Formal vs. Material Validity: Testing the Validity of Capital Injections Through Financial Statements

In current practice, many companies in Indonesia hold the view that, to be recognized as a shareholder, it is sufficient merely to be recorded in the Deed of Establishment or to be registered as a shareholder with the Ministry of Law.

However, observing the provisions of Article 33 Paragraph (2) of Law No. 40 of 2007 on the Limited Liability Company, as amended (“Company Law”), valid proof of capital injection is not the deed, but rather official proof of deposit by the shareholder into the company's bank account, data from financial statements audited by an accountant, or the company's balance sheet signed by the Board of Directors and the Board of Commissioners.

In the event of a dispute where one shareholder challenges a capital injection that was allegedly never executed by another shareholder, the challenging party may utilize evidence in the form of the company's financial statements or the balance sheet signed by the Board of Directors and the Board of Commissioners to prove that the capital contribution was never made. This is because the balance sheet reflects both the Equity section (paid-up capital) and the Asset section (cash). If a claim of capital contribution is not reflected in the company's assets during the relevant period, then in reality, the capital injection never existed. In this context, the balance sheet signed by the Board of Directors and the Board of Commissioners as regulated under Article 66 and Article 67 of the Company Law serves as an official acknowledgment by the corporate organs regarding the status of such capital injection. 

Furthermore, in practice, when a company intends to conduct an Initial Public Offering (IPO), the Financial Services Authority (Otoritas Jasa Keuangan or OJK) requires physical proof of paid-up capital from the prospective IPO company's shareholders, e.g. deposit slip or deposit receipt.

Therefore, the recording of shareholders in a Deed or within the administrative system does not automatically serve as proof that the capital injection has been factually performed. To factually prove a capital injection, one must rely on the financial statements, the company’s balance sheet, and/or valid proof of bank deposit into the company's account.

For further information or consultation, please contact:

Ferry F. Rajagukguk

Partner

rajagukguk@fknk.co.id

Letycia Minerva Pariela

Senior Associate

letycia@fknk.co.id