3 April 2020 (closed)
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Based on article 70 of Law number 40 of 2007 on Limited Liability Companies (Company Law), PT companies are required to allocate money to a reserve fund. The Company Law keeps the requirement to allocate money to the reserve fund in place, until the it reaches 20 percent of the issued and paid up capital. In this column we look in more detail to the requirement to allocate money to the reserve fund.
Amount to be Allocated to Reserve Fund
Article 70 of the Company Law states that the PT company must allocate a certain amount to the reserve fund each financial year. There is however no requirement to allocate the full amount of profit in the reserve fund if the 20 percent limit is not reached yet. The foregoing is reinforced by article 71(1) of the Company Law and its elucidation.
Article 71(1) states:
“The utilization of net profits, including the determination of the allocated amount for the reserve fund as provided in Article 70 paragraph (1) must be resolved by the GMS.”
The elucidation states:
“A decision of the GMS as meant in this paragraph must satisfy the interests of the Company and be reasonable. The decision of the GMS can determine the net profit to be used in part or entirely for the distribution of dividends to the shareholders, reserve funds and/or other allocations, such as gratuities (tantieme) paid to the members of the Board of Directors and Board of Commissioners as well as a bonus for employees. Any gratuity (tantieme) or bonus related to the Company’s performance is to be budgeted and calculated as a cost.”
Article 71(1) and its elucidation of the Company Law regulates clearly that the General Meeting of Shareholders (GMS) can determine which amount of the net profit is allocated to the reserve fund. This article gives the GMS the freedom to determine the amount of capital to be distributed to the reserve fund and the amount to be paid out (e.g. through payment of dividend) as long such decision satisfies the interests of the company and can be considered reasonable. In the event GMS has funded reasons to pay dividend before the 20% limit is reached, it is possible to pay dividend to shareholders.
Therefore under certain circumstances the PT company is allowed to distribute dividend to the shareholders, even before the reserve fund reaches 20% of the issued and paid-up capital.
This column is provided by PNB Law Firm Jakarta