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Tag: cv establishment

  • Strategic Transformation from CV to PT: A Strategic Step for Business Development

    Strategic Transformation from CV to PT: A Strategic Step for Business Development

    Transforming a business entity from Commanditaire Vennootschap (CV) to Perseroan Terbatas (PT) represents a strategic decision that is growing in popularity among Indonesian entrepreneurs. This isn’t merely a name change, but a fundamental transformation in business structure that unlocks significant growth opportunities. Understanding this transformation procedure is crucial for investors and entrepreneurs with long-term vision to maximize business potential.

    Fundamental Differences Between CV and PT

    Characteristics and Legal Status

    CV (Commanditaire Vennootschap) is not a legal entity. The CV structure involves two types of partners: active partners who manage business operations and passive partners who only contribute capital. The most significant aspect of a CV is the unlimited liability held by active partners. If the company experiences losses or defaults, active partners are liable for their personal assets.

    PT (Perseroan Terbatas) has status as a separate legal entity from its founders. Consequently, shareholders’ liability is limited only to their invested capital. The organizational structure of a PT is also more complex with a Board of Directors running the business and a Board of Commissioners providing oversight. This governance model creates higher professionalism in business management.

    Comparison of Capital and Administrative Aspects

    In terms of capital, a CV has no minimum capital requirements set by regulations, providing flexibility for founders to start businesses with minimal capital. In contrast, a PT is required to have a minimum authorized capital with the provision that 25% must be placed and fully paid. This requirement is regulated in Government Regulation Number 8 of 2021 Article 4, which mandates valid proof of deposit to meet establishment requirements.

    The difference in legal status between these two business forms also impacts administrative complexity. Establishing a PT requires a more complicated process with approval needed from the Ministry of Law and Human Rights. This complexity is a logical consequence of PT’s status as a legal entity requiring stricter supervision and regulation to protect public and shareholder interests.

    Tax Implications

    The transformation from CV to PT also brings significant changes in taxation aspects that need careful consideration. The main differences lie in the tax subject and applicable rates.

    Tax Aspect CV PT
    Tax Subject Partners report personal taxes PT as a corporate taxpayer
    Income Tax Rate Progressive rates (5%-35%) based on partner income Fixed Corporate Income Tax rate (22%, with potential to decrease to 20%)
    SME Final Tax (Revenue < IDR 4.8 Billion) 0.5% of revenue 0.5% of revenue
    Dividends Not taxed if profit is distributed to partners May be taxed if distributed to individual shareholders

    This tax structure has long-term strategic implications that will be discussed in more detail in the taxation implications section.

    Why Transformation to PT Becomes a Strategic Choice

    Transformation to PT offers several key strategic advantages:

    • Legal Protection – Separation of personal and company assets, with shareholder liability limited to invested capital.
    • Capital Access – Ease of obtaining funding through issuing shares, bonds, or bank loans with more favorable terms.
    • High Credibility – Professional governance structure with Directors and Board of Commissioners makes PT more attractive to investors, business partners, and quality talent.
    • Ownership Succession – Ownership transition through share transfer without disrupting operations, ideal for family businesses or entrepreneurs considering exit strategies.

    Procedure for Transforming from CV to PT

    After understanding the various advantages of PT, here are the systematic transformation stages that require careful planning and attention to legal aspects.

    1. Preparation and Partner Approval

    Obtain written approval from all CV partners (active and passive) through an official meeting documented in minutes. This approval is a legal prerequisite for continuing the transformation process.

    2. Settlement of Obligations and Engagements

    Resolve all CV engagements with third parties, including cooperation agreements, business contracts, and debts to ensure the new PT begins operations without old obligations.

    3. Articles of Association Adjustment

    Adjust the Articles of Association to PT requirements, covering name, domicile, capital structure, share ownership, and governance. Revalue CV assets using public accountant services to determine the initial capital value of the PT.

    4. Legal Process of PT Establishment

    Create a PT Establishment Deed before a notary with details of ownership structure and management. Submit the establishment application to the Ministry of Law and Human Rights with required supporting documents.

    5. Administrative and Legal Completion

    Process the issuance of legal entity ratification decree, Business Identification Number (NIB), and operational licensing documents in accordance with relevant industry provisions.

    Crucial Aspects in Transformation

    The transformation from CV to PT brings important implications to several operational aspects that need to be strategically managed.

    Tax Implications

    Based on the tax differences explained earlier, comprehensive tax planning becomes crucial in transformation. Focus on strategies to mitigate potential double taxation when dividends are distributed to individual shareholders, optimization of tax-efficient executive compensation, and utilization of available tax incentives for PT. Consultation with tax experts will ensure the transformation doesn’t create unnecessary tax burdens.

    Ownership and Management Restructuring

    Transformation changes the structure from partners to shareholders, and forms formal organs in the form of Directors and Commissioners. Use this momentum to design optimal ownership structure and enhance professionalism in corporate governance.

    Financial and Accounting Systems

    Adopt stricter accounting standards with clear separation between company and personal finances. Invest in adequate financial systems and competent human resources to meet PT reporting standards and support data-driven decision making.

    Overcoming Challenges in the Transformation Process

    Despite providing various strategic benefits, transformation from CV to PT faces several main challenges:

    • Partner Resistance – Concerns about losing control can be addressed with clear communication about long-term benefits and education about PT structure that still maintains control for founders.
    • Administrative Complexity – Settlement of obligations to third parties can be minimized with experienced professional assistance such as legal consultants, notaries, and tax consultants.
    • Transformation Costs – Significant costs should be viewed as long-term investments with mature financial planning to optimally manage financing aspects.

    Practical Guide for Entrepreneurs and Investors

    Required Professional Team

    Transformation requires support from business legal consultants, experienced notaries, tax consultants, public accountants for asset valuation, and business consultants for post-transformation strategic planning.

    Process Timeline

    The transformation process typically takes 2-4 months: preparation and partner approval (2-4 weeks), Articles of Association adjustment and asset revaluation (3-6 weeks), PT Establishment Deed creation (1-2 weeks), ratification from Ministry of Law and Human Rights (2-4 weeks), and processing other legal documents (2-4 weeks).

    Conclusion

    Transformation from CV to PT is a strategic step that opens opportunities for growth and better business protection. Although requiring investment of time, funds, and resources, its benefits in the form of legal protection, capital access, and governance professionalism provide a solid foundation for sustainable business expansion. With a systematic approach and appropriate professional assistance, this transformation becomes a catalyst for achieving long-term business goals.

    Need a Transformation Solution for Your CV?

    Limited understanding of the CV to PT transformation process can create legal complications and unnecessary administrative burdens for your business. Contact us at info@lexara.id to discuss your CV transformation strategy and get guidance tailored to your business needs.

  • Comprehensive Guide to Dissolving a Limited Partnership (CV) in Indonesia

    Comprehensive Guide to Dissolving a Limited Partnership (CV) in Indonesia

    Dissolving a Commanditaire Vennootschap (CV) or Limited Partnership in Indonesia involves careful legal and administrative procedures. This guide presents practical steps and strategic recommendations for foreign investors and business owners seeking an efficient, secure, low-risk dissolution process.

    Legal Framework for CV Dissolution

    The process is governed by Regulation of the Minister of Law and Human Rights No. 17 of 2018 and Articles 30-35 of the Indonesian Commercial Code (KUHD).

    Valid Reasons for Dissolution

    • Expiration of the partnership agreement
    • Achievement of the CV’s purpose
    • Mutual agreement among partners
    • Court decision
    • Resignation or death of an active partner
    • Other reasons established by law

    After determining the reason for dissolution, the next step is preparing the necessary documentation.

    Required Documents

    • CV establishment deed and latest amendments
    • Written approval from all partners
    • Proof of tax obligation settlement
    • Dissolution application letter
    • Dissolution deed from a notary
    • Court decision (if dissolution is through court)

    Dissolution Procedure

    1. Partner Approval

    Obtain approval from all partners (active and passive) through a dissolution meeting. This approval forms the legal basis for subsequent steps.

    2. Liquidator Appointment

    The liquidator is responsible for ensuring the process runs smoothly, fairly, and in accordance with the law. Their task is to settle company obligations before distributing liquidation proceeds.

    3. Notarized Dissolution Deed

    CV dissolution must be formalized through an authentic notarial deed containing partner agreements, liquidator appointment, and planned distribution of liquidation proceeds.

    4. SABU Registration

    Submit a dissolution registration application to the Minister of Law and Human Rights through the Business Entity Administration System (SABU), attaching the dissolution deed and supporting documents.

    5. Ministerial Decree Issuance

    The Ministry of Law and Human Rights will issue a Decree confirming the legal dissolution of the CV. This decree serves as official evidence for subsequent processes.

    6. Media Announcement

    The dissolution must be announced in official media (newspaper or State Gazette) within 30 days after the dissolution decision. Parties with claims are given 60 days to settle their affairs.

    7. Tax Settlement

    Complete all tax obligations and apply for Tax Identification Number (NPWP) revocation at the Tax Service Office where the CV is registered.

    After completing the administrative procedures, the next focus is the liquidation process, which is the financial settlement phase of CV dissolution.

    Liquidation Process

    Asset and Liability Settlement

    During liquidation, all assets are inventoried and valued to settle obligations to third parties. Creditors are given 60 days after the announcement to submit claims.

    Distribution of Remaining Assets

    After settling obligations, remaining assets are distributed to partners according to the proportions agreed upon in the dissolution deed, with documentation and supervision by the liquidator.

    Beyond procedural aspects, CV dissolution also has strategic dimensions that need to be considered by foreign entrepreneurs and investors.

    Strategic Considerations

    Properly executed dissolution provides benefits:

    1. Protecting personal assets from business obligations
    2. Preventing future legal issues
    3. Providing closure with tax authorities
    4. Allowing partners to transition to new ventures without ongoing obligations

    To help you plan the dissolution process better, here is an estimated timeline to consider.

    Estimated Timeline

    • Partner approval: 1-2 weeks
    • Notary process: 1 week
    • SABU registration: 1-2 weeks
    • Decree issuance: 2-4 weeks
    • Announcement and claim period: 60 days
    • Tax settlement: 2-4 weeks

    To ensure no steps are missed in the dissolution process, use the following checklist as a practical guide.

    CV Dissolution Checklist

    • Approval from all partners
    • Complete documentation
    • Liquidator appointment
    • Notarial deed
    • SABU registration
    • Ministerial Decree
    • Media announcement
    • Creditor claim settlement
    • Tax obligation closure
    • NPWP revocation
    • Asset distribution

    By following this checklist, you can ensure that the CV dissolution process runs smoothly and in accordance with Indonesian regulations.

    Conclusion

    Understanding the CV dissolution process is crucial for minimizing legal and financial risks for foreign investors operating in Indonesia. Proper procedures not only ensure regulatory compliance but also protect partners’ assets from potential future liabilities. CV dissolution has unique characteristics that differ from other business forms and requires an appropriate approach aligned with Indonesian business law.

    Need Dissolution Solutions for Your CV in Indonesia?

    Limited understanding of the CV dissolution process can create unnecessary legal complications and administrative burdens for your business in Indonesia. Contact us at info@lexara.id to discuss your CV dissolution strategy and receive guidance tailored to your business needs in the Indonesian legal context.

     

  • CV Taxation in Indonesia: A Practical Guide for Foreign Investors

    CV Taxation in Indonesia: A Practical Guide for Foreign Investors

    When exploring business entities in Indonesia, foreign investors often encounter the “CV” (Commanditaire Vennootschap) structure—a limited partnership that has unique tax characteristics compared to corporations. This guide provides essential information about CV taxation to ensure compliance and optimize tax burdens for entrepreneurs considering this business structure in Indonesia.

    CV Taxation Fundamentals

    A CV has a significantly different tax system compared to a PT (Perseroan Terbatas, equivalent to a limited liability company). In a CV, business income flows directly to the partners and is taxed according to their individual income tax rates. In contrast, a PT is taxed as a separate entity.

    For active partners (complementary partners), tax responsibilities include reporting CV income in their annual tax returns. Similarly, silent partners must report their profit shares as personal income. Each partner should have a Tax ID Number (NPWP) and understand their individual tax obligations.

    Personal Income Tax (PPh) for CV Partners

    Partners’ income from a CV is subject to progressive personal income tax rates as follows:

    • 5% for income up to IDR 60 million
    • 15% for income above IDR 60 million up to IDR 250 million
    • 25% for income above IDR 250 million up to IDR 500 million
    • 30% for income above IDR 500 million up to IDR 5 billion
    • 35% for income above IDR 5 billion

    Partners must report CV income in their Form 1770 tax returns no later than March 31 of the following year.

    Case Study: CV Income Tax Calculation

    CV Maju Bersama has a net profit of IDR 300 million with two active partners (60:40 split):

    Partner A (60%):

    • Profit share: IDR 180 million
    • Income tax: (IDR 60 million × 5%) + (IDR 120 million × 15%) = IDR 21 million

    Partner B (40%):

    • Profit share: IDR 120 million
    • Income tax: (IDR 60 million × 5%) + (IDR 60 million × 15%) = IDR 12 million

    Silent (Passive) Partner Scenario: If the CV has a silent partner with a 20% profit share (IDR 60 million):

    • Income tax: IDR 60 million × 5% = IDR 3 million

    Tax Facilities Available for CVs

    CVs can take advantage of two main tax facilities:

    1. Final Income Tax at 0.5% (Government Regulation 23/2018)

    • Applicable for CVs with annual turnover below IDR 4.8 billion (only for the first 4 years since registering as a taxpayer)
    • After 4 years, CVs must switch to the normal tax system, such as Article 31E or progressive rates
    • Calculated from gross turnover, not profit

    2. Article 31E Income Tax Law Facility

    • Applicable for CVs with annual turnover up to IDR 50 billion (after the initial 4-year period)
    • 50% discount from the normal income tax rate for income up to IDR 4.8 billion
    • If the normal rate is 22%, the portion of profit up to IDR 4.8 billion is only taxed at 11% as specified in Article 31E

    Which Tax System Applies to Your CV?

    CV Condition Tax System Tax Rate
    Age ≤ 4 years & Turnover ≤ IDR 4.8 billion Final Income Tax 0.5% (PP 23/2018) 0.5% of turnover
    Age > 4 years & Turnover ≤ IDR 50 billion Article 31E Income Tax Law 11% for first IDR 4.8B profit, 22% for the remainder
    Turnover > IDR 50 billion Standard Tax Rate (Corporate Income Tax) 22%

    Simulation: Tax Burden Comparison

    CV Berkah with IDR 3.6 billion turnover and IDR 360 million profit:

    Tax System Calculation Total Tax
    Final Income Tax 0.5% (first 4 years) IDR 3.6 billion × 0.5% IDR 18 million
    Article 31E (if eligible after 4 years) IDR 360 million × 11% IDR 39.6 million
    Standard Rate (if not eligible for Article 31E) IDR 360 million × progressive rate (±16%) IDR 59 million

    Key Takeaways for Entrepreneurs

    • If CV is ≤ 4 years old → Final Income Tax 0.5% is the cheapest option
    • If CV is > 4 years old & turnover ≤ IDR 50 billion → Use Article 31E for tax discount
    • If turnover rises above IDR 50 billion → CV must pay the standard rate (22%)

    Value-Added Tax (VAT) and Taxable Entrepreneur Obligations

    If a CV’s annual turnover exceeds IDR 4.8 billion, it must register as a Taxable Entrepreneur (PKP). After becoming a PKP, the CV must collect 11% VAT on sales of Taxable Goods and Services.

    As a PKP, a CV can offset Input VAT against Output VAT:

    • Input VAT is tax paid by the CV when purchasing taxable goods or services for business purposes
    • Output VAT is tax collected by the CV when selling taxable goods or services to customers
    • The difference determines the amount of tax payable or refundable

    Case Study: CV Sukses Mandiri

    Here’s a simple example to understand how VAT affects a CV. Assume CV Sukses Mandiri has an annual turnover of IDR 6 billion with purchases of taxable materials and services amounting to IDR 3.6 billion per year. The VAT calculation would be:

    Step 1: Calculate Output VAT

    • VAT collected from customers
    • IDR 6 billion × 11% = IDR 660 million

    Step 2: Calculate Input VAT

    • VAT paid to suppliers
    • IDR 3.6 billion × 11% = IDR 396 million

    Step 3: Calculate VAT Payable to the Government

    • Output VAT – Input VAT
    • IDR 660 million – IDR 396 million = IDR 264 million

    Cash flow implications:

    • If buyers delay payment, the CV still must remit Output VAT
    • To optimize cash flow, ensure tax invoices are well-managed
    • Consider VAT refunds if Input VAT exceeds Output VAT

    Digital Tax Administration and Compliance

    Tax Reporting Schedule:

    • Monthly VAT Returns: due by the end of the following month
    • Annual Income Tax Returns: due by March 31 of the following year

    Digital Tax Applications:

    • e-Faktur: electronic tax invoice creation for PKPs
    • e-SPT: electronic tax return preparation
    • e-Billing: electronic tax payment

    Administrative Tips:

    • Use accounting software integrated with tax systems (Accurate, Zahir, Jurnal, etc.)
    • Separate personal and business finances
    • Keep transaction records for at least 10 years
    • Consider using tax consultant services for businesses with high complexity

    How Your CV Can Save on Taxes

    Identifying deductible expenses from taxable income is an important strategy in CV tax planning. Expenses such as operational costs, employee salaries, business rental fees, and other business-related costs can reduce the tax burden.

    Utilizing fixed asset depreciation can also reduce taxable income. Fixed assets such as buildings, vehicles, and equipment can be depreciated according to tax regulations in accordance with PMK No.96/PMK.03/2009.

    Simulation: Asset Depreciation Impact

    CV Teknologi Maju purchases computer equipment worth IDR 100 million with a useful life of 4 years:

    • Annual depreciation: IDR 25 million
    • Reduction in taxable income: IDR 25 million per year
    • Tax savings (assuming 25% rate): IDR 6.25 million per year

    Regular evaluation of tax strategies is necessary to ensure that the CV remains compliant with tax regulations and optimizes its tax burden.

    Avoiding Common Mistakes

    Some common administrative errors in CV taxation:

    • Not separating personal and business finances
    • Failing to keep transaction records properly
    • Late tax reporting and payment
    • Incorrectly calculating tax payable

    Penalties for non-compliance include:

    • Late tax payment penalty: 2% per month of tax payable
    • Late tax return filing penalty: IDR 100,000 for Monthly Returns and IDR 1,000,000 for Annual Returns
    • Criminal sanctions in cases of tax evasion

    To avoid mistakes, consider regular consultations with tax consultants and stay updated on the latest tax regulations.

    CV to PT Transformation Process

    As businesses grow, many entrepreneurs consider changing their business entity from a CV to a PT. This transformation has significant tax implications and needs to be well-prepared.

    Tax Considerations in Transformation

    The CV to PT transformation process must consider the following tax aspects:

    1. Asset Transfer: Transfer of assets from CV to PT may be subject to income tax on the excess value. However, based on PMK-56/PMK.03/2015, asset transfers in the context of mergers, consolidations, or business expansions may obtain tax facilities in the form of fiscal book value recognition.
    2. Value-Added Tax: Transfer of Taxable Goods in the context of mergers, consolidations, expansions, or business transfers may not be subject to VAT by meeting certain conditions in accordance with PP-34/2016.
    3. PT Establishment Costs: Costs incurred in the PT establishment process such as notary services, licensing fees, and other costs may be expensed in calculating taxable income.

    Transformation Steps with Tax Optimization

    1. Pre-Transformation Tax Planning:
      • Conduct asset revaluation before transformation
      • Identify potential tax payable on asset transfers
      • Develop tax burden mitigation strategies
    2. Tax Document Processing:
      • Apply for a new Tax ID for the PT
      • Apply for PKP confirmation (if turnover exceeds IDR 4.8 billion)
      • Apply for tax facilities for asset transfers
    3. Transition Tax Reporting:
      • Final tax reporting for the CV
      • Initial tax reporting for the PT
      • Fiscal reconciliation for the transition period

    CV or PT: Which is More Advantageous from a Tax Perspective?

    Aspect CV PT
    Tax Subject Levied on partners Levied on the business entity
    Tax Rate Progressive 5%-35% Flat 22%
    Double Taxation None Yes (Corporate Tax + Dividend Tax)
    Administration Simpler More complex
    Tax Incentives Limited More options
    Reporting Form 1770 (Individual) Form 1771 (Corporate)

    Case Study: CV vs PT Tax Simulation

    CV Sejahtera has an annual net profit of IDR 1.2 billion. Comparison:

    Scenario 1: As a CV

    In a CV structure, the IDR 1.2 billion profit will be subject to Personal Income Tax with progressive rates on the partners.

    Detailed Personal Income Tax calculation:

    • Tier 1: IDR 60 million × 5% = IDR 3 million
    • Tier 2: (IDR 250 million – IDR 60 million) × 15% = IDR 28.5 million
    • Tier 3: (IDR 500 million – IDR 250 million) × 25% = IDR 62.5 million
    • Tier 4: (IDR 1.2 billion – IDR 500 million) × 30% = IDR 210 million

    Total Personal Income Tax for a single partner: IDR 304 million.

    Scenario 2: As a PT

    In a PT structure, tax will be levied twice: first at the corporate level (Corporate Income Tax), then on the owner during dividend distribution.

    Stage 1: Corporate Income Tax

    • Flat Corporate Income Tax rate: 22%
    • Corporate Income Tax = 22% × IDR 1.2 billion = IDR 264 million
    • After-tax profit = IDR 1.2 billion – IDR 264 million = IDR 936 million

    Stage 2: Dividend Tax

    • Dividend Tax rate for domestic shareholders: 10%

    Scenario 2A: 100% Profit Distributed as Dividends

    • Dividends = IDR 936 million
    • Dividend Tax = 10% × IDR 936 million = IDR 93.6 million
    • Total tax = IDR 264 million + IDR 93.6 million = IDR 357.6 million
    • Effective percentage of profit: 29.8%
    • Net amount received by owner: IDR 936 million – IDR 93.6 million = IDR 842.4 million

    Scenario 2B: 50% Profit Distributed as Dividends

    • Dividends = 50% × IDR 936 million = IDR 468 million
    • Dividend Tax = 10% × IDR 468 million = IDR 46.8 million
    • Total tax = IDR 264 million + IDR 46.8 million = IDR 310.8 million
    • Effective percentage of profit: 25.9%
    • Net amount received by owner: IDR 468 million – IDR 46.8 million = IDR 421.2 million
    • Retained earnings in the company: IDR 468 million

    Scenario 2C: 0% Profit Distributed (Fully Retained)

    • Dividends = IDR 0
    • Dividend Tax = IDR 0
    • Total tax = IDR 264 million
    • Effective percentage of profit: 22%
    • Retained earnings in the company: IDR 936 million

    Comprehensive Comparison Table

    Aspect CV PT (100% Distributed) PT (50% Distributed) PT (0% Distributed)
    Corporate Tax – IDR 264 million IDR 264 million IDR 264 million
    Personal/Dividend Tax IDR 304 million IDR 93.6 million IDR 46.8 million IDR 0
    Total Tax IDR 304 million IDR 357.6 million IDR 310.8 million IDR 264 million
    Effective Rate 25.33% 29.8% 25.9% 22%
    Received by Owner IDR 896 million IDR 842.4 million IDR 421.2 million IDR 0
    Retained by Company IDR 0 IDR 0 IDR 468 million IDR 936 million

    Consider transforming from CV to PT when:

    • Turnover exceeds IDR 50 billion (limit for Article 31E facility)
    • External funding is needed
    • Business risk increases significantly

    Conclusion

    Understanding the taxation aspects of a CV is crucial for business success and regulatory compliance. The CV tax system that allocates income directly to partners has unique characteristics different from other business forms.

    Need Tax Solutions for Your CV?

    Limited understanding of CV taxation can create compliance risks and non-optimal tax burdens for your business. Contact us at info@lexara.id to discuss your CV tax strategy and get guidance tailored to your business needs.

     

  • Limitations of CVs as Land Rights Holders in Indonesia

    Limitations of CVs as Land Rights Holders in Indonesia

    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:

    1. 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
    2. 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:

    1. CVs cannot be legally recorded as asset owners
    2. In official transactions, CVs act through complementary partners (active partners) who represent the CV’s interests
    3. Assets acquired during CV operations legally cannot be registered under the CV’s name
    4. 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.

     

  • Can just one person establish a CV (Limited Partnership) in Indonesia?

    Can just one person establish a CV (Limited Partnership) in Indonesia?

    In Indonesia’s business landscape, selecting the right business structure is a crucial step for success. One question that frequently arises is: “Can just one person establish a CV (Commanditaire Vennootschap or Limited Partnership)?” This article examines the legal requirements for establishing a CV in Indonesia.

    Short Answer: No, a CV Cannot Be Established by One Person

    According to Indonesian law, a CV cannot be established by a single person. A CV must be founded by a minimum of two individuals with different roles and responsibilities. This requirement is stipulated in the Indonesian Commercial Code (KUHD) articles 16-35 and represents a fundamental requirement that cannot be circumvented.

    Why Does a CV Require at Least Two Founders?

    The CV structure necessitates two distinct types of partners:

    1. Active Partner (Complementary)
      • Bears full responsibility for company operations
      • Has legal liability extending to personal assets
      • Acts as the manager who runs the daily business activities of the CV
    2. Silent Partner (Limited Partner)
      • Only contributes capital to the CV
      • Not involved in the operational management of the company
      • Liability is limited to the amount of invested capital

    The presence of both types of partners is a fundamental characteristic of a CV that distinguishes it from sole proprietorships, making it legally impossible to establish a CV with just one person.

    Legal Procedure for Establishing a CV

    To establish a legally valid CV, the following steps must be taken:

    1. Creation of Deed of Establishment by a Notary
      • Including the identities of at least two founders (active and silent partners)
      • The notary will verify compliance with the number of founders requirement before issuing the deed
    2. Registration with Relevant Authorities
      • Arranging a Company Domicile Certificate (SKDP)
      • Registration for a Tax Identification Number (NPWP)
      • Registration with the District Court
      • Processing business licenses such as Trade Business License (SIUP) and Company Registration Certificate (TDP)

    At each registration stage, submitted documents must demonstrate that the CV was established by at least two individuals in accordance with applicable regulations.

    Alternative Business Entities for Sole Founders

    If an entrepreneur plans to run a business without partners, there are more suitable business entity alternatives. One available option is an Individual Company (PT Perorangan), which one person can establish. This business entity provides protection through the separation of personal and company assets, albeit with a more complex establishment process.

    Comparing CV with PT (Limited Liability Company)

    As these two business entities are often the preferred choices for entrepreneurs, here are some important considerations when choosing between a CV and a PT:

    1. Asset Seizure Risk for Active Partners
      • CV: Active partners face high risk due to unlimited liability. When a CV faces bankruptcy or legal claims, all personal assets of active partners may be seized to pay company obligations.
      • PT: Shareholders have limited liability up to their invested capital. Shareholders’ personal assets are protected from seizure due to company obligations.
    2. Funding Opportunities
      • CV: Has limitations in securing external funding. Banks and financial institutions are generally less interested in providing large loans as the CV structure is considered less transparent and professional.
      • PT: Has broader funding opportunities, including access to bank credit, bond issuance, and potential for going public through an IPO (Initial Public Offering).
    3. Legal Compliance
      • CV: Relatively simple reporting requirements. Not required to hold General Meetings of Shareholders (GMS) and financial statements need not be audited except for specific tax purposes.
      • PT: Required to prepare annual financial statements, hold GMS at least once a year, and for public PTs, financial statements must be audited by a public accountant. Legal compliance is stricter with administrative to criminal sanctions.
    4. Other Factors to Consider
      • Taxation: Different taxation mechanisms apply to CVs and PTs. PTs are subject to corporate income tax and dividend tax for shareholders.
      • Business Continuity: PTs have more guaranteed business continuity as they don’t depend on specific individuals. CVs heavily rely on the active partner.
      • Business Reputation: PTs are generally viewed as more credible and professional by business partners, especially for international collaborations.
      • Establishment and Operational Costs: PT establishment and compliance costs are higher compared to CVs, including notary fees, licensing, and regular reporting.

    Conclusion

    A CV cannot be established by one person alone under Indonesian law. Establishing a CV requires a minimum of two founders consisting of an active partner and a silent partner. For individuals wishing to run a business on their own, a Sole-Proprietor PT offers a more suitable alternative.

    Need Expert Assistance in Establishing a CV?

    Establishing a Commanditaire Vennootschap (CV) in Indonesia involves various legal and administrative steps that require careful attention. To ensure a smooth registration process, trust Lexara ID, a business consulting firm that specializes in business formation, licensing, and legal compliance for entrepreneurs and foreign investors.

    Contact us today at info@lexara.id to discuss your CV establishment needs and receive expert guidance tailored to your business objectives.

  • Complete Guide to Establishing a CV in Indonesia

    Complete Guide to Establishing a CV in Indonesia

    Commanditaire Vennootschap (CV) is a popular business structure in Indonesia, especially for entrepreneurs starting small to medium-scale businesses. This format offers faster establishment, simpler administrative requirements, and lower costs compared to a Perseroan Terbatas (PT), which is equivalent to a Limited Liability Company.

    However, choosing a business structure isn’t just about ease of establishment; it’s a strategic decision that affects future business development. A CV offers efficiency for limited-scale businesses but comes with significant personal liability consequences for its owners.

    Differences Between CV and PT

    Here’s a fundamental comparison between CV and PT to help with decision-making:

    Aspect CV (Limited Partnership) PT (Limited Liability Company)
    Legal Status Not a separate legal entity Separate legal entity
    Owner Liability Active partners: unlimited liability extending to personal assets Limited to invested capital
    Attracting Investment Limited. Cannot issue shares. Can issue shares
    Business Credibility Less trusted for large projects More trusted for large-scale projects
    Taxation Levied on active partners Separate tax obligations
    Financial Reporting No mandatory public disclosure Required to prepare and report

    A CV is ideal for small to medium businesses with controlled operational risks, while businesses with aggressive expansion plans or high risks should consider establishing a PT from the beginning.

    Basic Concepts, Ownership, & CV Structure

    A CV must be established by at least two parties with different roles:

    Active Partner (Complementary)

    • Main operational manager and decision-maker
    • Unlimited liability extending to personal assets
    • Subject to litigation in cases against the CV

    Passive Partner (Limited Partner)

    • A capital provider without operational involvement
    • Liability is limited to the amount of capital invested
    • No decision-making authority

    A CV cannot own assets like land, buildings, or vehicles in its name. All assets must be registered under the active partner’s name, not under the CV’s name. This makes asset management more complicated, especially as the business grows. Problems can also arise during leadership succession planning or when the business will be closed, as all assets legally belong to the active partner personally, not to the CV.

    The CV structure offers management flexibility without formal meetings like a PT, but with greater legal responsibility consequences for the active partner.

    CV Requirements & Legality

    To establish a CV, several documents are required:

    Main Documents

    • Establishment deed from a notary
    • Business Identification Number (NIB)
    • Company Tax ID Number (NPWP)
    • Business license according to the field (if required)

    Legal Risks

    Although the process of establishing a CV is simpler, active partners still have full responsibility for company obligations. In cases of lawsuits or bankruptcy, the personal assets of active partners can become collateral to fulfil company obligations.

    Taxation & Financial Reporting

    Taxation System

    The following is a comparison of the taxation system between CV and PT:

    Taxation Aspect CV PT
    Tax Subject Active partner Business entity
    Tax Type Income Tax Article 21/25 Corporate Income Tax (Article 25/29)
    Tax Rate Progressive (5-35%) Single rate 22%
    Dividends No additional tax Subject to dividend tax
    Tax Planning Less flexible More options

    Learn the complete explanation about CV taxation here.

    Financial Reporting

    A CV is not required to publish financial statements like a public PT. However, regular bookkeeping is still necessary for internal purposes, tax reporting, performance evaluation, and negotiations with business partners or creditors.

    CV Operations & Scalability

    Not all types of businesses are suitable for the CV structure. Business actors should consider the following before deciding to establish a CV.

    Tender Participation & Business Field Limitations

    CVs can participate in tenders, although PTs are often prioritized for large projects. By regulation, there are no business field restrictions for CVs, but certain sectors such as banking, insurance, capital markets, mining, oil and gas, public infrastructure, and telecommunications generally require a PT structure due to public interest considerations and strict regulations.

    Businesses that require large investments, aggressive expansion, or operate in strictly regulated sectors are better suited as PTs because of their more flexible capital structure and limited liability protection for owners.

    CV Dissolution & Closure Risks

    The CV dissolution procedure involves several stages:

    • Creation of a dissolution deed by a notary
    • Settlement of obligations to creditors and third parties
    • Distribution of assets according to ownership proportion
    • Announcement of dissolution in mass media

    Legal Risks in Dissolution

    Active partners remain responsible for unresolved obligations even after the CV has been dissolved. Closure without settling obligations can result in lawsuits, negative impact on reputation, difficulty establishing new businesses, and potential seizure of personal assets.

    Transforming a CV to a PT

    The following conditions indicate the need for transformation to a PT:

    When to Transform

    Indicator Recommendation
    Annual turnover > IDR 4.8 billion Consider transformation
    Number of employees > 20 people Consider transformation
    Need for external investors Highly recommended
    High operational risk Highly recommended
    Expansion to international markets Highly recommended
    Future IPO plans Transformation required

    Transformation Process

    • Creation of a new PT establishment deed by a notary
    • Transfer of assets and liabilities from CV to PT
    • Registration with the Ministry of Law and Human Rights
    • Arrangement of new business licenses in the PT’s name
    • Dissolution of the CV after the transfer process is complete

    A CV can be a strategic starting point before the business develops to a scale that requires legal protection and a stronger capital structure.

    Conclusion

    The decision regarding the form of business entity should consider growth projections, industry risk levels, long-term funding needs, sector regulatory requirements, and succession or exit strategy plans.

    A CV can be the right choice to start, especially for entrepreneurs who are just starting a business with limited capital. As the business grows, the transformation from a CV to a PT can be done strategically to gain access to wider funding, increase credibility, and meet regulatory requirements when entering more regulated sectors. This status change is a natural part of successful business evolution.

    Need Assistance with CV Establishment in Indonesia?

    Establishing a Commanditaire Vennootschap (CV) in Indonesia requires various legal and administrative steps that must be carefully observed. Contact info@lexara.id to discuss your CV establishment needs and get expert guidance tailored to your business goals..