30 March 2020 (closed)
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When a PT company or PT PMA company makes profit it will need to decide how to distribute or utilize these profits. The profits can be distributed to shareholders, allocated to certain funds, or used for other purposes. In this column we discuss the mandatory allocation to the reserve fund as set out in the Law no. 40 of 2017 on Limited Liability Company (Company Law). Besides that, we explore the option set out in the Company Law to distribute dividend to shareholders. The General Meeting of Shareholders (GMS) will decide how to allocate the profits to the different funds and whether or not to distribute any profit to the shareholders (dividend).
Mandatory Reserve Fund and Other Funds
The reserve fund is created to cover any future losses of the company. Article 70 of the Company Law regulates the requirement for PT and PT PMA companies to allocate a certain amount of the profits to a reserve fund. This obligation remains in force until the reserve fund reaches at least 20% of the issued and paid up capital. After the company reaches this threshold, it may freely distribute its profits to other funds or purposes.
Besides the mandatory reserve fund, the company can allocate profit to other, non-mandatory reserves. Examples of such reserves are pension funds, distribution of dividend, social purposes, company expansion and others.
Distribution of Dividend to the Shareholders
The GMS can only make a decision on the distribution of divided to the shareholders after consideration of the interests of the company by the shareholders. The GMS may decide whether all or a part of the profit is distributed to the shareholders. It may also decide to distribute parts of the profits to company reserves as explained above. Dividend to shareholders can only be paid out if the company makes profit. If the company has suffered losses in a financial year, it cannot pay out dividend to its shareholders.
This column is provided by PNB Law Firm Jakarta