Thursday, October 30, 2008

Shares and Transferability under The New Company Law

A. Introduction

One of the more important concepts ever invented in corporate law is the share, how the corporation through ages of development has been going through constant development, how corporations nowadays has not only been seen as an organization of people/entities having the same goal to achieve profit, but also as an entity whose organization and operation has surpassed the limitation of national borders, has become bigger in size and power also due to the development of the concept of the investing in all kinds of form. In this light shares has contributed to the rise to power of corporations as a big organization of capital, spreading its hands and wings globally through production and consumption.


As one out of other important concepts which laid the basis of modern corporate law, the notion of shares, transferability, the rights and obligation attaching to it has been heavily regulated in many if not all countries in the world. This article will discuss mainly the importance of complying with those regulations particularly in the Jurisdiction of The Republic of Indonesia with her prevailing Company Law No. 40 year 2007 (hereinafter will be “The Company Law”) regulating the transferability of shares in company (in this article the discussion will only be done in the context of the private company as opposed to the public company), what is the mechanism regulated by the Company Law and/or other regulations of the Republic of Indonesia governing the transferability of shares.


Therefore to obtain a better understanding of the provisions regulating the transferability of the shares of the company one must first delve into the provisions of The New Company Law, in which it is to be bourne in mind that one of its main concepts is the protection of shareholders particularly the protection of minority shareholders.


B. Transfer of Shares under the Civil Law


First of all shares are something which we can describe as a movable good according to Article 511 (4) of the Burgerlijk Wetboek voor IndonesiĆ« (Kitab Undang-undang Hukum Perdata) or the Indonesian Civil Code (hereinafter will be “BW”), however with some limitations in which that the shares will be considered to be movable goods as long as the company still exist, thus this implies whenever the company has been declared bankrupt and/or the process of liquidation has been completed on that date, the title of shares as a movable good and the property rights attaching to it will cease to exist accordingly as well as the ‘erga omnes’ principle of property rights. The description of shares as movable goods can also be found in Article 60 of the New Company Law.


Furthermore as a requirement for the transfer of the shares to be valid, it must comply with the provisions of Article 613 BW in which every abstract goods (in this case included is the share) has to be executed by making an authentic or an unauthentic deed, stating the transfer of rights from the owner to the buyer of the goods. In this case it is clear that a Share Purchase Agreement itself does not accommodate the transfer of rights to the buyer of a share unless a deed of transfer of rights has been executed, therefore the choice is either the inclusion of a provision giving effect to the Transfer of Rights of the shares included in the Share Purchase Agreement bearing the wording that the right of the shares were transferred to the buyer "in feitelijke toestand" or the deed of transfer is to be signed in a separate agreement with the Share Purchase Agreement to transfer the rights of the goods (we recognize this deed under Indonesian Law as an Acte van Transfer).


B. Transfer of Shares under The Company Law


As what has been mentioned before the provision of shares as a movable good is also regulated inside The Company Law. And subsequently as a Lex Specialis to the BW regulating Indonesian Companies, The New Company Law also requires the execution of a deed of transfer of rights of the shares in order for a transfer of shares to be valid (Article 56 of The Company Law), this is as what has been discussed in part A above to be differentiated from the concept of the Share Purchase Agreement (hereinafter will be “SPA”) itself, and therefore the signing of an SPA without an inclusion of a transfer of the rights of the shares to the buyer or an execution of a separate transfer of rights deed will not cause the rights and ownership to be transferred to the buyer. We can in this light therefore for the practical solution of the share purchase include together both the Obligatoire Overeenkomst (the agreement binding both parties only to the extent that both parties are obliged to satisfy each of their obligation and receives their rights towards the other) and the Zakelijke Overeenkomst (the actual agreement concluding an actual transfer of the rights to the good/object of the agreement) into one agreement. The importance of this matter is to be taken into account to avoid any invalidation of the transfer of the shares.


As soon as the deed of the transfer of rights has been concluded, the director of the company will take notes of such transfer of ownership of shares and enter the new shareholders name in the list of shareholders and/or in the special list (the list maintained by the company containing the list of share ownership by the Directors or Commissioners of the Company). Accordingly the Director is obliged to submit the alteration of the list of shareholders and/or the special list to the Minister of Law and Human Rights inside the time frame required by law.


C. The Provision of the Transfer of Shares in the Article of Association


The Company Law gave the choice to drafters/shareholders/founders of the company’s Article of Association (hereinafter will be “AOA”) to have more freedom in drawing up the rules of play for the company i.e the company’s Article of Association, including concerning the provision of the transferability of the shares.


The Company Law gave options to drafters of the company’s Article of Association to choose between three provisions to be included inside the Article of Association governing the transferability of the company’s shares as the following:


  1. the requirement to offer the shares to the current shareholders of the company with certain classification or other shareholders of the company;
  2. the requirement to obtain approval of the transfer of the shares from Organs of the Company (included inside is the General Meeting of Shareholders, Commissioners, and Directors of the Company);
  3. the requirement to obtain previous approval from the relevant authorities according to the relevant prevailing regulations.


Due to the practical and useful character of the transfer provisions regulated in The Company Law we can find these Articles regulating the transfer of shares inside most company’s Articles of Association, nonetheless it is usually varied from one Article of Association of a company to another, nonetheless with the inclusion of the wording "can be regulated" in Article 57 of The New Company Law shows possibilities of the non regulation of the transfer of shares inside the Article of Association.


Other matters to be given attention and to be checked by the buyer regarding the transfer of shares:


1. whether existed a shareholder agreement between the shareholders of the company which limits the transferability of the shares.

2. that if the transfer of the rights of the shares are as a result of a transfer of rights by law ( inheritance, mergers, acquisition and consolidation), then those provision regulated under article 57 of The New Company Law although regulated inside the company’s Articles of Association will have no effect and therefore need not to be satisfied.


To be noted that an act to satisfy the pre-emptive rights regulated in the AOA is only to be done once, and once it is completed and no shareholder reacted to such offer the target shares can be transferred to another party..


D. Transfer of Shares and Approval of the Organs of Company


Transfer of shares can be done to third party by a shareholder, as soon as the following requirements has been satisfied:


1. In the case that a provision of pre-emptive rights has been included in the AOA, a time frame of 30 days has passed without a single shareholder reacting to such offer and/or accepts the offer to buy the shares.

2. In the case that that a provision regulation the requirement to obtain an approval of the company’s organs has been included in the AOA, then after the passing of a 90 days time frame given by law for the Organs of the Company to approve the transaction.


E. Conclusion


Considering the importance of these provision and articles, a buyer of a share of a company must always, check any and every company documents, minutes of meeting, AOA and its alteration, shareholder agreements (if any), in order to be aware whether there is limitations to be satisfied before concluding a transfer of shares to avoid the invalidation of the transaction between the buyer and the seller of a company’s shares.


The possibility of the nonexistence of transfer limitations of shares provisions regulated in the AOA is not many, commonly nowadays the AOA's of Indonesian companies include one or more of these limitations. Therefore ensure and in order to avoid negative impacts diligent research has to be done, and at the least obtaining an approval of the General Meeting of Shareholders of the Company.

3 comments:

ney said...

masukin isu-isu company law yang ada sekarang...
atau analisa company law sekarang..hehee

biar hidup hehehe

Unknown said...
This comment has been removed by the author.
Unknown said...

kebetulan artikel tentang transfer saham ini memang ada referensi ke UUPT yang baru juga sih Nen :). Tapi saran ditampung, gue juga akan masukin pembahasan kasus-kasus saat ini yang terkait dengan UUPT baru.