The Commanditaire Vennootschap (CV) or Limited Partnership is a popular business structure in Indonesia, especially among small and medium-sized enterprises. This business form offers straightforward establishment procedures, operational flexibility, and relatively affordable administrative costs.
Despite these advantages, CVs face significant limitations regarding asset ownership, particularly land and buildings. These limitations stem from the CV’s legal status as a non-corporate entity, distinguishing it from corporate structures like a Perseroan Terbatas (PT or Limited Liability Company).
This article examines the regulatory framework, practical implications, and business strategies entrepreneurs can implement to address asset ownership limitations for CVs, focusing on solutions appropriate for the Indonesian business context.
Legal Status of CVs in Indonesia’s Legal System
CVs or Limited Partnerships are recognized business entities within Indonesia’s legal system. This business form is regulated under the Indonesian Commercial Code (KUHD), specifically in Articles 19, 20, and 21 KUHD. Although recognized by regulations, CVs are not classified as legal entities but rather as non-corporate business entities.
The CV structure consists of two types of partners with different roles: complementary partners (active partners) who are fully responsible for the company’s operations and obligations, and limited partners who serve as capital providers with liability limited to their contributed capital.
There are two main factors that prevent CVs from obtaining legal entity status:
- The absence of specific legislation granting legal entity status to CVs, unlike PTs which are clearly recognized as legal entities under Law No. 40 of 2007 concerning Limited Liability Companies
- In PTs, there is a clear separation of assets and limited liability for shareholders, whereas in CVs, there is no strict separation between the company’s assets and the personal assets of the complementary partners
Legal Provisions Related to Land Ownership by CVs
The Basic Agrarian Law (UUPA) No. 5 of 1960 serves as the main foundation for land ownership regulations in Indonesia. According to Article 19 paragraph (1) of this law, land rights holders can only consist of individuals or legal entities, and CVs do not fall into the category of legal entities that can own land rights. Consequently, CVs cannot be listed as property owners on land certificates.
Ownership Rights (Hak Milik), as regulated in Article 20 paragraphs (1) and (2) of the UUPA, is the strongest land ownership right with hereditary rights. These land ownership restrictions confirm that CVs, which are neither individuals nor legal entities, cannot become holders of land Ownership Rights.
Implications of Non-Legal Entity Status on Asset Ownership
The status of CVs as non-legal entity businesses has a direct impact on their ability to own assets, especially land and buildings. Unlike PTs that can own assets in their own name, CVs face fundamental limitations in this regard.
The impact of the CV’s non-legal entity status on asset ownership includes:
- CVs cannot be legally recorded as asset owners
- In official transactions, CVs act through complementary partners (active partners) who represent the CV’s interests
- Assets acquired during CV operations legally cannot be registered under the CV’s name
- There is no legal recognition of the separation between CV assets and the personal assets of complementary partners
These limitations create significant challenges for business growth and access to financing, as company assets are important components in business valuation and credit guarantees. Therefore, CV owners need to seek alternatives to overcome these asset ownership restrictions.
Alternative Asset Ownership Solutions for CVs
To address the legal limitations outlined above, several practical approaches can be considered to solve these asset ownership issues. Each alternative has advantages and risks that need to be carefully considered.
Ownership Under the Name of CV Partners
The most common approach is to register land rights using a partner’s name from the CV. This practice can be done in both Ownership Rights (Hak Milik) and Building Rights (HGB) forms. In this model, the funds used to acquire the land come from the CV, and internally for administrative purposes, the asset is recognized as a CV asset. However, legally, ownership remains with the partner whose name appears on the certificate.
Although this method is widely used, there are significant legal risks. Land registered under a partner’s name officially remains the personal property of that partner, not the property of the CV. This is because the CV partner and the CV itself are considered separate entities with different tax obligations. This condition can cause various legal problems that harm both the CV and its partners, such as ownership disputes or tax issues.
Regulatory Efforts: Circular Letter on Granting HGB for CVs
In response to problems faced by many CV entrepreneurs, the government through the Ministry of Agrarian Affairs and Spatial Planning/National Land Agency issued Circular Letter Number 2/SE-HT.02.01/VI/2019 concerning Granting Building Rights (HGB) for Limited Partnerships (Commanditaire Vennotschaap) on June 28, 2019. This circular letter is intended to provide guidance regarding the granting of HGB for CVs.
However, this circular letter does not provide adequate legal certainty because it does not explain in detail the procedures and legal consequences. In practice, the circular letter tends more toward granting HGB to CV partners, not to the CV itself. This remains consistent with the provisions in the UUPA, which state that only individuals and legal entities can become holders of land rights.
Implications and Legal Risks of CV Asset Ownership
The inability of CVs to own assets in their own name creates several implications and legal risks that business owners should be aware of:
Vulnerability to Ownership Disputes
When CV assets are registered under a partner’s name, there is a risk of ownership disputes, especially if there are disagreements between partners or between a partner and the CV itself. For example, a partner whose name appears on the land certificate legally has the right to transfer or pledge that land, even if the land is considered a CV asset.
Additionally, in cases where the partner whose name is on the certificate passes away, that land can become part of their inheritance and be inherited by their heirs. This certainly has the potential to harm the CV, which de facto uses and considers the land as its asset.
Tax Implications
CVs and their partners are separate tax subjects. When assets are registered under a partner’s name but used and recognized as CV assets, questions arise about tax obligations, such as Land and Building Tax (PBB) and income tax from the utilization of those assets. This unclear ownership status can cause difficulties in tax reporting and potentially lead to tax penalties.
Recommendations for CV Entrepreneurs
With all the asset ownership limitations and alternatives explained, here are strategic recommendations that can be considered by entrepreneurs currently running businesses in the form of CVs:
Business Entity Transformation
The long-term solution that provides the most legal certainty is to change the business form from a CV to a PT (Limited Liability Company). As a legal entity, a PT has the ability to become a holder of land rights in the form of Building Rights (HGB), unlike CVs which cannot be recorded as holders of such rights at all.
Although this transformation process requires time, cost, and more complex administrative requirements, the benefits gained are very significant, especially for growing businesses:
- Legal certainty in asset ownership
- Clear separation between company assets and personal assets
- Increased credibility in the eyes of investors and creditors
- Stronger legal protection for business owners
- Ease in business expansion and succession planning
Written Agreement Between the CV and Partners
For CVs that choose to maintain their business form and register assets under a partner’s name, it is very important to create a clear and comprehensive written agreement. This agreement should regulate in detail:
- Recognition that assets were purchased with CV funds
- Rights and obligations of each party related to asset management
- Prohibition of asset transfer without written approval from the CV
- Partner’s obligation to transfer assets if requested by the CV
- Dispute resolution mechanisms in case of conflict
- Provisions governing matters that occur if a partner dies
Although this agreement cannot change ownership status legally, it can at least provide a legal basis for the CV to file a claim if a partner takes actions that harm the CV in relation to the asset.
Conclusion
CVs cannot own land and building assets in their own name due to their status as non-legal entity businesses. The Basic Agrarian Law restricts land ownership only to individuals and legal entities.
Entrepreneurs need to consider transforming into a PT or creating a comprehensive written agreement to secure business interests, especially for businesses that require legal certainty in asset ownership.
Need Solutions for Your CV’s Asset Ownership?
The limitations of CVs in owning land and building assets can pose significant legal and tax risks for your business. Contact us at info@lexara.id to discuss alternative ownership structures for your CV’s assets and get guidance tailored to your business needs.
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