Juridical Implication of Share Cross Holding According to Limited Liability Company Law in Indonesia

By Soerodjo, Irawan | Journal of Legal, Ethical and Regulatory Issues, January 1, 2018 | Go to article overview

Juridical Implication of Share Cross Holding According to Limited Liability Company Law in Indonesia


Soerodjo, Irawan, Journal of Legal, Ethical and Regulatory Issues


INTRODUCTION

In the company capital increase, the term of cross holding is known which regulates the prohibition as provided in Article 36 paragraph (1) of Law No. 40 of 2007?

The definition of indirect cross holding is share ownership of the first company in the second company through an ownership in one or more "Interval Company" and on the other hand the second company has shares in the first company.

Share cross holding is when one of the shareholders in the company is another company. This system is often used by entrepreneurs in Japan since Japan joined OECD in 1964 when companies in Japan are required to sell its shares in the capital market overseas. Through this system, the capital owner is trying to prevent foreign investors entering Japan. In addition to cross holding with another company, many companies in Japan also utilize banks or other financial institutions as its shareholder.

With the existence of Cross Holding, in terms of capital, specifically in the context of new share issuance, it is clear that there is no real capital payment to the company and in terms of management, cross holding tends to mix the ownership and management of one company with the other, as such in this case, the management is no longer independent with one another (widjaja, 2008).

Thus, one company may own and control another company through share ownership (both majority and controlling shares). The reason business actors and/or company conducts cross holding is, that controlling another company may increase effectiveness and productivity of the company for the sake of profit, because the objective of the Company is profit oriented.

In the previous UUPT, namely Law Number 1 of 1995, there is no rule prohibiting cross holding. Companies are prohibited to issue shares to be self-owned. In principle, share issuance is an effort of capital mobilization, therefore the obligation for payment of shares actually should be assumed by another party (Kansil, 2002).

However, share cross holding in UUPT has not been clearly provided for, as cross holding is only provided under Article 36 of UUPT, namely "prohibition" of company owning new shares issued by another company which shares directly or indirectly owned by a company and vice versa. With regard to the prohibition of share cross holding, it is implied that in principle share issuance is an effort of capital mobilization, therefore the obligation for share payment should actually be assumed by another party. This matter among others has been provided in article 33 of UUPT namely capital payment by the Company which is made in full.

The asset of Limited Liability Company in the Cross Holding is quasi. The reason is that the capital increase is only stated in a deed, and only recorded in the Balance Sheet (Financial Statement) of the Company but in reality the company capital increase is only transferred from the holding company to its subsidiary or the reverse. Therefore, if the capital payment is only transferred within the group and therefore in reality there is no real capital increase in the company and this is contrary to the content of article 33 of UUPT which is also contrary to the objectives of capital increase of company which is to strengthen the financial aspect of the Company.

This event is most interesting to be researched in line with the development in the thinking using juridical approach and based on commercial practice.

METHODOLOGY

Research is the main pillar in the science development. Research has the purpose to disclose the truth systematically, methodologically and consistently in this case it will include legal research. The research methodology of a study of law is by using normative law approach, normative juridical approach, including reviews and various analyses of legal materials related to the issues being analysed. Legal materials are collected by literature studies namely collecting materials by reviewing the literature materials and subsequently the materials are analysed using legal theory approach. …

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