Profit Utilization of Limited Liability Company

Briefcase Stuffed with EurosProfit utilization of limited liability company is regulated under Article 70-73 Law Number 40 of 2007 on Limited Liability Company (“Company Law”).

The company is obliged to set aside a certain amount of net profits for every financial year as a reserve. The net profits are profits of current year after deducting taxes. Nevertheless, the obligation is only effective if the company has positive earnings. Based on the elucidation of Article 70 paragraph (2) of the Company Law, positive earnings are net profits of the company in current financial year, which has covered accumulated losses of company from the previous financial year. The allowance of net profits is conducted until the reserves reach at least 20% (twenty percents) from the total of subscribed and paid-up capital. In the event that the reserves have not reached such amount, the reserves are only allowed to cover the losses that cannot be used by other reserves.


Dividend Distribution

Under Article 71 paragraph (1) of the Company Law, the utilization of net profits including determination of the amount of allowance for reserve is decided by the GMS. The elucidation of this article further explains that resolution of the GMS shall pay attention to Company’s interest and fairness. Based on resolution of the GMS, it can be stipulated partly or entirely of net profit will be for dividend, reserve, and/or other distribution such as tantieme for member of directors and board of commissioners, as well as bonus for employers.

The entire net profits after deducted with an allowance for reserve is distributed to the shareholders as dividend. The dividend is only distributed if the Company has positive earnings. In the event the Company’s net profits in the current financial year not entirely cover the accumulate losses of Company from the previous financial year, the Company is not allowed to distribute a dividend since the Company still has a negative earnings.


Interim Dividend

Under Article 72 of the Company Law, if it is stipulated in the articles of association, the Company may distribute an interim dividend before Company’s financial year is ended. Based on doctrine of law of Yahya Harahap (Law of Limited Liability Company; 2009:293) interim dividend is explained as a temporary dividend that is declared and paid before the annual profits of company is set by the GMS. The distribution of interim dividend may be conducted if the total net assets of company will not become less than total of paid-up and subscribed capital plus mandatory reserves. Distribution of interim dividend cannot disturb or cause the Company becomes unable to fulfill the obligations to creditors or disturb the activities of company. This interim dividend distribution is stipulated based on resolution of the board of director after obtaining an approval from board of commissioner. If after the Company’s financial year ends, the Company has apparently inflicted with loss, interim dividend that has been distributed shall be returned by shareholders to the Company. If the shareholders were unable to return the interim dividend, directors and board of commissioners are jointly and severally liable to the losses of company.

Moreover, Article 73 of the Company Law states that if the dividend is not taken after 5 (five) years since the lapse of payment date, then the dividend shall be assigned to the special reserves, and the procedures of withdrawal of dividends are set by the GMS. The withdrawal of dividends means nominal amount of dividends not including interest. The dividends that have been assigned to the special reserves and not be taken within period of 10 (ten) years will become the right of company and shall be booked in miscellaneous income account of the Company.

Deby Selina Panjaitan

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