decide to convert a PMDN company into a PMA structure by acquiring equity stakes in an existing Indonesian company. This conversion process must be reported through OSS and approved by BKPM, ensuring compliance with investment regulations.
Regulatory Requirements and Business Licenses
To conduct operations legally, both PMA and PMDN companies must meet several requirements:
- Founders: minimum two shareholders
- Registration: MOLHR + OSS
- Licensing: sector-specific operational or commercial permits
- Compliance: regular reporting to OSS and sectoral ministries
Additional requirements may apply depending on the location, industry, and strategic importance of the business. Companies operating in regulated sectors such as mining, energy, telecommunications, or construction must obtain approvals from specialized authorities.
Practical Pathways for Foreign Investors
Foreign investors entering Indonesia typically choose between two routes:
- Establishing a new PMA company
- Acquiring shares in an existing Indonesian company, which then becomes a PMA company
The appropriate route depends on business strategy, required licensing, and market readiness. Regardless of the pathway chosen, foreign companies are obligated to comply with sectoral laws and obtain required operational permits before commencing commercial activities.
Conclusion
With clear regulatory distinctions between PMA and PMDN entities, the Indonesia limited liability company framework enables both foreign and domestic investors to establish legally compliant business operations aligned with Indonesia’s investment laws.