Definition of The Board of Directors
Under Article 1 number (5) of Law Number 40 of 2007 on Limited Liability Company ("Company Law") it is stated that the board of directors in the Limited Liability Company ("Company") is the Company’s organ which is an authorized organ of the Company and is fully responsible for the management of the Company’s interest, under the intention and purposes of the Company and also represents the Company, either inside or outside the court under the articles of association.
Authority of the Board of Directors
As stated above the authority of the board of directors comprises the following:
- Is an organ of the Company that has full authority to manage the Company in all matters related to the Company’s interest according to the aims and objectives of the Company.
- The board of directors also represents the Company either inside or outside the court according to the Company Law and/or the articles of association of the Company.
The ability of the board of directors to represent the Company is not limited and not conditional, unless otherwise stipulated in the Company Law, articles of association or resolutions by the General Meeting of Shareholders ("GMS"). If the board of directors comprises more than 1 (one) person, each individual member may represent the Company, unless otherwise stipulated in the articles of association. The purpose of this exception is that the articles of association may determine that the Company can only be represented by a certain member of the board of directors as stipulated in Article 98 of the Company Law.
Under Article 99 of the Company Law, the authority of the board of directors in representing the Company is unlimited. However, in certain cases the board of directors may not represent the Company, i.e.:
- If a case appears before court between the Company and the concerned member of the board of directors; or
- If the concerned member of the board of directors has a conflict of interest with the Company.
If those conditions occur, then the Company may be represented by:
- Another member of the board of directors that does not have a conflict of interest with the Company;
- The board of commissioners in the event that all the members of the board of directors have a conflict of interest with the Company; or
- Another party appointed by the GMS if all members, both of members of the board of directors and the board of commissioners have a conflict of interest with the Company.
Liability of the Board of Directors
The Board of Directors is responsible for the management of the Company in good faith. A member of the board of directors can be held personally liable, if the concerned member is guilty or negligent in performing their duties. The liability of the board of directors that comprises 2 (two) or more members will be jointly and severally for each member of the board of directors, if losses to the Company occurs caused by errors or omissions by the board of directors. Directors can avoid being held liable if he can prove:
- The loss was not a fault or caused by negligence of the board of directors or the individual director;
- The management was conducted in good faith and prudence and under the aims and objectives of the Company;
- That he has no conflict of interest, either directly or indirectly concerning all acts of management that caused losses; and
- He has taken sufficient measures to prevent the loss arising or continuing.
Duties of the Board of Directors
According to Article 100 of Company Law, the board of directors is obliged to perform several duties during its appointment as board member. The following duties arise from the Company Law:
- To make list of shareholders, a special register, minutes of GMS and minutes of meeting of the board of directors;
- To draft an annual report and other required financial documents; and
- To manage and update all registers, minutes and financial documents of the Company.
All registers, minutes, financial documents and other company documents are stored at the domicile of the Company. Upon written request of the shareholders, the board of directors gives approval to the shareholders to inspect the register of shareholders, the special register, the minutes of GMS and to receive a copy of the minutes of GMS and a copy of the annual report.
Under Article 101 of Company Law, members of the board of directors shall report to the Company on shares that are owned by a member of the board of directors and/or a family member in the Company, another Company or Companies recorded on a special list.
In Article 102 Company Law it is stipulated that the duties of the board of directors in connection to the management of the Company’s asset is an obligation to obtain approval by GMS to:
- Transfer the Company’s asset; or
- Use the Company’s asset as a debt guarantee.
The assets as referred to above, are the assets which amount into over 50 % (fifty percent) of the net assets of the Company within 1 (one) transaction or more, either in relation to each other or not. Besides the duties mentioned above, additional obligations or duties of the board of directors may be stipulated in the articles of association of the Company.