Author | Saphira Wu Yinchen Liu
When entering the Indonesian market, nominee shareholding is often one of the first structural arrangements that foreign investors consider. In practice, some foreign investors — whether seeking to circumvent foreign ownership restrictions, streamline regulatory approvals, facilitate commercial partnerships, or improve transactional efficiency — opt to have local individuals or entities hold shares on their behalf, while retaining effective control over the company and its economic benefits through a web of contractual arrangements. Drawing on Indonesia’s current legal framework and two representative court decisions, this article examines three key questions:
l Whether Indonesian law permits nominee shareholding;
l How Indonesian law defines and identifies nominee arrangements;
l What legal risks and consequences such arrangements may entail.
1. Does Indonesian Law Permit Nominee Shareholding?
Where investment is made through a limited liability company — particularly where foreign ownership restrictions, shareholding caps, or the holding of shares in another person’s name are involved — Indonesian law has constructed a systematic regulatory framework governing nominee arrangements across multiple dimensions, including corporate governance and investment supervision. Taken together, these provisions reflect a clear prohibitive stance.
Indonesia’s Law No. 40 of 2007 on Limited Liability Company (the “Company Law”) does not expressly use the term “nominee arrangement,” but its registered shareholding and shareholder register regime makes it exceedingly difficult for undisclosed shareholders to assert rights against the company or third parties. Specifically, Article 48 requires that shares be issued in the name of their owner; Article 50 requires the board of directors to prepare and maintain a register of shareholders recording each shareholder’s name, address, number of shares held, and date of acquisition; and Article 51 further provides that shareholders are entitled to receive proof of share ownership. While the Company Law does not explicitly define or comprehensively prohibit nominee arrangements, its institutional architecture — centered on registered issuance, the shareholder register, and proof of ownership — means that an unregistered beneficial owner will generally be unable to assert shareholder rights directly against the company or to prevail against third parties.
In contrast to the Company Law’s indirect approach, Indonesia’s Law No. 25 of 2007 on Investment (the “Investment Law”) imposes a far more direct prohibition. Article 33(1) expressly provides that neither domestic nor foreign investors may, when investing through a limited liability company, enter into any agreement or statement confirming that shares are held for, or in the name of, another party. Article 33(2) goes further, stipulating that any such agreement or statement is null and void by operation of law. The official elucidation accompanying the Investment Law makes the legislative intent unmistakable: the provision is designed to prevent situations in which “a company is formally owned by a particular person but is materially or substantially owned by another person..”
Beyond the prohibitions targeting nominee arrangements themselves, Indonesia’s general contract law rules also operate to deny legal effect to such arrangements on the basis of their underlying cause or purpose. Article 1320 of the Indonesian Civil Code lists a “lawful cause” as an essential requirement for the formation and validity of a contract, while Articles 1335 and 1337 further provide that a contract with no cause, a false cause, or a cause prohibited by law shall have no legal effect. In practice, where a nominee arrangement is designed to circumvent foreign ownership restrictions, evade shareholding caps, or sidestep other mandatory regulatory requirements, the underlying agreements face a significant risk of being declared void on the ground that their cause is unlawful.
2. How Does Indonesian Law Identify Nominee Arrangements?
Indonesian law adopts a substance-over-form approach to identifying nominee shareholding arrangements. Under Indonesian law, whether a particular arrangement constitutes a nominee arrangement does not depend on whether the parties have signed a document expressly titled “nominee agreement.” Instead, the inquiry focuses on the overall effect of the arrangement — specifically, whether the party recorded in the shareholder register is merely a nominal holder, while another party is the one who actually provides the capital, receives the economic benefits, and exercises effective control over the company. To take a common example: where an Indonesian citizen or local entity is registered as the shareholder of record, but an undisclosed foreign investor obtains the substantive benefits of corporate control and economic returns through a suite of contractual arrangements, the structure is highly likely to be characterized as a nominee arrangement.
The significance of this substance-based inquiry lies in its capacity to prevent investors from replicating the control effects of a nominee agreement through a series of ostensibly independent contracts, thereby circumventing Indonesia’s prohibition on nominee shareholding.
In practice, many investors do not sign a single, explicit nominee agreement with their nominee, nor do they require the nominee to execute any document expressly acknowledging that shares are held on behalf of another party. Instead, investors typically enter into an entire suite of interlocking agreements with the nominee. On their face, each agreement serves a distinct and independently legitimate commercial purpose, and none is necessarily unlawful when viewed in isolation. When the suite is examined as a whole, however, the individual agreements function in concert to construct a simulated control framework over the company’s equity.
Such a suite of agreements — none of which is labeled a “nominee agreement” — may appear to circumvent Indonesia’s restrictions on nominee shareholding with considerable sophistication. Yet under the substance-over-form principle, as long as the aggregate effect of the contractual suite reveals that the registered shareholder is merely a figurehead while another party is the true source of capital, the true beneficiary, and the party exercising real control over the company, the entire arrangement may be characterized as a nominee structure. Specifically, under Article 33 of the Investment Law, such agreements may be deemed agreements that “confirm that shares are held for another party” and may therefore be declared null and void. Meanwhile, Article 1320 of the Civil Code has a broader scope of application: regardless of the form or title of the agreements, if their purpose is to circumvent mandatory legal provisions, they constitute agreements void for having an unlawful cause.
Indonesian law thus evaluates nominee arrangements on the basis of substance rather than form. The decisive question is not whether the parties have signed a nominee agreement, nor whether any document expressly states that shares are held on behalf of another. Rather, the question is whether the ultimate effect of the arrangement produces a separation between the nominal shareholder and the beneficial owner — that is, whether the party recorded in the shareholder register is a different person from the one who actually provides the funding, bears the risks, controls corporate decision-making, and enjoys the economic returns. Once a nominee arrangement is found to exist, the underlying agreements are treated as unlawful and face the consequence of being declared void.
3. What Legal Risks and Consequences May Nominee Arrangements Give Rise To?
As discussed above, nominee shareholding arrangements under Indonesian law result in the nullity of the underlying agreements. “Nullity,” however, is an abstract legal consequence. From a practical standpoint, what concrete effects does a finding of nullity have on investors? The answer depends on the specific circumstances of the company's operations and the investor’s conduct.
Although Indonesian law expressly prohibits nominee arrangements, the very comprehensiveness of that prohibition has, paradoxically, driven such arrangements further underground. At the enforcement level, nominee structures are often difficult to detect, and the government cannot audit every company on a case-by-case basis. In practical terms, this means that the risks associated with nominee arrangements do not necessarily materialize at the company formation or day-to-day operational stage. Instead, nominee structures tend to be exposed at critical junctures — share sales, restructurings, financing rounds, or investment exits. Once a dispute enters litigation or a transaction undergoes intensive due diligence, the nominee arrangement, which had been sustained entirely by private agreements, can rapidly unravel, destabilizing the entire transaction and inflicting both financial and temporal losses on all parties involved. The two judicial decisions discussed below illustrate, from the perspectives of an external share sale and an internal equity restructuring respectively, the concrete consequences that nominee arrangements can produce in practice.
(1). Nominee Arrangement Leading to the Rescission of a Share Sale
The decision of the Jakarta High Court in Case No. 375/PDT/2018/PT DKI provides a vivid illustration of how nominee arrangements can unravel in the context of an external share sale.
In that case, a Saudi Arabian national served as the nominal shareholder of a BVI company, while the actual investors were five other Saudi Arabian nationals. Acting on the instructions of the actual investors, the nominal shareholder entered into a share purchase agreement with an Indonesian buyer for the sale of the BVI company’s shares, at a price in the tens of millions of US dollars. Upon completion of the transaction, the buyer paid the full purchase price directly to the five actual investors.
The nominal shareholder, however — despite being the signatory to the agreement — received none of the proceeds, yet was issued a tax notice requiring payment of tax obligations arising from the share transaction. The nominal shareholder then brought suit against the buyer, arguing that although he was the contracting party to the share purchase agreement, the existence of the nominee arrangement meant that he had received no economic benefit whatsoever from the transaction, creating a fundamental disconnect between the legal form and economic substance of the deal. On that basis, the nominal shareholder sought rescission of the share purchase agreement.
The court held that nominee agreements are absolutely void under Indonesian law, and that the nominal shareholder was therefore the sole lawful party to the transaction. The buyer’s payment of the purchase price to the actual investors rather than to the nominal shareholder constituted a legal “material error”, on the basis of which the share purchase agreement was rescinded.
This case demonstrates the cascading collapse that nominee arrangements can trigger in the context of share transactions. Because the nominee arrangement was held to be void, the buyer’s choice of payee was deemed a “material error,” and the entire share sale was unwound. The buyer subsequently filed a counterclaim seeking restitution of the purchase price from the nominal shareholder, but the court dismissed it on the ground that the claim had been directed at the wrong party — leaving the buyer with neither the shares nor the money. The actual investors behind the nominal shareholder likewise lost effective control over the equity and faced the prospect of recovery actions by the buyer. In the end, in a transaction valued in the tens of millions of dollars, there were no winners.
(2). Nominee Arrangement Leading to the Loss of Legal Protection for an Internal Equity Control Structure
If the foregoing case illustrates the destructive potential of nominee arrangements in external transactions, the Indonesian Supreme Court’s decision in Case No. 3041 K/Pdt/2020 reveals an equally serious problem: even where shares are transferred between different nominees controlled by the same actual investor — as in an internal restructuring — nominee arrangements can pose a fundamental risk to the entire transaction and strip the investor’s corporate control structure of legal protection.
The dispute in this case centered on the ownership of company shares and a series of share transfers, shareholder resolutions, notarial instruments, and amendments to company records. The plaintiff was originally registered as the holder of shares representing 90% of the company’s equity, but those shares were subsequently transferred to the defendants through a series of share purchase documents. Based on the court’s judgment and publicly available academic commentary, the defendants included not only the transferee shareholders in form but also the actual investor behind them — and the transferee shareholders themselves were described as another set of nominees used by that same actual investor. In other words, the case laid bare a dispute over control arrangements between a single actual investor and his various nominees.
The plaintiff alleged that his signatures on the share purchase agreements and related corporate documents — which purported to transfer the shares to the actual investor’s other nominees — had been forged. He therefore sought an order rescinding the share purchase agreements and related documents and registrations, and a declaration that he remained the lawful holder of 90% of the company’s shares. The defendants, for their part, contended that the shares had never been beneficially owned by the plaintiff but were instead subject to a nominee arrangement. In their counterclaim, they asked the court to confirm the validity of the nominee arrangement documents and the legality of the share purchase instruments.
The court ultimately did not engage in a comprehensive analysis of the validity of the nominee arrangement. Instead, it focused its reasoning on the evidentiary record. The Supreme Court upheld the lower court’s judgment, holding that the plaintiff had failed to prove that the signatures on the relevant documents were forged, and that no final criminal judgment had been entered establishing the occurrence of document forgery. The plaintiff’s claims for rescission of the share transactions and related corporate documents were accordingly dismissed. Critically, however, the court equally declined to grant the defendants’ counterclaim seeking a declaration that the nominee arrangement documents were valid — the court’s ultimate judgment rested solely on its assessment of the weight of the evidence.
On the surface, the actual investor behind the defendants succeeded in preserving the share transfers and appeared to emerge relatively unscathed. This does not mean, however, that the court affirmatively endorsed the nominee structure itself. To the contrary, the court declined to rescind the share transactions and related corporate documents not because it recognized the validity of the nominee arrangement, but solely because the plaintiff failed to prove that the signatures in question were forged. At the same time, the court equally refused to affirm the validity of the nominee arrangement documents asserted in the defendants’ counterclaim. The implication is clear: even where an actual investor manages to preserve the status quo in a particular case, the underlying nominee structure on which the entire arrangement depends remains subject to significant legal uncertainty.
This case reveals a fundamental pattern: when an investment arrangement is built on a nominee structure, the outcome of any ensuing litigation is unlikely to turn on who is commercially regarded as the “actual investor.” Instead, it will turn on who can marshal sufficiently compelling evidence regarding the corporate registration records, the authenticity of signatures, and the integrity of the documentary chain. For actual investors, this means that once a nominee relationship is disputed, the control structure they had maintained through private arrangements is highly likely to devolve into a high-stakes evidentiary battle.
Conclusion
In summary, Indonesian law adopts an unequivocal prohibitive stance toward nominee shareholding arrangements, drawing on multiple layers of legal authority. The Investment Law directly targets and prohibits nominee arrangements themselves. The Company Law, by establishing the principle that shares are registered in the name of the shareholder, eliminates at the corporate law level any space for a separation between the nominal holder and the beneficial owner. The Civil Code, operating from the foundational requirements of contractual validity, renders void any agreement whose purpose is to circumvent mandatory legal provisions. As to the standard of identification, Indonesian law applies a substance-over-form test: regardless of whether the parties have signed a document titled “nominee agreement,” if the aggregate effect of a suite of contractual arrangements produces a separation between the nominal shareholder and the beneficial owner, the arrangement may be characterized as a nominee structure and declared void. From a practical standpoint, the risks inherent in nominee arrangements do not typically surface at the company formation or day-to-day operational stage; rather, they tend to crystallize at critical junctures such as share sales and internal restructurings. Once a dispute reaches litigation, the control structure that had been sustained by private agreements can rapidly disintegrate, inflicting irrecoverable losses on all parties to the transaction. The Indonesian courts’ case law has made the point abundantly clear: within the Indonesian legal framework, the foundations of nominee shareholding are, and remain, inherently fragile.
Note: This article represents only the views of the authors and is intended for informational and educational purposes only. It does not constitute formal legal opinions or advice of GENLaw. Readers shall not rely on the contents of this article as a basis for any decision or course of action.
Sources:
Law No. 40 of 2007 on Limited Liability Companies (Republic of Indonesia).
Law No. 25 of 2007 on Investment (Republic of Indonesia).
Indonesian Civil Code (Burgerlijk Wetboek / Kitab Undang-undang Hukum Perdata).
Indonesia Legal Hub, “Are Nominee Arrangement Allowed in Indonesia?”, 28 November 2025, https://indonesialegalhub.id/2025/11/28/are-nominee-arrangement-allowed-in-indonesia/
Viola Audy & Amad Sudiro, “Legal Implications of Nominee Schemes in Foreign Ownership of Limited Liability Companies in Indonesia”, De Lega Lata: Jurnal Ilmu Hukum, Vol. 11, No. 1 (2026), pp. 9–18.
Maria Brigita Djunaedi, Perlindungan Hukum terhadap Investor Asing dalam Perjanjian Pemilikan Saham Pinjam Nama (Nominee Arrangement) Perseroan Terbatas, S1 thesis, Universitas Atma Jaya Yogyakarta, 2019.
Jakarta High Court Decision No. 375/PDT/2018/PT DKI (Putusan Pengadilan Tinggi DKI Jakarta Nomor 375/PDT/2018/PT DKI).
Supreme Court of the Republic of Indonesia Decision No. 3041 K/Pdt/2020 (Putusan Mahkamah Agung Republik Indonesia Nomor 3041 K/Pdt/2020).
Siska Nadia, “The Validity of Sale and Purchase of Shares in Relation to Nominee Share Ownership (A Case Study of Decision Number 3041K/PDT/2020 and 765PK/PDT/2020)”, Jurnal Bina Mulia Hukum, Vol. 8, No. 2 (2024), pp. 227–240.
