LITANI RAHMA SARI

JL. RADEN RONGGO NO.9, KOTAGEDE, YOGYAKARTA, 55172

+62857-4395-7225 litani.rahma.s@gmail.com Piercing The Corporate Veil, A Limit to Limited Liability

Limited Company is one of business entity in civil-partnership. This kind of entity is chosen by many businessman because the diferences from other business entity. The characteristic of this kind of corporate is the separation of assets belonged to the company and to the shareholders. The separation, then raises up limited liability. In Indonesia, limited liability is regulated in Limited Liability Companies Act Number 40 of 2007. Limited Liability Company means a legal entity which constitus an alliance of capital established pursuant to a contract in order to carry business activities with an authorised capital all of which is divided into shares. This kind of company have to fulfill the requirments stipulated in Limited Liability Companies Act and its implementing regulations. It means, that a limited liability company exists as a legal entity only if it fulfill the requirments in the act or if the existance set as a legal entity by law. The capital of the corporate is divided into shares. These shares represent the value of shareholders treasure which has already separated by each shareholders and put into corporates treasure. The purpose of this separation is that the separated property is outside the individuals property. Thus, the property is no longer used as a guarantee of fulfillment of a the shareholders obligations. Besides that, limited liability corporate has several characteristic which are: 1. 2. 3. 4. 5. 6. Has a legal status, namely as legal entity Has its own property and liability Imposes no responsibilitis to the founders or shareholders Its ownership is in the form of shares which can be easily transfered to anyone Has eternal lifetime and the duration of established period cannot be determined The nature of the responsibility is limited, not only to the shareholders but also to the managers (directors).

From those characteristics, can be informed that the aim of limited liability is to shield the personal assets of both shareholders and directors from personal liability for the debts or actions of a corporation. However, theres still a possibility of misuse of power by shareholders or directors that may put the interest and asset of corporation in danger. Therefore, to prevent the agency, fraud, sham, or facade, group enterprises, and unfairness/justice problem, the law provides a concept called piercing the corporate veil. Blacks Law dictionary defines piercing the corporate veil as the judicial act of imposing personal liability on otherwise immune corporate officers, directors, and shareholders for the corporations wrongful act. In Indonesian Act of Limited Liability Companies (Act 40/2007), the piercing of the corporate veil is stated in article 3 paragraph 2. Stated clearly that limited liability of the shareholders do not apply if: a. The requirments for the company to be legal entity have not been or are not fulfilled;

LITANI RAHMA SARI

JL. RADEN RONGGO NO.9, KOTAGEDE, YOGYAKARTA, 55172
+62857-4395-7225 litani.rahma.s@gmail.com b. The shareholder concerned directly or inderectly exploits the company in bad faith in his/her personal interest; c. The shareholder concerned is involved in illegal acts commited by the company; or d. The shareholder concerned directly or inderectly illegally uses the companys assets with the result that the companys assets become insufficient to pay off the companys debts Since the company is an independent legal entity, limited liability corporate is categorized as legal subject. It has its own incumbency, rights and obligations. It can perform legal acts in legal relationships towards others and because of that, it can be sued or sue in court. However, the company needs managers/directors, usualy in a form of Boards of Directors (BOD) supervised by Board of Commissioners (BOC) to represent it since the company is not like human as legal subject who, normally, can say, explain, or do physical actions to perform legal acts. The relationship between BOD and company is interdependence. Company needs BOD as a trusted one to maintenance company. Vice versa, the company is the reason why BOD is exist, without company there is no BOD. That kind of relationship of trust reffered as fiduciary relation which carry out fiduciary duty to BOD. Generally, there are two important things associated with fiduciary duty. First, BOC is a trustee toward the company and it carries out duty of loyality and good faith. Second, BOD is an agent toward company to achieve its pusposes and interests. It carries out duty of care and skill. The essence of that is the BOD have to do all the best action to realize the trusteeship of the shareholders. Meanwhile, there is a principle which also protect the BOD/BOC from allegation of not doing fiduciary duty, so called- business judgment rule. Business jugment rule is a presumption that in making business decision, directors acted on an informed basis, in good faith and in the honest believe that the action was taken in the best interest of the corporation. It can be said that business jugment rule is a standart of conduct, tells what and how the BOD have to act in certain situation in maintaning the company, a reasonable act or series of acts that BOD have to do. The BOD cannot be blamed if theres any looses caused by BODs decision which has already followed Business Judgment Rule. So, it is clear that Business Judment Rule is not applicable toward BOD or member who are by mean and bad faith infriged Fiduciary Duty by doing ultra vires act. When it happen, the piercing of the corporate veil can be applied. In Indonesia, the piercing the corporate veil that can be applied towards directors and commissoners stated in Act 40/2007. Towards Directors, there are nine articles, those are : a. Article 37 paragraph 3, BOD jointly and severally liable for losses suffered ny shareholders in good faith incurred as a result of re-purchase which are void by operation of law as contemplated in article 37 paragraph 2. This article obligate BOD to make sure that the repurchase is done according to law. b. Article 69 paragraph 3, members of BOD and BOC are jointly and severally liable to the parties harmed by inaccurate/misleading financial report provided. c. Article 72 paragraph 6, members of BOD and BOC are jointly and severally liable for the companys losses if the shareholders do not return the interim devidends. This paraghraph obligate BOD and BOD to carry out the prudential principle. 2

LITANI RAHMA SARI

JL. RADEN RONGGO NO.9, KOTAGEDE, YOGYAKARTA, 55172
+62857-4395-7225 litani.rahma.s@gmail.com d. Article 95 paragraph 5, cancelled members of BOD still take liability fot the companys losses caused by his/her act based on bad faith to the company e. Article 97 paragraph 3, each member of BOD is fully personally liable for the companys losses if the directors concerned is at fault or negligent in carrying out his/her duties in managing the company accordace to its puspose and objectives in good faith and full liability. f. Article 101 paragraph 1 and 2, members of BOD shall make reports if there is share owend by his/her self or by any of his/her family member. If theres any losses to the company caused by the unfulfillment of paragraph 1, the member of BOD shal be personally liable. g. Article 104 paragrapf 2, in the event of bankruptcy occures because of the fault or negligence of the BOD and the bankrupt estate is insufficient to pay the whole of the companys liabilities in bankruptcy, each member of BOD shall be jointly and severally liable for the whole of the obligations not paid from the bankrupt estate. h. Article 117 paragraph 2, even it is stated that legal actions done by BOD without BOCs approval and assistance still binding to the company as long as the other party in the legal action is acting in good faith, but still if it caused any losses to the company, the Business Jugment Rule will not give any protection to BOD. i. Article 102 paragraph 4, in analogical interpretation of article 117 paragraph 2 can be applied in article 102 paragraph 4. Even that the legal actions of BOD in assignment of company assets or making security for debt company assets done without GMS approval s still bind the company as long as the other party in the legal action is acting in good faith, the negligence or fault of doing it did not give the BOD protection according to Bussines Jugdment Rule. Towards Commissioners, there are five articles, those are: a. Article 69 paragraph 3, same towards BOD, BOC are jointly and severally liable to the parties harmed by inaccurate/misleading financial report provided. b. Article 72 paragraph 6, since the the allocation of interim dividens is done by BOD with BOCs approval, BOC also jointly and severally liable for the companys losses if the shareholders do not return the interim devidends. c. Article 112 paragraph 4, cancelled members of BOC still take liability fot the companys losses caused by his/her act based on bad faith to the company d. Article 114 paragraph 3, each member of BOD shall share in personal liability for the companys losses if the commisioner concerned is at fault or negligent in performing the task in good faith, prudence, and responsibility in supervising and giving advice to the BOD e. Article 115 paragraph 1, in the event of bankruptcy occures because of the fault or negligence of the BOC in performing its supervision duty and the company being insufficient to pay the whole of the companys liabilities in bankruptcy, each member of BOC shall be jointly and severally liable together wit the BOD for the obligations which have not been not paid off 3

LITANI RAHMA SARI

JL. RADEN RONGGO NO.9, KOTAGEDE, YOGYAKARTA, 55172
+62857-4395-7225 litani.rahma.s@gmail.com However, piercing the corporate veil as a limitation to limited liability only applied when theres a misuse or bad faith done by either shareholders, directors or commisiones. It is no other than to balance the advantage gained by shareholders, directors and commissioner for the shield of their personal assets. Besides that, percing the corporate veil protect all: the shareholders, directors, and commisioners; from misuse of power that might be done by other.

Bibliograph: Dr. Gunawan Widjaja, SH., MH., MM, Essay Pertanggungjawaban Terbatas vs Pertanggungjawaban Tidak Terbatas Dalam Perseroan Terbatas (Piercing the Corporate Veil) dalam UU No.40 Tahun 2007 tentang Perseroan Terbatas. Law of the Republic of Indonesia Number 40 of 2007 concerning Limited Liability Companies Piercing the Corporate Veil http://en.wikipedia.org/wiki/Piercing_the_corporate_veil