The Legal Validity of Nominee Agreements in Share Ownership: a Comparative Insights from Indonesia and Thailand

Maulana Reyza Alfaris

Abstract


With the majority of industrial and business sectors experiencing rapid development in recent times, Indonesia is transforming into a key and significant player in the global economy. The ongoing challenge is finding a balance between making the country an attractive place for investors to grow their businesses and providing a large-scale flow of foreign investment. Although in principle, Law No. 25 of 2007 concerning Investment (“UUPM”) guarantees equal treatment for every investor in Indonesia, foreign investors are required to comply with all applicable laws and regulations in Indonesia. As a way to accommodate these restrictions, foreign parties usually enter into what is known as a nominee arrangement with Indonesian parties. In practice, the validity and binding power of nominee arrangements are often challenged in relation to their use in circumventing prohibitions under applicable laws and regulations relating to investments, especially when the agreement results in disputes between the parties involved. Normatively, the practice of nominee arrangements is prohibited under the Indonesian Capital Market Law. The purpose of the restriction is to avoid an agreement where a company is formally owned by one party while the benefits are owned by another party. Through this article, the author tries to discuss issues related to the legitimacy of the nominee arrangement practice in relation to investment activities in Indonesia also to do a a comparative analysis of Indonesia's Law on Foreign Investment (UUPM), Law on Limited Liability Companies (UUPT), and the Indonesian Investment Coordinating Board (BKPM) Regulation No. 1 of 2020 with Thailand's Foreign Business Act of 1999 reveals that Thailand imposes more stringent criminal sanctions and regulatory oversight compared to Indonesia. The Indonesian legal framework still presents vulnerabilities for nominee practices.


Keywords


Validity, Nominee Agreement, Investment, Share Ownership.

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DOI: https://doi.org/10.24815/sklj.v8i3.40486

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