Read the Indonesian version: Tanggung Jawab Direksi dan Dewan Komisaris
26 August 2026 · Corporate Governance
Liability limits under Indonesia’s Company Law, conflicts of interest, and personal exposure in bankruptcy
⚖ Last verified: 26 August 2026 | Source: Law No. 40 of 2007 on Limited Liability Companies, as most recently amended by Law No. 6 of 2023
By Adhit Prasetyo, S.H., CLA, Prasetyo Law Office
A limited liability company has three corporate organs under Article 1 point 2 of Indonesia’s Company Law: the General Meeting of Shareholders (GMS), the Board of Directors, and the Board of Commissioners. Each corporate organ has its own duties and responsibilities according to its function and capacity.
The GMS is the corporate organ with authority not granted to the Board of Directors or Board of Commissioners within the limits set by the Company Law and/or the articles of association. The Board of Directors is the corporate organ authorised and fully responsible for managing the Company in the Company’s interests, in accordance with its purposes and objectives, and for representing the Company both in and outside court in accordance with the articles of association. The Board of Commissioners is the corporate organ responsible for general and/or specific supervision in accordance with the articles of association and for advising the Board of Directors.
Article 3(1) of Law No. 40 of 2007 on Limited Liability Companies, as most recently amended by Law No. 6 of 2023 (the Company Law), generally limits a shareholder’s liability for the Company’s obligations and losses to the shares held by that shareholder. This protection applies to shareholders in their capacity as shareholders. It does not provide separate immunity to individuals performing the functions of the Board of Directors or Board of Commissioners.
The Company Law permits personal liability on different legal grounds. For shareholders, the exceptions to limited liability are set out in Article 3(2). For members of the Board of Directors and Board of Commissioners, personal liability may arise when fault or negligence in performing their duties is established. In certain circumstances, liability is joint and several and, in bankruptcy matters, may extend to former members who held office within the five years preceding the bankruptcy declaration. A conflict of interest may also remove the authority of the relevant member of the Board of Directors to represent the Company in the circumstances governed by Article 99 of the Company Law.
Comparison of the liability frameworks
| Aspect | Board of Directors | Board of Commissioners |
|---|---|---|
| Principal duty | Management in the Company’s interests, Article 92(1). | Supervision of management policy and the provision of advice, Article 108(1). |
| Standard of conduct | Good faith and full responsibility, Article 97(2). | Good faith, prudence, and responsibility, Article 114(2). |
| Personal liability | Full personal liability where the member is at fault or negligent, Article 97(3). | Personal liability where the member is at fault or negligent, Article 114(3). |
| Joint and several liability | Applies where the Board of Directors has two or more members, Article 97(4). | Applies where the Board of Commissioners has two or more members, Article 114(4). |
| Exemption criteria | Four cumulative matters to prove, Article 97(5). | Three cumulative matters to prove, Article 114(5). |
| Shareholder action | Shareholders representing at least one tenth of all voting shares, Article 97(6). | Shareholders representing at least one tenth of all voting shares, Article 114(6). |
| Bankruptcy | Joint and several liability where the elements of Article 104(2) are satisfied. | Joint and several liability together with the Board of Directors where the elements of Article 115(1) are satisfied. |
| Five-year reach | Article 104(3). | Article 115(2). |
When liability becomes personal
Article 97(3) provides that each member of the Board of Directors is fully and personally liable for the Company’s losses where that member is at fault or negligent in performing their duties. Where the Board of Directors consists of two or more members, Article 97(4) imposes joint and several liability on each member. A corresponding framework applies to the Board of Commissioners under Article 114(3) and Article 114(4), with emphasis on fault or negligence in carrying out supervision and providing advice.
Effect of an allocation of duties: Article 92(5) allows the allocation of duties and authority among members of the Board of Directors to be determined by a GMS resolution, while Article 92(6) leaves that allocation to a resolution of the Board of Directors where the GMS has not determined it. The allocation is operationally important, but it does not automatically remove the joint and several liability established by Article 97(4). The allocation of duties should therefore be supported by appropriate supervision, responses to risk, and documentation reflecting the actual circumstances.
The exemption criteria for Directors and Commissioners are not identical
The Company Law provides criteria under which a member of the Board of Directors is not liable for a loss, but all criteria must be proven. Article 97(5) contains four requirements: (i) the loss was not caused by that member’s fault or negligence; (ii) management was carried out in good faith and with prudence for the Company’s interests and in accordance with its purposes and objectives; (iii) the member had no direct or indirect conflict of interest in the management action that caused the loss; and (iv) the member took action to prevent the loss from arising or continuing.
Article 114(5) contains three requirements for a member of the Board of Commissioners: (i) supervision was carried out in good faith and with prudence for the Company’s interests and in accordance with its purposes and objectives; (ii) the member had no direct or indirect personal interest in the management action of the Board of Directors that caused the loss; and (iii) the member advised the Board of Directors to prevent the loss from arising or continuing.
An important textual distinction: Article 97(5) separately requires proof that the loss was not caused by the fault or negligence of the member of the Board of Directors. Article 114(5) does not contain that separate requirement and instead focuses on the quality of supervision and advice. The Company Law also uses different terms: conflict of interest for the Board of Directors and personal interest for the Board of Commissioners. Because each list is cumulative, every relevant requirement must be proven in a dispute.
For a member of the Board of Commissioners, providing advice is one of the matters to be proven under Article 114(5). Minutes of meetings or other records cannot replace supervision and advice that were actually carried out, but they may help show when a risk was discussed, what advice was given, and what action was requested.
A conflict of interest removes authority to represent the Company
Article 99(1) restricts the authority of a member of the Board of Directors to represent the Company where court proceedings exist between the Company and that member, or where the member has a conflict of interest with the Company. This restriction concerns representative authority in those circumstances. It does not automatically remove all management authority from the Board of Directors.
Article 99(2) establishes the order of persons entitled to represent the Company: another member of the Board of Directors who has no conflict of interest; the Board of Commissioners where every member of the Board of Directors has a conflict of interest; or another party appointed by the GMS where every member of the Board of Directors or Board of Commissioners has a conflict of interest with the Company.
The provision is relevant, among other matters, to transactions involving a party connected or affiliated with a member of the Board of Directors. If a Director’s interest in the counterparty creates a conflict of interest with the Company, execution of the agreement by that Director may raise an issue of representative authority. Article 98(3) states that the authority of the Board of Directors to represent the Company is unrestricted and unconditional, but it recognises restrictions imposed by the Company Law, the articles of association, or a GMS resolution. Article 99 is one such statutory restriction.
Disclosure of share ownership and corporate records
The Company Law regulates disclosure of share ownership by members of the Board of Directors and Board of Commissioners, but the expressly stated consequences are not identical.
- Article 101. A member of the Board of Directors must report to the Company any shares held by that member and/or their family in the Company and in other companies for recording in the special register. Article 101(2) adds that a member who fails to perform this obligation and causes a loss to the Company is personally liable for that loss.
- Article 116. The Board of Commissioners must prepare minutes of its meetings and keep copies, report share ownership by its members and/or their families in the Company and in other companies, and report on the supervisory duties performed during the previous financial year to the GMS.
Article 50(2) requires the Board of Directors to establish and maintain a special register recording share ownership by members of the Board of Directors and Board of Commissioners and their families in the Company and/or other companies, including the acquisition dates. Article 100(1) also places the special register and minutes of meetings of the Board of Directors within the Board’s record-keeping obligations. These records are relevant to identifying potential conflicts of interest. Their absence is a compliance and evidentiary weakness, not merely an administrative deficiency.
Bankruptcy and the five-year reach
The Company Law provides a specific regime where the Company becomes bankrupt. Under Article 104(2), if the bankruptcy results from the fault or negligence of the Board of Directors and the bankruptcy estate is insufficient to pay all of the Company’s obligations, every member of the Board of Directors is jointly and severally liable for the unpaid obligations. Article 115(1) provides that if the bankruptcy results from the fault or negligence of the Board of Commissioners in carrying out supervision and the Company’s assets are insufficient, each member of the Board of Commissioners is jointly and severally liable with the members of the Board of Directors for the unpaid obligations.
Leaving office does not automatically end the exposure: Article 104(3) covers a member of the Board of Directors who was at fault or negligent and held office at any time during the five years preceding the bankruptcy declaration. Article 115(2) contains the same five-year reach for former members of the Board of Commissioners. Article 104(5) extends Article 104(2) to Article 104(4) to the Board of Directors of a Company declared bankrupt on the application of a third party.
Exemption criteria remain available. Article 104(4) requires a member of the Board of Directors to prove, among other matters, that the bankruptcy was not caused by their fault or negligence, management was carried out in good faith and with prudence, there was no conflict of interest, and action was taken to prevent the bankruptcy. Article 115(3) provides a corresponding framework for a member of the Board of Commissioners, focusing on supervision and advice intended to prevent bankruptcy. Article 104(1) also requires GMS approval before the Board of Directors applies for the Company’s own bankruptcy, without prejudice to the bankruptcy legislation.
The Board of Commissioners acts collectively, but liability may attach personally
Article 108(4) provides that a Board of Commissioners consisting of more than one member acts as a council. Individual members may not act separately, but must act on the basis of a resolution of the Board of Commissioners. However, where the elements of Article 114(3) are satisfied, Article 114(4) imposes joint and several liability on every member of the Board of Commissioners.
Supervisory decisions are therefore made collectively, while liability may attach personally and jointly and severally to each member. The obligation under Article 116(a) to prepare and retain minutes of meetings is consequently important for recording the supervisory process, advice, follow-up actions, and any differences of opinion that actually occurred.
Conclusion
Article 3(1) limits the liability of shareholders in their capacity as shareholders. It does not remove the standards of responsibility applicable to members of the Board of Directors and Board of Commissioners. Where fault or negligence is established, liability may be personal and joint and several and, in bankruptcy, may extend to former members who held office during the five years preceding the bankruptcy declaration.
The exemption criteria under Article 97(5), Article 104(4), Article 114(5), and Article 115(3) are cumulative. Documentation cannot replace good faith, prudence, supervision, advice, or preventive action that was actually undertaken. Records created at the time of the relevant action may nevertheless help prove how a decision was made, who held an interest, and what response was implemented.
This article addresses the general framework of the Company Law. The articles of association and capital-market or sectoral regulations may impose additional requirements on particular companies. Application to a specific transaction or dispute must therefore be tested against the facts, the corporate documents, and the applicable sectoral regime.
Prasetyo Law Office
Prasetyo Law Office is a Jakarta-based law firm providing integrated legal services to clients across a range of areas, from commercial transactions to cross-sector litigation. With years of experience, we combine command of the applicable regulations with an understanding of industry dynamics and our clients’ business character. We provide comprehensive legal advice and strategic solutions to help clients minimise legal risk across every business challenge.
Should you require further information on this issue, please contact us:
Prasetyo Law Office
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Jl. Jenderal Sudirman Kav. 52-53, Jakarta Selatan
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Phone: +6221 5890 5002 (ext. 105)
E-mail: info@prasetyolawoffice.com
Principal sources
- Law No. 40 of 2007 on Limited Liability Companies, as most recently amended by Law No. 6 of 2023, particularly Article 3(1), Article 50(2), Article 92, Articles 97 to 101, Article 104, Article 108, and Articles 114 to 116.
- Law No. 6 of 2023 on the Stipulation of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation as Law, together with the compilation of the Company Law provided by the Legal Information Network of the House of Representatives of the Republic of Indonesia (JDIH DPR RI).
Disclaimer: This publication is provided for general information and educational purposes based on laws and materials available as of 26 August 2026. It does not constitute legal advice or a formal legal opinion and should not be used as the sole basis for any particular filing, licensing matter, transaction, or dispute. Indonesian regulations, OSS System functionality, and administrative practices may change. Advice tailored to the facts and verification of current requirements should be obtained before taking action. Receipt or use of this publication does not create a lawyer-client relationship.
