The definition of the Board of Directors is stated in Article 1 number 5 of Law No. 40 of 2007 concerning Limited Liability Companies (“Company Law”), which essentially states that the Board of Directors is the corporate organ authorized and fully responsible for managing the Company for the benefit of the Company, in accordance with the purpose and objectives of the Company, and representing the Company, both in and out of court in accordance with the provisions of the articles of association.
The definition of the Board of Directors is stated in Article 1 number 5 of Law No. 40 of 2007 concerning Limited Liability Companies (“Company Law“), which essentially states that the Board of Directors is the corporate organ authorized and fully responsible for managing the Company for the benefit of the Company, in accordance with the purpose and objectives of the Company, and representing the Company, both in and out of court in accordance with the provisions of the articles of association.
How can someone become a Member of the Board of Directors?
The appointment of Members of the Board of Directors for the first time is carried out by the founders of the company in the Deed of Establishment, in which the full name, place and date of birth, occupation, residence, nationality of the first appointed Member of the Board of Directors must be stated. However, for the subsequent appointment of Members of the Board of Directors, it is done by the General Meeting of Shareholders (GMS), as stipulated in Article 94 of the Company Law.
Furthermore, in determining whether someone is competent to be appointed as a Member of the Board of Directors, it refers to the provisions in Article 93 of the Company Law which regulate the requirements for someone to be appointed as a Member of the Board of Directors, namely an individual who is capable of performing legal acts, except within 5 years prior to their appointment:
- Declared bankrupt;
- Becomes a member of the Board of Directors/Board of Commissioners who is convicted causing a Company to be declared bankrupt; or
- Sentenced for committing criminal acts that harm the state’s finances and/or are related to the financial sector, including financial institutions, both banking and non-banking, capital markets, and other sectors related to the collection and management of public funds.
In addition to the above conditions, competent technical agencies may establish additional requirements based on legislation and regulations.
Further, in addition to referring to the Company Law, provisions regarding the procedures for the appointment, replacement, dismissal of Board Members, and nomination of Board Members are also regulated within the Company’s Articles of Association.
The replacement of Board Members can occur due to several reasons:
1. Resignation of Borad Members Leading to Vacancy of Position
Regarding the resignation of Board Members, in addition to being regulated in the Company’s Articles of Association, it is also stated in the Explanation of Article 107 letter a which states:
“The procedure for the resignation of Board Members as regulated in the articles of association by submitting a resignation request within a certain period. Upon the expiration of this period, the concerned Board Member ceases to hold office without requiring the approval of the General Meeting of Shareholders (GMS).”
Thus, the Articles of Association must stipulate the duration within which a resignation request of a Board Member must be submitted in order to enable the replacement/appointment of a new Board Member to fill the vacancy.
2. Termination of Board Members by GMS Desicion
Regarding the termination of Board Members by GMS decision, it is regulated in Article 105 paragraph (1) and paragraph (2) of the Company Law, which essentially states that Board Members may be terminated at any time based on a GMS decision stating the reasons, and such termination can only be carried out after the Board Member to be terminated has defended themselves at the GMS. This is further supported by the opinion of M. Yahya Harahap in his book “Perseroan Terbatas,” which states that the termination of Board Members must state or be accompanied by reasons and provide an opportunity to defend oneself, which must be done at an Extraordinary General Meeting of Shareholders (EGMS) and cannot be combined with the annual GMS.
Providing the opportunity to defend oneself is imperative and legally mandatory.If the termination is groundless and/or the Board Member is not given the opportunity to defend themselves at the GMS, then the GMS decision regarding the termination of the Board Member is invalid as it contradicts the legislation and is legally null and void, thus legal action such as filing a Lawsuit for Unlawful Act can be taken to the District Court.
3. Termination of Board Members Outside GMS Decision
Regarding the termination of Board Members outside GMS decision, there is a provision in Article 105 paragraph (3) of the Company Law, which essentially states that termination of Board Members done outside the GMS decision must comply with the provisions as stated in Article 91, which states:
“Shareholders may make decisions outside the GMS provided that all shareholders with voting rights agree in writing by signing the relevant proposal.”
Additionally, before the termination is executed, the Board Member must be informed in advance about the termination plan and be given the opportunity to defend themselves before the termination decision is made.
4. Temporary Suspension of Board Members by the Board of Commissioners
Regarding the temporary suspension of Board Members by the Board of Commissioners, it is regulated in Article 106 of the Company Law, where such suspension can be done by stating the reasons and notifying the suspended Board Member in writing.
During this temporary suspension, the Board Member is not authorized to manage the Company’s affairs for the benefit of the Company and represent the Company both in and out of court.Subsequently, within a maximum period of 30 days after the date of the temporary notification, a GMS must be held. In this GMS, the suspended Board Member is given the opportunity to defend themselves, and thereafter, the GMS makes a decision to revoke or uphold the temporary suspension.
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