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Classification of Shares in a Limited Liability Company

Executive Giving PresentationThe regulation that governs the Limited Liability Company is in the Law of the Republic of Indonesia Number 40 of 2007 concerning Limited Liability Company (“Company Law”). According to Article 1 number 1 Company Law, a Limited Liability Company, hereinafter referred to as Company, means a legal entity which constitutes an alliance of capital established pursuant to a contract in order to carry on business activities with an authorised capital all of which is divided into shares and which fulfils the requirements stipulated in this law and its implementing regulations.

Based on the provision above, it can be stated that shares are an indivisible unit of capital, expressing the contractual relationship between the Company and the shareholder. According to Article 7 paragraph (2) Company Law, each founder of a Company must subscribe shares at the time the company is established.

Clasification of Shares and The Rights  Attached to It.

Based on the statement from Dr. Sentosa Sembiring, S.H., M.H., in his book titled “Company Law” the rights attached to shares  depend on the type of share. From the perspective of its benefits, shares can be divided into 2 (two) types, namely:

1.      Common shares

With common shares, all the shareholders are equal with no privilege. According to Article 52 of Company Law shares, classified as common shares, provide the following rights to the owners:

  1. To be able to attend and cast votes in the General Meeting of Shareholders (GMS);
  2. Receive payment of dividends and the remainder of assets after liquidation;
  3. Excercise other rights as stated under Company Law.

2.      Preferred sharesor commonly called priority shares.

If there are any shares that have privileged rights besides the rights which arise from Article 52 Company Law, then the Articles of Association of the Company shall stipulate what shares have  the classification of common shares. The classification of shares besides common shares according to the Article 53 paragraph (4) Company Law, is the following:

  1. Shares with or without voting rights;
  2. Shares with privileged rights to nominate members of the Board of Directors or Board of Commissioners;
  3. Shares which after a certain period of time will be withdrawn or exchanged with others shares classifications;
  4. Shares which bestow on their holders a priority right over holders of shares with other classifications in receiving dividends and in the allocation of dividends cumulatively or non-cumulatively.
  5. Shares which bestow on their holders the priority right over holders of shares with other classifications in receiving allocations of the remainder of the Company’s assets after liquidation.

Regarding the various types of shares as mentioned above it does not mean a share can only have one classification. It is possible a share is a combination of two or more classifications.

The provisions as stated above are applied to the shares registered on the shareholders register under the owners name that shall be made by the Company’s Board of Directors, as it is stipulated in Article 50 of Company Law.

Sony El Mars

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