Shares Purchase Agreement (SPA) Under Indonesian Law

A Shares Purchase Agreement (SPA) under Indonesian Law is more than just a formal contract — it is the legal heartbeat of any share acquisition transaction. Whether you are buying or selling shares in a private limited company (PT) or foreign investment company (PT PMA), the SPA governs the entire deal, from negotiation to execution.

In today’s fast-paced business climate, share transactions occur across borders and cultures. That’s why understanding the Indonesian legal framework and how it governs SPAs is crucial. For businesses, investors, and entrepreneurs, an SPA is the safeguard that ensures your rights are respected and obligations are met.

Key Takeaways

• A Shares Purchase Agreement (SPA) is a vital legal document in share transactions in Indonesia.
• Indonesian law requires clear documentation and regulatory compliance for SPA validity.
• Due diligence, tax planning, and regulatory approvals are crucial in SPA transactions.
• Foreign investors must consider PT PMA structure and investment restrictions.
• Kusuma & Partners provides expert legal support in structuring and negotiating SPAs.

Legal Framework Governing Shares Purchase Agreement (SPA) in Indonesia

The SPA must comply with Indonesia’s legal system. Key regulations include:

• Indonesian Civil Code (Kitab Undang-Undang Hukum Perdata)
• Company Law No. 40 of 2007
• Capital Market Law (for listed companies)
• OJK Regulations (for publicly listed companies)
• BKPM Regulations (for foreign investors)
• Income Tax Law

Each of these laws directly shapes, structures, executes, and enforces an SPA in Indonesia.

Why a Written Shares Purchase Agreement is Critical

In Indonesia, a verbal agreement is rarely enforceable in complex transactions. A written Shares Purchase Agreement (SPA) provides:

• Legal certainty for both parties.
• Evidentiary support in case of disputes.
• Clear obligations, rights, and representations.

It is also essential when dealing with regulatory bodies like the BKPM or OJK who may request documentation post-closing.

READ MORE:

• How to Conduct a Corporate Legal Audit in Indonesia

Key Parties Involved in Shares Purchase Agreement

Every SPA transaction typically involves:

• Seller: The party transferring the shares.
• Buyer: The party acquiring the shares.
• Company: The subject of the sale; whose shares are transferred.
• Third parties: e.g., legal consultants, tax consultants, notaries, BKPM, or existing shareholders.

Each party should clearly define their role and obligations to avoid future misunderstandings.

Key Clauses in a Typical Shares Purchase Agreement

A strong Shares Purchase Agreement contains legally enforceable provisions including:

1. Representations and Warranties

These ensure the seller provides accurate disclosures about the company. If false, the seller may have to compensate the buyer.

2. Purchase Price and Payment Terms

How much will be paid? Lump sum or installment? What currency? This section sets financial clarity.

3. Conditions Precedent

The parties must meet conditions before closing, such as obtaining regulatory approvals or ensuring no material adverse change occurs.

4. Closing and Post-Closing Obligations

The parties define when they transfer the shares and what obligations follow, such as board changes and notifications to the MoLHR.

5. Indemnity and Termination

Protects the buyer from financial loss due to breach and explains under what conditions the agreement may be terminated.

Due Diligence Process Prior to Signing Shares Purchase Agreement

Before any Shares Purchase Agreement is signed, the buyer should conduct thorough due diligence. This may include:

• Legal due diligence (checking licenses, permits, litigation).
• Financial due diligence (analyzing debts, receivables, taxes).
• Tax and commercial reviews.

Skipping this step can result in costly surprises post-transaction.

Regulatory Approvals and Licensing Requirements

Not all Shares Purchase Agreement can be executed freely. Regulatory oversight includes:

• BKPM: Approval for foreign shareholding changes.
• OJK: For listed companies and financial service providers.
• KPPU: For transactions potentially affecting market competition.
• MoLHR: Share transfer reporting.

Shares Purchase Agreement effectiveness may depend on these approvals.

Foreign Investment Considerations

Foreign investors must be aware of:

• PT PMA structure required under BKPM rules.
• Positive Investment List: Limits on foreign shareholding.
• Nominee arrangements, which are illegal and not enforceable.

Shares Purchase Agreement (SPA) under Indonesian Law must align with these investment restrictions.

Tax Implications in Shares Purchase Transactions

Taxes can impact your transaction cost significantly:

• Final Income Tax (PPh) on share sale proceeds (typically 0.1%–2.5% depending on the deal structure).
• VAT if assets are transferred instead of shares.
• Stamp Duty on Shares Purchase Agreement documents.

Tax structuring and advice are crucial — we recommend engaging professionals early.

Signing vs. Closing: What’s the Difference?

Many confuse signing with closing. In Indonesian practice:

• Signing: Shares Purchase Agreement is executed but not yet effective.
• Closing: After all condition precedents are fulfilled, share transfer and payment occur.

Separating the two allows for proper sequencing of approvals, compliance, and documentation.

READ MORE:

• Profit Repatriation for Foreign Investors in Indonesia

Common Legal Risks and How to Mitigate Them

Risks include:

• Undisclosed liabilities.
• Regulatory non-compliance.
• Fraudulent misrepresentations.

Mitigations:

• Well-crafted representations and warranties.
• Robust indemnity clauses.
• Professional due diligence.

An experienced legal team is your best defense.

Governing Law and Dispute Resolution

Your Shares Purchase Agreement must specify the governing law (usually Indonesian Law) and preferred forum:

• Arbitration (e.g., BANI, SIAC) – Confidential, enforceable.
• Litigation – Via Indonesian courts, if agreed.

In cross-border deals, arbitration is often preferred due to enforceability under the New York Convention.

Practical Commentary from Kusuma & Partners

Most failed share deals we’ve encountered stem from either poor due diligence or rushed documentation. At Kusuma & Partners, we prioritize pre-transaction preparation and tailor each Shares Purchase Agreement with precision. We’ve successfully guided multinational and local investors through complex Shares Purchase Agreement negotiations, ensuring both compliance and strategic advantage.

Conclusion

A well-drafted Shares Purchase Agreement (SPA) under Indonesian Law is not just a formality — it’s a legal shield. It protects your investment, provides clarity, and ensures compliance with local regulations. Whether you’re a buyer or seller, partnering with legal professionals is critical to navigating Indonesia’s unique corporate landscape.

How We Can Help

Looking to secure your next share acquisition transaction? Our expertise in drafting and negotiating Shares Purchase Agreement ensures your transaction is smooth, compliant, and successful.

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“DISCLAIMER: This content is intended for general informational purposes only and should not be treated as legal advice. For professional advice, please consult with us.”