NEW REGULATION ON VENTURE CAPITAL COMPANIES
For the purpose of implementing Articles 8 and 11 of Presidential Regulation No. 9/2009 regarding Financial Institutions (“Presidential Regulation”), the Minister of Finance has issued his Regulation No. 18/PMK.010/2012 regarding Venture Capital Companies (the “Ministry Regulation or Regulation”). The Regulation replaces Minister of Finance Regulation No. 469/KMK.017/1995 regarding Establishment and Nurturing of Venture Capital Companies and Minister of Finance Regulation No. 1251/KMK.013/1988 regarding Procedures for Administering Financial Institutions.
Articles 8 and 11 of the Presidential Regulation basically require the Minister of Finance to issue the implementing regulation regarding the establishment of financial institutions, (including venture capital companies), and regarding the supervision of their business activities.
Article 1 of the Ministry Regulation contains definitions of the various terms used in the Ministry Regulation. A Venture Capital Company (“VCC”), for instance, is defined as “a business entity that engages in the business of capital financing/equity participation in an investee company for a certain period of time in the form of equity, convertible bonds, or revenue sharing; whereas an “Investee Company” is defined as “a micro, small, or medium sized company that receives financial assistance and/or equity from a VCC (“MSM Businesses”).
Under the Ministry Regulation the activities of a VCC must be made for the purpose of (i) developing new inventions; (ii) developing new business entities that are having funding problems in the initial stage of their business; (iii) assisting the development of MSM Businesses or helping those MSM Businesses whose business is declining; (iv) developing research and engineering projects; (v) developing the use of new technology and technology transfers; and (v) assisting in company ownership transfers.
Some of the Regulation’s provisions of note are:
- a VCC can take the legal form of a limited liability company or a cooperative;
- the shares of a limited liability company VCC can be held by Indonesians, Indonesian business entities, foreign business entities, the Indonesian government, or local government.
- foreign business entities may own up to 85 percent of the paid-in capital of a joint venture VCC.
- members of the board of directors and of the commissioners of a VCC must fulfill the stipulated requirements and must undergo a fit and proper test;
- a VCC may accept loans from banks, non-banking financial institutions, business entities, and/or institutions.
- a VCC, however, is prohibited from withdrawing funds directly from the public’s checking accounts (giro) or savings.
- a VCC may issue promissory notes provided that compliance with prudential principles is observed and provided that it has obtained the approval therefore from its board of commissioners and general meeting of its shareholders before the issuance.
The Regulation also contains provisions with respect to reporting requirements and sanctions for violation of the provisions of the Regulation.
The Regulation was issued on 1 February 2012 and has been in force since the date of its issue. (by: Hamud M. Balfas).